5-Min Monday Macro & Crypto: 1st Jan 2024
Positioning for 2024, bull exhaustion, crypto short term - sell the news, buy next rumour, beta plays & hot narratives
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I spend hours reading, researching and talking to the smartest founders and investors every week. This is my attempt to give you a short 5-10 minutes summary on how I am thinking about Macro & Crypto markets and what lies ahead. Hundreds of hours summarised, so you don't have to.
"It's more fun to be a fan than a critic. I'm not looking to spend my life tearing things down, when it can be so satisfying to build things up." - James Clear
HAPPY NEW YEAR. THANKS FOR BEING HERE ON THIS JOURNEY WITH ME. WISHING YOU FANTASTIC HEALTH AND A LOT OF HAPPINESS. NOTHING ELSE MATTERS.
1. Big Macro Picture - Election Year Doldrums
For many Americans, living paycheck to paycheck has become a common reality. As long as these paychecks continue to arrive, the US economic state tends to remain content. With a payroll boasting 200k jobs and an unemployment rate of 3.7%, the assurance of these paychecks appears promising, especially in an election year. Additionally, the anticipated 6 rate cuts by the Federal Reserve should infuse sufficient liquidity to sustain stock markets throughout 2024. Now that is the long term picture for 2024.
What about January 2024? The recent stretch of a thriving bull market in November and December 2024 seems to align with seasonal effects that typically reverse as seasons transition. Add to that the substantial burden of public and consumer debt, a political reluctance to curtail borrowing, and the crucial aspect of year-end positioning— I am approaching the new year with caution, mindful of these factors.
As for crypto, it’s all about ETF decisions for this week and next. Below tweet sums it all up very nicely. Click to open the full link.
2. Stocks - Flat for now
Thanks to the Federal Reserve's altered stance, the stock market has experienced a substantial surge toward the year's end. Earnings have held up reasonably well, the macroeconomic indicators present a robust picture, and the overall stability of the economy is evident. Markets, known for their forward-looking nature, have rallied significantly as both the markets themselves and the Federal Reserve foresee a series of anticipated rate cuts.
However, navigating an overinflated stock market as we near the new year doesn't evoke much enthusiasm. Remember - seasonality? While there might still be some momentum in the initial 1-2 weeks, I lean towards maintaining a more conservative stance until we witness a potential correction. The extent of this correction hinges greatly on the upcoming ISM and NFP reports in the first week of January.
3. Bonds, Fx & Rates - Leaning towards higher yields, higher dollar
The US 10-year Treasury yield has reverted to where it commenced at the beginning of the year, despite navigating through what has been one of the most volatile years for bonds in history.
The impending influx of new debt issuance driven by an unwavering political resolve spells doom. Unsurprisingly, there seems to be a lack of interest among potential buyers for this incoming debt. Who is the real US debt buyer going to be? Domestic banks that are forced by Messers Powell and Yellen? Who else?
It appears inevitable that yields will need to ascend in the near term to allure prospective purchasers into shouldering this debt burden. Time will reveal the outcome, but I am inclined to an imminent reversal in the yield structure, surging once more in an upward trajectory. Perhaps some put options on TLT - the bond ETF?
As for the Dollar and FX, we said last time:
But I’ve learned the hard way - you cannot buy an over inflated asset. Markets are too long the USD. But that maybe just about be over as emerging markets are gradually moving to a non dollar trade, especially for necessary commodities. Hard to be much more bullish here. Combine that with the FED hawkish stance, you’ve a stable to dovish dollar situation which is good for risky assets like Gold & Bitcoin
As the year-end seasonality fades and the potential rate cuts from the Federal Reserve are fully factored in, I foresee a potential shift in the trend for the USD, just like the bond yields, likely an upward trajectory. This shift suggests that bonds might dip again (yield increase anticipated), potentially resulting in an upward movement for USDJPY. One could consider a long position in USDJPY using cost-effective call options?
However, the outlook in the EUR territory appears less favorable. Persistent trade deficits, geopolitical conflicts, inflationary pressures, and ongoing civil unrest continue to prompt traders to exit their EUR positions, seeking refuge in the safety of the CHF. It's possible that this trade has been excessively favored, although the Swiss National Bank (SNB) might intervene to address this imbalance in the near future.
4. CRYPTO - Sell the news, buy the next rumour and play betas
Bitcoin - Sell the news?
Bitcoin has seen an astounding year, boasting a remarkable +150% surge, making it th best asset class and second best asset just behind NIVIDIA.
However, its current struggle to surpass the $44,000 mark draws attention to crucial levels at $46,000 and $48,000 on the upside, while monitoring the downside at $38,000.
There is a 90% chance that we get approval/s to launch BTC ETF between 5-10th January. That has led to a consensus aimed at selling the ETF news, leading a to a potential correction. The question is how severe that correction will be?
