Connecting the Dots
Episode 122 - Dollar Wrecking Ball in Reverse
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: Coinbase to buy Deribit, Coinbase releases its financial results, Bybit tops 70 million users, Jump Crypto takes a strategic position in Securitize.
Institutional Corner: Visa invests in BVNK, changes to OCC rules, New Hampshire and Arizona pass bitcoin reserve bills into law.
Charts of the Week: Stablecoin transaction volumes hit record high, USDC volume growing on centralised exchanges, cost to mine one BTC increased.
Top Jobs in Crypto: Featuring Laser Digital, LSEG, FreedX, Facephi, ONE, Bitget and Citi.
Macro Update
This is where we connect the dots between macro and crypto.
Dollar Wrecking Ball in Reverse
We signed off two weeks ago stating that Bitcoin was starting to move away from its “left tail”, relative strength as a safe haven against a fragile dollar based world order, towards the risk-on “right tail.” This move coming as the “front loaded” bad news headlines started to fade, giving way to compromise and negotiation, all amidst an increasingly explosive liquidity environment and a risk backdrop that reached extreme fear levels of sentiment and positioning.
This week, that move gathered momentum and we finally started to break out, both in Bitcoin, as well as the broader crypto space. Indeed, to reflect just how much this was a liquidity driven risk-on move, Bitcoin dominance (the ratio of Bitcoin’s market cap to the total crypto market cap) finally reversed, having hit its highest levels since Jan 2021. This for us is a positive sign that Bitcoin, alongside broader crypto, is set to enter the next acceleration phase of this bull cycle which will drive Bitcoin to new record highs in short order. As our friend Raoul Pal would say, we are entering the banana zone 🍌🍌🍌
Bitcoin dominance reversing - is this the long awaited altseason?
Dollar wrecking ball in reverse…
China was a fundamental catalyst for the moves this week. Firstly with news breaking that Chinese and US officials would meet this weekend in Geneva for “de-esclation” trade talks, but followed up (perhaps not by coincidence) with a surprise PBOC reduction of the 7 day reverse repo rate from 1.5% to 1.4% and a 50bp reduction of the Reserve Requirement Ratio (RRR).
These moves are expected to unleash RMB 1 trillion into the system and continue to add to the global M2 expansion which leads Bitcoin and all risk assets higher. Providing the cover for this global stimulus is a weaker dollar, which is something we believe will be part of trade discussions and benefits everyone. With a weaker dollar, the likes of China (and others across the emerging world) are able to ease monetary policy without losing control of the domestic currency, and in stimulating domestic demand, should help reduce some of the trade deficit with the US.
Further, interventions to slow relative currency strength against the dollar, or to maintain USD pegs (see HKD for example) drives an expansion of the money supply and an increase in FX reserves as local currency is effectively printed to buy up dollars.
This is a MASSIVE easing of global financial conditions and a HUGE injection of liquidity into the global financial system. It’s the “dollar wrecking ball” in reverse and will power Bitcoin and all risk assets higher.
Stocks to follow Bitcoin to record highs…
Indeed, despite a mixed performance for equities this week, we believe the Nasdaq and the S&P 500 will follow the lead of Bitcoin and we are set to see new record highs across the board over the coming weeks and months, powered by this liquidity surge which trumps (no pun intended) all else in the medium term.
Short term of course, we still expect choppy, headline driven moves for risk. Negotiations with China will be volatile and if the trade deal with the UK is any guide, headline figures will likely disappoint. However, markets underwent a large deleveraging post Liberation Day on the extreme nature of the announcement, as worst case scenarios were priced. Yet as we get more certainty and moderation in the final level of tariffs, hedge funds will need to “gross-up” risk. Pain for these markets is now higher (given positioning) and we’re already starting to see a painful chase for performance.
Elsewhere, very little new from the Fed who remain in “wait and see” mode, highlighting increased tariff related uncertainty which increases the risks both to employment and inflation, something which JPow said presents a “challenging scenario.
Stepping back however, whilst tariffs remain uncertain, ISM services rose to 51.6% from March’s 50.8%, reflecting a still resilient consumer and despite the Manufacturing ISM contracting for the second month in a row, continues to support our view that we remain in a somewhat goldilocks environment of slowing, not collapsing growth alongside a still disinflationary economy.
We consequently keep a keen eye on Tuesday’s inflation numbers but we currently see little to justify the macro doomers calling incessantly for recession and spiralling inflation. Certainly a softer CPI print will be a “towel throwing” moment for remaining bears.
Bitcoin has become somewhat of a lead for macro assets and has quickly recalibrated to start pricing out the extreme tariff driven tail risks, to focus now on the explosion of liquidity amidst a sanguine economic backdrop. Time to strap on risk.
Native News
Key news from the crypto native space this week.
