Connecting the Dots
Episode 114 - The Rebalancing
Welcome to the new subscribers that have joined us over the last week. The aim of this newsletter is to help you navigate the world of crypto. There’s an incredible amount of information out there so we try to distil it into the things you MUST know each week, covering both macro and crypto.
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Onto the newsletter. Here’s what you’re getting this week:
Macro Update: Our latest view on the macro and its impact on crypto markets.
Crypto Native News: Binance receives $2bn investment from Abu Dhabi investment firm, Ripple received approval from Dubai Financial Services Authority, VanEck files for an AVAX ETF.
Institutional Corner: BlackRock now holds over 567,000 BTC, BBVA receives approval in Spain to offer crypto services, total market cap of tokenised treasuries reaches a record high.
Charts of the Week: Number of trading pairs on US exchanges has slowly increased, Altcoin realises vol rose in March, CEX and CME open interest back to pre-election levels.
Top Jobs in Crypto: Featuring Crypto.com, Nonco, Near Foundation, Binance, CoinDesk
Macro Update
This is where we connect the dots between macro and crypto.
The Rebalancing
Risk markets continued to trade heavy last week with major US indices notching a 4th week of negative returns. Growth and trade policy uncertainty continues to weigh alongside the risk deleveraging which we described in the previous episode of Connecting the Dots. Indeed, according to Goldman’s, hedge funds sold stocks at the fastest pace in 4 years on the 7th and 10th of March 📉
We suggested Bitcoin wanted another flush to 78k and we got a flush to lows around $76,500 before recovering throughout the tail end of the week, supported by a more positive data pulse.
Inflation was the data highlight and brought some relief to the risk negative “stagflation” narrative that has been plaguing markets. Core CPI was softer than expected in February, at 3.1% YoY, down from 3.3% and the lowest level since April 2021. Headline CPI also fell to 2.8%, down from 3% and weaker than the 2.9% forecast. Shelter inflation (which is the largest and most lagging contributor to CPI) at 4.24% was the lowest since Dec 2021 and CPI ex-shelter is now running at an annualised rate of 2%. Whilst tariffs make for a more uncertain outlook, it appears that the recent stronger inflation prints were more linked to seasonality and there are signs in this report that the disinflationary trend remains intact.
PPI certainly added further support to our disinflationary view, with headline prices unchanged from Jan, whilst core prices declined for the first time since July, against expectations for a 0.3% increase for both. Not sufficient to draw the Fed into a cut this week, but calming at least the overblown fears of a resurgence in inflation.
Meanwhile, global stimulus expectations continue to rise with the incoming German coalition government and the Greens agreeing to a EUR 500bn infrastructure fund and loosening of the “debt brake” to increase defence spending. China has also unveiled a “special action plan” to boost domestic consumption and reverse deflationary pressures, with measures to boost incomes, establish a childcare subsidy system and expand a “cash for clunkers” programme to trade in old goods like cars and electronics. Details remain sparse but there’s a greater determination to tackle China’s consumption problem, boost demand and hit the ambitious 5% growth target.
For global M2 that’s already breaking higher, these increased fiscal measures are set to accelerate that growth and help lead Bitcoin higher.
With signs that the “mechanical” risk deleveraging has run its course, we look close to the end of this corrective volatility for both Bitcoin and broader risk. A lot of the bad trade war headlines are now out there, and the likelihood from here is a move more towards compromise. The proposed Trump Xi summit in April is an important sign post and a compromise between the world’s 2 largest economies would bring some stability to our markets.
Talk also of Trump set to speak with Putin on Tuesday to discuss a Ukraine ceasefire has further potential to see risk premium leak out of this market.
Rebalancing…
One other “narrative” that has established itself in markets is this idea that Trump and Bessent are prepared to see stock markets lower and cause short term “pain” in order to rebalance the economy towards the private sector, cut government spending and get interest rates lower to help with the debt refinancing. Bessent certainly appears comfortable with markets correcting, seeing it as healthy and necessary. However, the bigger story for us is the re-balancing away from US “fiscal dominance” and towards “monetary dominance” once more.
This is a major shift in the macro dynamic that was running under Biden for the past couple of years and reinforces the view that we are set to see lower US yields and a weaker dollar. This ultimately will be good for risk and it will be GREAT for Bitcoin. The market perhaps needs to see the first signs of another Powell pivot away from the recently hawkish rhetoric to display more concerns on growth and greater comfort that the disinflationary process is back on track. Wednesday’s FOMC, whilst not expected to deliver anything in terms of rate cuts, will nonetheless be important for markets who will want to see a softer tone taken by the Fed chair.
We’re witnessing then, the volatile part of the regime shift, where the levered momentum trades from the old regime are unwound before new trades are established. Yet we still see little reason for a more prolonged risk drawdown.
The “stagflation” narrative looks overplayed and last week's disinflationary signs will reduce the fears that the Fed will be unable to respond to a slowdown. The liquidity pulse remains positive with the TGA drawdown underway (over $100bn of TGA cash drawn down, flowing into our markets last week) alongside the weaker dollar and lower US yields easing financial conditions. With global M2 rising and China alongside the EU pursuing more expansionary fiscal, there’s little in the macro to concern us here on Bitcoin or broader risk outside of this short term, corrective phase volatility. We continue to BTFD 💪
Native News
Key news from the crypto native space this week.
