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Friends, long-time readers first-time callers, cryptocurrency enthusiasts, steady lads, and fellow psych ward patients it is so so good to be back. It’s been ~2 years now since I’ve written in this medium which is far, far too long. It’s time to return to tradition. For anyone who’s unaware, I wrote Round Tripping, a weekly deep dive on the crypto ecosystem, every week for ~2 years. This article, along with weekly posts moving forward, will hopefully be as useful to people, and myself, as those articles coming out of the 2022 bear market were.
In this post, we’ll attempt to provide some value covering the macro state of tradfi and crypto. There’s no time to rest as more long days at the long day factory are ahead, so let’s get to it.
First, let’s head back a bit to January. From the start of the new year, markets generally chopped in a couple week tight range before rallying hard from the middle January until the end of it. If you recall, the strongest asset across virtually everything at this time was and continued to be gold as it climbed from 3500 to 5600 in 153 days. The 153rd day? Thursday, January 29th.
On January 28th, gold, SPY & QQQ put in fresh new all-time highs while BTC looked like it might be bottoming & breaking upwards from ~89k. When that failed, the full-blown bearish mindset, on both coins and stocks, began to fully take place for me. While I of course had absolutely no clue what gold, and to a lesser extent silver, were signaling, it was evident to me something was happening under the surface. There were/are of course fundamental/structural reasons as to why these shiny rocks traded and appreciated in value the way they did, but moves of that magnitude also signal some growing stress. Since January 28th, gold, SPY, QQQ & BTC are respectively down 14%, 6%, 8% & 26% (with lows obviously below that, especially for the indexes and gold given the rally we saw to close this week).
That brings us to today, day 35 of the Iran war. WTI is 112, Brent is 110, the DXY is 100, yields have ripped throughout most of March and the VIX, until the past few trading days, has had an infinite twap from god (also note the VIX in the below image never making new lows from the same day gold and indexes topped, January 28th). As mentioned, equities have declined but outside of the closing days of last week, it’s been anything but a straightforward decline.
While the overall picture and decline since late January is relatively straightforward and orderly, the intraday and intraweek noise has been tormenting, specifically since the war started. As Rhino so eloquently put it back in October, it’s a headline terrorism supercycle. Holy shit I am tired, boss.
Okay so what do we do now? To be honest, as I stated yesterday afternoon, I’m questioning my, almost exclusively bearish, positioning for the first time since the initial strikes of the war. The market has become wildly accustomed to not particularly selloffs and down equity markets, but what happens on the other side of them. Whether it’s days, weeks or months, stocks will be back to highs eventually so what’s the point of selling?
In addition to that belief, the headline terrorism supercycle, the 24/7 online nature of news and war coverage and the president’s constant truth social posts along with seemingly daily interviews and/or headlines creates a weird, pseudo schrodinger’s market where a singular headline or truth social can absolutely flip positioning from wildly bearish to wildly bullish intraminute, hour or day. It’s simultaneously both hard to sell and buy when a single headline can instantly punish you. The frequency, growth and volume of 0DTE and short dated options adds another wrinkle (Thursday saw the highest put/call ratio since liberation day) that creates a chaotic market environment where noise far outweighs signal.
I’m never going to pretend to have the answers but I still overall lean towards a bearish environment. I think it’s important to note that, especially for equities, the downtrend unequivocally preceded the escalations with Iran & oil trading 100+. Of course, this was an accelerate dumped onto a smoldering fire, but as noted, the flames, no matter how weak, started in the final trading days of January. Throughout that month, we saw 11 separate days of ES being unable to hold above 7k followed by another 5 failed attempts in early February which, imo, initiated the selloff that we’ve seen aided by geopolitical factors.
Additionally, the employment picture is okay enough while inflation sprouts were already growing before the Iran war began. Now, the potential of sticky inflation is front and center as the projection of Fed rate cuts has shifted from 3+ at the start of the year, to more than likely a hike as of two weeks ago, back to holding this week to, as of writing, an 11% chance of a hike after the NFP numbers this morning. Confusing and paralyzing. Speaking of, concerns surrounding the AI capex boom becoming a FCF and/or earnings drag and AI-driven layoffs along with the weight of the ever-growing top half of the K-shaped economy’s ability to sustain spending & 401k/retirement contributions were also already present (chumbawumba mode). Other concerning recent events that would support the bearish argument include, but are not limited to:
CVX — the chart and the appetite, which is now eviscerated whoops, for a new public equity launch it is a wrapper of private companies
The 11% “risk-free” yield Saylor continues to push along with the guaranteed 17.5% OpenAI is offering to private equity firms
The questionable future returns and stability of the hundreds of billions Mag7 and others have spent and will continue to spend on AI scaling & data centers
The GCC countries almost certainly not being marginal dollars for the above mentioned buildouts and funding needed as they rationally divert their time, energy and money to defending their homelands
OpenAI raising 122 billion dollars (!!!) the largest private round ever
SpaceX officially filing for IPO (at a $2 trillion dollar valuation with 80x forward sales, 500x forward earnings & 125x EV/EBITDA multiple) & almost certainly having immediate inclusion into the major indexes while exhibiting liquidity black hole type features
The entirety of the cluster that is private equity at large right now
TACO attempts have largely become useless, stale and are possibly showing signs of mold as they sit in your fridge five days after you bought them from a questionable roadside food truck upon leaving the bar. It’s best to just throw them out. We’re stuck with a chaotic, schrodinger type market that is relatively paralyzed and facing a wildly binary outcome. As prices drift lower, TACO attempts and “good” headlines increase while rate cuts become more likely as recession and inflation fears grind higher. As prices climb, the militaries involved seem to become more active, correlations generally force DXY, yields, VIX lower while oil stagnates around ~100 slowly increasing the odds of a hike needed to combat down the line inflation without concerns for overall growth. A never ending loop of circling Dante’s Inferno. Sigh.
