Connecting the Dots

Episode 139 - Shaken Not Stirred

Welcome to the new subscribers that have joined us in 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: Circle exploring reversible transactions, Cloudflare launches a new USD backed stablecoin.
Institutional Corner: 9 banks partner to issue a EUR denominated stablecoin, SEC investigating unusual trading activity ahead of DAT announcements, SWIFT testing payments and messaging using Ethereum’s Layer 2 network Linea, Deutsche say bitcoin could soon join gold as a reserve asset on central bank balance sheets.
Charts of the Week: DAT’s raised over $20bn in 2025, businesses now hold more bitcoin that the ETF’s.
Top Jobs in Crypto: Featuring Fireblocks, JP Morgan, Blockchain.com, Kraken, LSEG, Qube RT and 1Inch Labs.

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Macro Update

This is where we connect the dots between macro and crypto.

Shaken Not Stirred

A more subdued week in equity land saw major US equities down circa 0.5% as some cautious Fed speak took a little steam out of the recent, relentless moves higher.

In truth, there was little new to the comments from the plethora of Fed speakers whose tone reflected that of JPow himself who noted the “challenging situation” as the Fed balanced near term upside risks to inflation and downside risks to the labour market. JPow commenting that “equity prices are fairly highly valued” additionally unnerving investors 😬

The data itself however continued to support our “Goldilocks” framing of the macro backdrop.

The Fed’s preferred inflation measure, core PCE, was little changed in August, remaining at 2.9% YoY - sticky but not accelerating ✅

Meanwhile, personal spending and income came in stronger at 0.6% and 0.4% respectively whilst the 3rd estimate of GDP for Q2 expanded at 3.8% Vs the prior estimate of 3.3%. S&P Global also reported flash estimates for business activity which showed manufacturing PMI’s at 52.0 Vs 53.0 prior and services PMI’s at 53.9 Vs 54.5. Comments from Chris Williamson, Chief Business Economist at S&P Global Market intelligence noted that the “PMI survey data are consistent with the economy expanding at a 2.2% annualised rate in the third quarter.” A slowing, not collapsing economy ✅

With markets reducing a little, the odds for rate cuts, US yields ticked higher across the curve with the 10yr closing up 4bps on the week at 4.17%. The US dollar pulled a touch higher in tandem. All reasonable then for risk to trade a little soggy and some steam to come out of the recent rally, although we see little reason for a material, sustained correction here outside of some profit taking and position adjustments which may be particularly acute as we head into month and quarter end this week.

Crypto volatility…

Crypto however endured a more volatile week and suffered heavier losses as the recent period of consolidation saw some stale positioning flushed out, triggering $1.7bn of liquidations at the start of the week. Ouch! Bitcoin traded to lows of around $108, 600, with heavier losses across the higher beta alt space.

Again, as we expressed our disappointment last week with crypto’s inability to sustain momentum in line with the broader risk complex, we feel this is a very normal period of consolidation after recently hitting new record highs in BTC and ETH. We continue to digest a decent amount of whale supply and as we head into quarter end and subsequent rebalancing, we’ve also seen net ETF outflows of $903mio in BTC and $796mio in ETH, ending a 4-week streak of inflows.

We see nothing to dissuade us from our bullish view heading into Q4 on account of a still very supportive macro backdrop. Yet caution remains the watch word into quarter end which, as we’ve written frequently about, is negative from a liquidity point of view. This is because banks reduce lending and risk taking, taking cash out of the market to park at the Fed’s Reverse Repo (RRP) facility to “window dress” the balance sheet, making it appear they are taking less risk and are more liquid when the snapshot is taken at these reporting dates. This reduces the associated capital charges, masking the true risks banks take over the quarter.

We know what you’re thinking, and yes, the banking system should be on blockchain rails so they can be monitored real time so that the true risks are understood and monitored! We digress…

Declining Net Fed Liquidity…

The RRP rose circa $37bn last week and we expect that ramps up in the remaining days into quarter end. That cash and liquidity being taken directly out of the market. In addition, as we wrote about last week, the Treasury has been issuing a lot of debt to rebuild the TGA (Treasury General Account) which is the cash account they hold with the Fed to cover operations. That has been rebuilding steadily since early July following the lifting of the debt ceiling in June 👇

The US Treasury General Account - rebuilding and draining liquidity

Whilst broader measures of global liquidity have been rising, net Fed liquidity which is the Fed balance sheet less the TGA less the RRP has consequently been declining, reducing the rate of increase of global liquidity. Crypto as the ultimate liquidity junkie has perhaps been showing sensitivity to this phenomenon.

These negative liquidity drivers will ease and reverse into October/November and remove a headwind that has kept us in this range bound consolidation. We do however think there’s a risk of one more flush out over the coming days given the lack of bounce in Bitcoin after a decent correction and given a still tightening liquidity backdrop into quarter end.

Our message then. Heading into Q4, the macro backdrop remains supportive of continued gains for broad risk and an explosive leg higher for Bitcoin and crypto. A sanguine economic backdrop with a slowing, not collapsing US economy (signs indeed that the economy is actually turning higher), sticky, not accelerating inflation. Global rate cuts and rising global liquidity and global M2. The US dollar remains in a downtrend with the positive lagged effects of this weakness to feed through over the coming months. Volatility across equities and bonds remains subdued, facilitating increased risk taking and leverage.