Coinbase agreed to buy crypto derivatives exchange Deribit, in a deal worth $2.9bn. This is the digital asset markets largest M&A deal so far. Coinbase will pay $700m cash and 11 million of shares of Coinbase Class A common stocks for Deribit. Coinbase shares jumped over 5% to about $206 in the early trading after the announcement. Deribit controls roughly 85% of the global crypto options market and reported $1.2 trillion in trading volume last year, a 95% jump over 2023. Deribit CEO Luuk Strijers said in a statement Thursday. “We’re excited to join forces with Coinbase to power a new era in global crypto derivatives. As the leading crypto options platform, we’ve built a strong, profitable business, and this acquisition will accelerate the foundation we laid while providing traders with even more opportunities across spot, futures, perpetuals, and options – all under one trusted brand.” Read the full press release from Coinbase HERE.
Also this week, Coinbase reported a drop in first-quarter profit as a steep rise in costs more than offset revenue growth in its transaction and subscription units. This led to a 3% drop in COIN shares in extended trading. Total operating expenses rose 51% to $1.3 billion in the quarter, driven by increased marketing expenses as well as losses on crypto assets held for operations, the company said. However, its transaction revenue rose 17.3% to $1.26 billion. Revenue from the subscription and services unit, which houses businesses outside of trading, also jumped 37% to $698.1 million. Total revenue rose to $2.03 billion from $1.64 billion a year earlier. That still missed analysts' expectations of $2.1 billion, according to data compiled by LSEG. The company earned adjusted net income of $526.6 million, or $1.94 per share, for the three months ended March 31, compared with $679.2 million, or $2.53 per share, a year earlier.
Bybit announced on Friday that is it now the worlds second largest cryptocurrency exchange by trading volume and has surpassed 70 million registered users. Ben Zhou, Co-Founder and CEO of Bybit said “Reaching 70 million users is more than a number—it’s a testament to the trust our global community places in us. We are doubling down on compliance, institutional-grade infrastructure, and user-centric innovation to ensure everyone—from first-time traders to global institutions—can access the future of finance with confidence.”Bybit continues to expand its global compliance framework, working closely with regulators around the world. Most recently, Bybit held strategic discussions with Vietnam’s Ministry of Finance, contributing to the country’s regulatory sandbox initiative by sharing expertise in KYC, AML, and international best practices.
Jump Crypto has taken a “strategic” position in Securitize, though it has declined to disclose the dollar value of the deal. According to an announcement this week, the crypto-focused division of Jump Trading has purchased equity in the leading tokenisation firm. Securitize said in a statement “This relationship will focus on enhancing institutional access to tokenized assets and advancing collateral management solutions … as the market for real-world assets spikes exponentially.” Securitize has helped tokenize nearly $4 billion worth of assets under management as of May 5 for firms including Apollo, BlackRock, Hamilton Lane and KKR.
Institutional Corner
Top stories from the big institutions
Visa announced another crypto venture this week, revealing an investment in stablecoin infrastructure company BVNK. London-based BVNK announced the “strategic investment” from Visa via the company’s Visa Ventures arm. BVNK says it’s building a “real time, 24-7, 365 payments network” for businesses using blockchains. the news comes a week after Visa announced that it was partnering with Bridge, a unit of payment services provider Stripe, to offer a new stablecoin service in Latin America.
U.S. national banks can now buy, sell, and manage crypto assets under custody following new guidance from the Office of the Comptroller of the Currency. According to the interpretive letter national banks may do so at their customers direction and are permitted to outsource crypto custody and execution services. With its new directive, the OCC builds on Interpretive Letter 1170, which in July 2020 initially established banks' authority to provide crypto custody. Read the full guidance letter HERE.
New Hampshire and Arizona became the first 2 U.S. states to pass bitcoin reserve bills into law this week. Arizona Governor Katie Hobbs signed House Bill 2749 into law on Wednesday, allowing the establishment of a crypto reserve. The bill, sponsored by Representative Jeff Weninger, establishes a reserve fund for unclaimed virtual assets that could be tapped for future use pending legislative approval, according to a statement released by Weninger's office. It also allows qualified custodians to stake the reserve assets for rewards or airdrops. Weninger said "By preserving unclaimed crypto in its native form and creating a Bitcoin and Digital Assets Reserve tax free, we are modernizing our laws to reflect crypto's position as the future of finance and ensuring Arizonans receive the full market value of their assets." Hobbs' signing of HB 2749 follows New Hampshire's approval of a strategic bitcoin reserve bill (HB 302) on Tuesday. New Hampshire’s HB 302, signed by Governor Kelly Ayotte, authorizes the state treasurer to allocate up to 10% of the general fund and other approved funds into investments in precious metals and digital assets with a market capitalization exceeding $500 billion — a criterion currently met only by Bitcoin.
Charts of the Week
Because charts are just as important as macro.
Stablecoin transaction volumes hit $1.82 trillion last month, a record high.
2. Growing volume for USDC on centralised exchanges.
The weighted average cash cost to produce one Bitcoin among publicly listed miners increased to approximately $82,162 in Q4 2024, up from $55,950 in Q3 — a 47% rise.
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!
Crypto Options Trader at Laser Digital
Project Manager, Digital Assets at LSEG
Product Manager - Crypto Exchange at FreedX
Global Account Manager Crypto and Gambling at Facephi
Digital Asset Product Manager - VP at Citi
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.