So, where we settle is back at the incredibly unfortunate binary outcome previously mentioned. While I still generally lean bearish as a result of mostly screaming higher yields, oil, vix and dxy charts that I linked earlier I can also see the potential for a wild wall of worry rally. Before we get to that scenario, we need a little more doom on what the potential looks like if this war continues until late April or longer (or god forbid ground troops are actually deployed). Here’s a collection of recent headlines that show that potential and how binary the outcome can be.
“Global food prices rise in March on energy pressures from the Iran war”
Korean president: “if we save every drop of fuel, avoid wasting even a single plastic bag, and add a spirt of mutual consideration and collective resolve, we can emerge from the tunnel of crisis safely and swiftly.”
Australian PM in a national address talked about painful months ahead, their National Fuel Security Plan & said, “in the coming weeks if you can switch to take the train or bus, do so…the months ahead may not be easy, i want to be up front about that”
“German Chancellor warns Iran war could hit Europe as hard as covid”
“Russia’s pipeline gas exports to Europe jump 22% YOY in March amid Mideast crunch” — think of how bad things have to be for Europe to increase their coordination and purchasing from Russia of all places.
What’s evidently clear from the above combined with the physical infrastructure damage that has occurred and the stoppage of, you know, physical transit through the SOH is that we’re squarely in the hope versus physics realm. The hope camp is, mostly justifiably, looking to what’s behind the door of this war ending while the physics camp points and screams at higher prices for oil, energy and food which every human and company on Earth needs.
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The other benefit the hope camp has, whether “fair” or not, is that the immediate to short to maybe mid term damage is almost exclusively applied to APAC and European countries. For better or worse, and as we saw with covid, markets don’t care until the chaos reaches the United States. If that happens, we’re almost certainly facing some sort of, maybe wildly short lived, global recession. And finally, for the good news, if that doesn’t happen and things are more or less wrapped up in a couple weeks then hope wins out, at least in the short to mid term, through the aforementioned charts of oil, dxy, yields and the vix.
Correlation algos, along with myself and countless other traders, will see those four key assets almost certainly systemically trade lower as everything related to risk on is bid as a result and the endless hedging and puts are wound down. Fun! Binary outcomes of hell, where schrodinger’s market takes center stage until either side is achieved. In the scenario where the risk off assets trend lower, inflation and oil shortages are actually short lived I fully expect crypto to be the fastest horse out of the gate so let’s end the macrolarping there and talk about the coins.
Cryptographic Currencies
Relative strength, new paradigm, digital gold, safe have assets, outperformance. Look at it, it’s beautiful! If we, you know, ignore all of the price action that took place since October and just focus on what assets have been doing since the start of the Iran war, then there are few better assets to own on Earth other than cryptocurrencies, oil (and energy broadly + some agricultural stocks/assets), the US10Y and the US dollar.
Jokes aside, the real and observable relative strength of BTC and the coins has been impressive in an absolutely chaotic environment. Of course, as is usually the case, relative strength usually comes after the coins have already derisked which is clearly the case since October. While a week or two of this outperformance is not uncommon, unfortunately usually before some more downside as it was lagging all along, a month+ of it increasingly becomes notable. Coins selloff first, coins bottom first.
As you can see from the above image, while BTC and the coins have outperformed essentially all other risk assets since the Iran war began, they also haven’t gone anywhere, outside of some wicks to both sides, for two months now. If you thought trading tradfi markets during this chaos was making you insane, add in trading crypto on top of that and you booked a one way ticket straight to the insane asylum (speaking from personal experience over the past few months).
While I have been incredibly bearish equities, and more marginally bearish coins specifically after rallies within the range, one of the questions I continue to ask myself is who is left to sell spot coins? The endless chop has been wildly frustrating, but if you haven’t already sold coins to do the Iran War, quantum fears (though perking up again), Saylor’s increasing shenanigans (most of the maxi crowd still celebrates this), after the liquidations of 10/10 and wick on the initial strikes of the war, oil consistently being 100+ while equities selloff, the droopy endless selling of the past 6 months and BTC miners liquidating their coins for AI pivots why would you sell now?