Caution into this week as month/quarter end considerations take precedent and liquidity conditions tighten. Yet we see no signs to suggest this is little more than a correction or that this bull market is over. Indeed, we expect to see this bull market accelerate to new record highs in Q4 and remain positive into 2026 with an extended macro cycle and as Trump and Co look to juice things into the November mid-terms.

Don’t be shaken out. BTFD. HODL 💪

Native News

Key news from the crypto native space this week.

Circle, the world’s second-largest stablecoin issuer, is reportedly examining reversible transactions to help recover funds from fraud and hacks. Circle president Heath Tarbert told the Financial Times on Thursday that the company is examining mechanisms that could allow transactions to be rolled back in cases of fraud or hacks, while still maintaining settlement finality. “We are thinking through [. . .] whether or not there’s the possibility of reversibility of transactions, right, but at the same time, we want settlement finality,” Tarbert told the FT. “So there’s an inherent tension there between being able to transfer something immediately, but having it be irrevocable [...].”

Global cloud service provider Cloudflare announced the launch of a new USD-backed stablecoin, NET Dollar. NET Dollar will enable AI agents to make instant payments based on predefined conditions by facilitating transactions across currencies, regions, and time zones. According to the Cloudflare press release NET Dollar will help modernise the payment ecosystem for the future of the agentic web by: Making payments easy anywhere in the world: Agents will need systems to enable payments that are not only fast and secure, but also trusted, recorded transparently, and executed reliably at a global scale – across currencies, geographies, and time zones. Enabling instant, automated transactions: Personal agents will be able to take instant, programmatic actions like paying for the cheapest flight, or ordering an item the moment it goes on sale. Business agents could be instructed to pay suppliers when a delivery is confirmed. Unlocking a new business model for the Internet: NET Dollar will enable creators to be rewarded for unique and original content, developers to easily monetise APIs and applications, and AI companies to contribute back to the ecosystem that fuels them by compensating content sources fairly.

Institutional Corner

Top stories from the big institutions

Nine major European banks have joined forces to launch a euro-denominated stablecoin regulated under the trading block’s Markets in Crypto Assets regime (MiCA). The 9 banks involved are: ING, Banca Sella, KBC, Danske Bank, DekaBank, UniCredit, SEB, CaixaBank and Raiffeisen Bank International. The MiCA-regulated stablecoin is expected to be first issued in the second half of 2026. The stablecoin consortium has formed a new company in the Netherlands, aiming to be licensed and supervised by the Dutch Central Bank as an e-money institution.

According to the Wall Street Journal The Securities and Exchange Commission and the Financial Industry Regulatory Authority have reportedly contacted certain companies after identifying unusual trading activity ahead of their announcements on digital asset treasuries. Described as preliminary, the outreach reportedly followed trails of sharp price swings and heavy volumes in the days leading up to some of the firms disclosing their strategies for digital assets. Regulators are reportedly reviewing whether selective leaks or trading on material non-public information may have occurred. Regulation Fair Disclosure, also known as Reg FD, is an SEC rule that prohibits companies from sharing material information with select investors before making it public. Violations can expose firms to civil penalties, enforcement actions, and reputational risk

SWIFT, the key global financial messaging service, has begun testing on-chain payments and messaging using Ethereum’s Layer 2 network Linea. According to the report, the project involves more than a dozen global banks, including BNP Paribas and BNY Mellon, and is exploring the use of a stablecoin-like token for settlement. Initial tests seek to focus on on-chain messaging and settlement functions, with the interbank stablecoin token serving as a model for how financial institutions could settle transactions directly on blockchain infrastructure. SWIFT has emphasized that this effort goes beyond transmitting digital cash transfers, expanding its role into comprehensive on-chain activities. The blockchain experiment seeks to extend this role into direct value transfer, potentially reducing reliance on multiple intermediaries and streamlining international settlements. Notably, Linea was selected for its zk-rollup technology, which provides low-cost, high-throughput transactions while retaining Ethereum’s security. Its design also emphasizes data privacy through advanced cryptographic proofs, a feature seen as essential for banks navigating strict compliance requirements.

Deutsche Bank said in a research report this week that Bitcoin could soon join gold as a reserve asset on central bank balance sheets. Marion Laboure, research analyst at Deutsche Bank’s Research Institute, said the Trump administration’s decision to create a US strategic Bitcoin reserve earlier this year “reignites the argument for central banks to hold Bitcoin as a reserve asset.” She added that “We conclude there is room for both gold and Bitcoin to coexist on central bank balance sheets by 2030.”

Charts of the Week

Because charts are just as important as macro.

1. Digital Asset Treasuries have raised over $20 billion in 2025 so far.

2. Businesses now hold more bitcoin that the ETF’s.

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!

Account Executive, Crypto Natives at Fireblocks

Payments - Kinexys Digital Asset - Commercial Product Director at JP Morgan

Product Manager, Global Payments at Blockchain.com

Talent Sourcer at Kraken

Director, Digital Assets Product Manager at LSEG

Crypto Quant Trader at Qube RT

Senior Software Engineer for Blockchain at 1Inch Labs

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.