Monday, March 18, 2024

watch the projections, macro impacts, MSTR strategy + speculation

“There are things known, and there are things unknown, and in between are the doors of perception.” – Aldous Huxley ||

Hi all! I hope you had a great weekend! Crypto markets didn’t… but bigger picture, my friends, bigger picture. Below I talk a bit about the macro shifts behind the macro shifts driving the recent moves, what this week could bring, and how the MSTR strategy highlights an intriguing twist to BTC speculation.

Programming note: I’m at a conference this week, so publishing will be infrequent and irregular. The next one after today probably won’t be until Thursday, and will be written on a train heading up to Scotland (assuming I can string a sentence together – I’m not used to being with lots of people over a stretch of time, not sure if my brain will still work!).

IN THIS NEWSLETTER:

• It’s not the rates, it’s the projections

• What MicroStrategy’s big bet says about BTC speculation

If you’re not a subscriber to the premium daily, I hope you’ll consider becoming one! You’ll get ~daily insight into the growing overlap between the crypto and macro landscapes, as well as some useful links, and (usually!) access to an audio read of the content. And there’s a free trial!

WHAT I’M WATCHING:

(skipping the usual price table this week due to irregular publishing)

It’s not the rates, it’s the projections

The main macro event this week is Wednesday’s FOMC meeting, which is unlikely to deliver any move on fed funds but which could trigger some volatility with an adjustment to the Fed’s economic projections, particularly its expectations of rate cuts for 2024 and 2025.

In the latest release, the Fed lowered its forecast for end-of-year fed funds from 5.1% to 4.6%, which the market celebrated. It’s likely that they will be raised again, if not this week then at the June meeting, since inflation seems somewhat stuck.

It’s not so much the lack of signs that the economy is slowing down that is the issue, there are some of those (retail sales were weaker than expected, manufacturing is not doing too great) – it’s the lack of the conclusive signs the Fed keeps saying it needs. What would they even look like? Presumably it would include signs of a weakening labour market, as well as a sharper slowdown in services activity. And it would need to stretch over a few months. Since we’re not seeing that yet, it’s now almost certain there won’t be a cut in May, and even June is looking unlikely.

Between now and June, however, there are three CPI prints that could all come in to the downside, with no unpleasant surprises? I hope I’m wrong, but I’m skeptical.

So, we could see an upward revision to the official rate projections, which the market will probably not like. Expectations of this are one of the things weighing on crypto assets – over most of the weekend, BTC extended its post-PMI drop (although as I type on Sunday afternoon, it’s starting to recover).

(chart via TradingView)

This news will soon be digested, and crypto attention will shift to focusing on the halving and the continued dilution of fiat currencies.

Meanwhile, the Bank of Japan meets on Tuesday, and just might break an eight-year streak of negative interest rates with its first hike in 17 years. If so, we can expect the US dollar to resume its downward trend, at least initially, which should further boost crypto assets.

(chart via TradingView)