However, I have a little contrarian view here. I believe that smart TradFi money might take this an opportunity to load up around 40K levels and we might not see 35/36K BTC as some are hoping. I anticipate a resurgence of significant FOMO prompting a rush back into Bitcoin, propelling it to around 55K rather very quickly as halving narrative kicks in around March.
Markets tend to behave unpredictably and often irrationally, catching us off guard when least expected. Considering the imminent rate cuts, stable macroeconomic landscape, an election year, the Bitcoin halving, digital gold narrative, and the increasing global adoption of BTC as a legitimate tender, the stage is set for a substantial FOMO surge sooner rather than later. Hence, a massive correction in BTC seems unlikely from my perspective.
However, the resistance at $44,000, persistent high funding rates and sell the ETF news event signal a potential minor correction in the short term until these funding rates normalize. Even if a considerable correction were to occur, let's say to $35,000, it could present a significant buying opportunity. To hedge against such a scenario, I've acquired some cheap put options ranging from $40,000 down to $30,000.
And never underestimate the Chinese liquidity in BTC. More liquidity injections needed, the govt has no other choice but to pump credit to revive its economy
ETH & SOL - Buy the next rumour?
The year 2023 proved rather disheartening for ETH enthusiasts, especially when compared to the performance of BTC and SOL.
There's a noticeable shift in ETH trend, and I anticipate Ethereum experiencing increased inflows following the approval of BTC ETFs, driven by the expectation of Ethereum being the next in line for a similar approval. Nonetheless, I wouldn't dismiss Solana just yet; they've historically displayed an adeptness at surprising the market, and I foresee a potential listing of CME Futures for SOL in the near future, potentially paving the way for SOL ETF approvals thereafter. SOL should rise in line with ETH if not more.
Beta L1/L2 Plays
A more promising avenue, in my view, might lie in ETH beta plays.
SOL beta plays have been somewhat disappointing, exemplified by reversals in assets like JITO, PYTH, BONK, and WIF. The primary reason seems straightforward: the risk-to-reward ratio favors the more established ETH beta coins over the uncertainties associated with newly minted SOL beta plays. I would rather hold an ARB or an OP over JITO or PYTH when it comes to R/R. This trend, I believe, will persist, especially with Ethereum next in line for the ETF application cycle.
These coins associated with ETH's performance have already seen considerable surges in the last two weeks as ETH displays signs of resurgence. Keeping an eye on coins like OP, ARB, LDO, METIS, and MATIC could offer a path with lesser risk and potentially higher returns. The planned EIP-4844 for Feb 24 enhances the appeal of Ethereum Layer 2 solutions. Therefore, any downturns in BTC that lead to corresponding dips in ETH present substantial buying opportunities for ETH beta plays in 2024. However, keep an eye on stock market corrections and BTC ETF sell the news events.
Other L1’s / L2’s are not a bad place either to place some riskier bets but they could rotate faster than a spinning top on an accelerated course. So be vigilant. SOL and SOL meme mania has already set the stage for next L1’s like SEI, an out performer of the week crossing 0.60 this week. APT, SUI, BNB, MINA, TIA and all ETH betas are other good ones to start accumulating. You are free to pick your own poison of next L1/L2 rotations but most monies will be made on playing betas of these betas.
Other Crypto Narratives - Anticipating the next 10X
BRC20 & Ordinals
I am very bullish on the entire BTCFi narrative led by Ordinals and now BRC-20’s. This is a massive new narrative building upon the King of blockchains - THE BTC. The best plays are the new coins like OrdiSwap (Uniwswap of Bitcoin), Tonka Finance (AAVE of Bitcoin) and some smaller new coins like $MUBI & $BSSB. I like MUBI as it entails both AI & BTC narratives. I will try to keep you updated weekly on telegram and here as new stories, ordinals and coins develop.
AI
I am very bullish on AI coins and AI narratives in general for 2024. I believe this is not just a buzzword but more of an evergreen narrative just like DeFi. Anything Blockchain plus AI will be massive if executed properly. Coins like MUBI, TAO, RNDR, FET, AGIX, OCEAN have done superb last quieter. Others that I am keeping an eye on include MOZ, PRIME, AEGIS AI.
Look at this chart from NIVIDIA and remember one thing - there is no resistance when it comes to the power of a massive global narrative. That is how bullish AI coins can be if you combine that with BTC / Crypto narratives.
GameFi
It seems that Gaming is coming back gradually. Some coins hav e picked up steam and starting to outperform. Gaming chains like RON, BEAM & IMX are my favourite. And keeping an eye on some gaming coins like SIPHER, PYR, ILV, SHRAP
5. Most Interesting Stuff This Week
A podcast that I have heard and reheard three times already this week. I love it how Lenny brings in the best guests and how Matthew Dicks teaches us the power of story telling.