Crypto exchange Binance said on Wednesday that Abu Dhabi-based investment firm MGX invested $2 billion in the company. The investment marks the first institutional placement in the exchange and it's also the first digital asset-focused investment for MGX. The investment was made in stablecoins, the statement noted, though it did not specify which currency was used. As a reminder, Binance, the world's largest crypto exchange by trading volume with over $20 billion daily volume and has a significant presence in Abu Dhabi with around 1,000 employees. The CEO of Binance, Richard Teng, previously served as the head of the Abu Dhabi Financial Services Regulatory Authority.
Ripple said on Thursday that it had received approval from the Dubai Financial Services Authority (DFSA) to provide regulated crypto payments and services in the UAE, becoming the first blockchain-enabled payments provider licensed by the agency. Ripple has seen increasing demand in the Middle East, with around 20% of its global customer base operating in the region. Ripple’s DFSA license adds to its growing list of over 60 regulatory approvals worldwide, including a Major Payments Institution license from the Monetary Authority of Singapore (MAS), a New York Department of Financial Services (NYDFS) Trust Charter, a Virtual Asset Service Provider (VASP) registration from the Central Bank of Ireland, and Money Transmitter Licenses (MTLs) across multiple U.S. states. Brad Garlinghouse, CEO of Ripple said “We are entering an unprecedented period of growth for the crypto industry, driven by greater regulatory clarity around the world and increasing institutional adoption. Thanks to its early leadership in creating a supportive environment for tech and crypto innovation, the UAE is exceptionally well-placed to benefit.” Read the full release from Ripple HERE.
Investment manager VanEck has filed for an Avalanche (AVAX) exchange-traded fund (ETF) with the US Securities and Exchange Commission (SEC) seeking to offer investors direct exposure to the smart contract platform. The proposed VanEck Avalanche ETF intends to “reflect the performance of the price of “AVAX,” the native token of the Avalanche network, less the expenses of the Trust’s operations,” the prospectus read. The proposed fund will hold AVAX and will “value its Shares daily based on the reported MarketVector Avalanche Benchmark Rate. As a reminder, Avalanche is the 16th largest crypto asset, with a total market capitalisation of $7.7 billion. The blockchain is notable for its high throughput and Ethereum Virtual Machine (EVM) compatibility.
Institutional Corner
Top stories from the big institutions
BlackRock, the world’s largest asset manager with approximately $11.6 trillion in assets under management, currently holds over 567,000 Bitcoin, valued at over $47.8 billion — making the asset manager one of the largest holders of BTC in the world. According to Arkham Intelligence, the asset manager’s most recent BTC acquisition occurred on March 14 when a Coinbase Prime wallet transferred 268 BTC, valued at over $22 million, to the asset manager’s iShares Bitcoin ETF (IBIT) wallet. Data from Arkham also shows that the asset manager holds over 1.2 million Ether valued at over $2.3 billion, roughly 70 million of the USDC stablecoin and a long list of altcoins.
Global financial firm BBVA said it had received approval from the Spanish Securities and Exchange Commission (CNMV) to offer cryptocurrency services to its retail clients. Initially it plans to enable the buying and selling of Bitcoin and Ether through its mobile banking app. It will also provide cryptocurrency custody services using its own technology, rather than relying on third parties. BBVA Switzerland was one of the first banks in the world to offer crypto services to retail clients in 2021. Its BBVA Garanti subsidiary in Turkey launched Garanti BBVA Digital Assets in 2023. Gonzalo Rodríguez, Head of Retail Banking in Spain said “We want to make it easier for our customers to invest in cryptoassets with a simple, accessible offering available directly from their mobile phones, in a fully digital manner. Our goal is to guide them as they explore this new segment of digital assets, backed by the solvency and security assurances provided by a bank like BBVA.”
This week the total market cap of the tokenised treasuries hit a record high of $4.2bn. Since end January, real-world asset platform Ondo Finance's (ONDO) products, the short-term bond-backed OUSG and USDY tokens, climbed to just shy of $1 billion combined, a 53% rise in market value over the past month. BUIDL, the token issued jointly by asset manager BlackRock and tokenisation firm Securitize, gained 25% during the same period to surpass $800 million. Asset manager Franklin Templeton's BENJI token expanded to $687 million, a 16% increase, while Superstate's USTB hit $363 million, up more than 63%. The notable outlier was Hashnote's USYC, shedding over 20% of its market cap to $900 million
Charts of the Week
Because charts are just as important as macro.
Nice chart from Kaiko Data, the number of active trading pairs on U.S. exchanges has increased moderately since the elections, amid growing optimism about the regulatory environment.
Another good chart from Kaiko, Altcoins’ realised volatility surged in March, with ADA reaching an all-time high of 150% and SOL and XRP surpassing 100%.
Bitcoin open interest on both CEX’s and CME is back to pre-election levels.
Top Jobs in Crypto
Well, we all want to work in Crypto don’t we. Here’s a bit of help on your job search!
Senior Flow Trader (Sr. Associate - VP) - Quant Trading Team at Crypto.com
Founder Success Manager at Near Foundation
OTC Sales Trader EMEA at Binance
Lead Engineer, Portfolio Products at CoinDesk
DISCLAIMER: The content in this newsletter is not financial advice. This newsletter is strictly educational and is not investment advice or a recommendation to buy or sell any assets or to make any financial decisions. Crypto markets are volatile, please be careful and do your own research.