Riot Platforms sold $290M worth of BTC during Q1
Core Scientific sold 1.9k BTC for ~$175M in January
Two important caveats to the who is left to sell thesis. First, a lack of sellers does not mean there are buyers trying to barge through the door. Second, and probably most important, there are still countless coins in the hands of Saylor, Tom Lee and various DATs (though predicting and timing any selling or forced selling of that is a fool’s errand in the short term). Additionally, ETF buyers have largely been diamond handed and after a decline of holdings since the October top, they’ve been net buyers again throughout March.
Price is not the only thing endlessly chopping around as total open interest, outside of two spikes, has been flat along with most coin prices since February. As you can see, total OI is back to hanging around levels that we haven’t seen since April of last year (which was the cluster of weeks around 80k between the initial run to 100k+ and the eventual top of ~125k in early October). Again, I’m not convicted in an absolute price bottom, but (outside of Saylor and the DATs again damnit) there is incredibly little leverage in the system and sellers seem mostly out of coins.
While there are smallish intraday and intraweek moves, the story is similar to schrodinger’s stock market and endless hedging where you can see funding pretty quickly flip negative when price action, headlines or news are not supportive. With all of that being said, the charts, specifically the weeklies across most coins still look bad and BTC is almost certainly in trouble if 65.6 to 65k are lost. For the reasons laid out in the macro section I still unfortunately think lower before higher is more likely but once again that can be changed with singular war headline. I’m comfortable enough buying some BTC + IBIT, HYPE & LIT here and there just in case, as I have been doing since the initial strikes of the war. Even if we end up lower which is still my base case of now, I think it’ll likely be mostly wicks on longer time frames as the appetite for BTC, and the coins broadly, has been clearly demonstrated at/below these levels.
With BTC coverage out of the way, we’ll once again consult our chart of performance since the initial strikes on Iran but this time solely focus on notable tokens. One of the first things you’ll note is the dashed line on March 25th. As you can see, that has been the local top of the rally for most coins while BTC also locally topped at ~72k on that date.
I highlight this as one of the most important things you can do coming out of down trending and/or bear markets is to understand what assets, whether they’re coins or stocks, lead markets to the upside. Of course it’s not rocket science that when BTC locally tops, so do even the strongest coins, but often times with the strongest alts it can provide immensely valuable signal. Coming out of the ‘22 bear market, one of the most profitable and reliable trends that lasted for months to arguably even years was watching SOLBTC and SOLETH to tell you whether we reached local exhaustion or it was risk on.
Moving forward, I’m highly confident that last cycle’s early stages signal in the SOL pairs will now be found in the HYPE pairs. Monitoring HYPEBTC and HYPEETH will almost certainly provide a good overall signal for the broader market moving forward. On that note, the current HYPE weakness is also one of the reasons I remain relatively cautious crypto markets here as it has consistently bled since March 18th. Of course knowing where BTC is headed is the most powerful all knowing being, but having another asset or two to help you gauge overall risk is wildly beneficial. I think it’ll be wise to lean bullish when HYPE is leading and bearish when HYPE is lagging.
Speaking of HYPE being the new SOL pairs, I’m also pretty confident that SOL pairs are the ETH pairs from last cycle. Since the downtrend began it’s been reliable in signaling that the market is becoming tired and I don’t see what changes that moving forward. ETHBTC was a giant red warning flag for rallies to stop last cycle and until something changes I’m viewing SOLBTC as that continued signal moving forward.
While I’ll have a longer post on HIP3 soon, (along with stablecoins/agentic payments and other nuggets that I cut from this article given the length already) it’s worth highlighting how ridiculous the growth of HIP3 markets, volume and open interest has been. As the above charts show, HYPE, outside of BTC of course, is far and away the token with the clearest PMF and growth trajectory. Again, to me last cycle this was clearly SOL based solely on the infinitely superior UI/UX for trading it was the major token to watch. It’s not new or groundbreaking news, but through HIP3 and the volume of HL alone, HYPE is positioned to lead majors moving forward.
Lastly, as the comparison of coins chart since initial strikes shows, the major coins of interest moving forward for me are: HYPE & LIT (perp barbell, more on that later), ZEC (non-corrupted major alt ((no saylor, tom lee, DATs, etc)) with quantum & privacy tailwinds), TAO & maybe VVV though almost certainly late here (ai beneficiary tokens), MON (has been incredibly resilient at/above IPO price, TVL/activity climbing, far & away most interesting new L1 imo) & ZRO (connection layer to all token movement, actually impressive tech). My weight of holdings in these coins, in order, currently is BTC, HYPE (close), LIT, ZEC, & MON. I’m still mostly patiently waiting on ZRO and it’s a bit frustrating to not have been more on the ball with TAO and TAO subnets but alas, can’t catch ‘em all.
I’ll leave it there for today as it has been a long journey to finally get the pen back, but it feels incredible tbh. As mentioned, I’ll be back weekly moving forward and also have a standalone post on all things HL, HIP3 and agentic payments/stablecoins coming in the near future. If you enjoyed this and want to encourage/support future writings, share with a friend, retweet, send me a dm, etc. Good luck and godspeed in the order books this weekend and next week, maybe there won’t actually be long days (lol)?
Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.
