Tuesday, Feb 6, 2024

financial conditions in China and the US + what that means for crypto + a fund manager survey

“Not to be absolutely certain is, I think, one of the essential things in rationality.” – Bertrand Russell ||

Hello everyone! I hope you’re all doing well.

You’re reading the daily premium Crypto is Macro Now newsletter, where I look at the growing overlap between the crypto and macro landscapes. There’s also usually some market commentary, but I don’t give trading ideas, and NOTHING I say is investment advice. For full disclosure, I have held the same long positions in BTC and ETH for years, and have no intention to either buy more or sell in the near future.

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Note: I’m speaking at BlockWorks’ upcoming Digital Asset Summit conference in London on March 18-20. Normally I say no to conferences, but this is one of the very few worth travelling for. If you’re thinking of going, it’d be great to say hi, and here’s a discount code you can use: CIMN10.

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IN THIS NEWSLETTER

• Interesting things going on in China

• In the US, signs of easing despite inflationary pressures

• What macro fund managers are thinking

WHAT I’M WATCHING

Interesting things going on in China

Yesterday, I wrote about the painful rout in Chinese stocks, and how that could be a tailwind for the crypto market by finally triggering broader stimulus for Chinese investors.

The authorities are scrambling to stem the outflow, and it appears they are having some success: all the main indices rebounded in today’s trading, with the CSI 1000 surging almost 7%, its largest jump since 2008.

Over the course of the day, the Chinese Securities Regulatory Commission implemented even more rules to curb short selling, banned some quantitative hedge funds from placing sell orders, and directed others to not cut stock positions. And there are signs that state-owned companies were heavy buyers. Central Huijin Investment, which holds Chinese government stakes in big financial institutions, said it will continue to increase holdings of exchange-traded funds (implying it has already been doing so). ETF volumes seem to confirm this.

(chart via Bloomberg)

Why would that help the crypto market rather than just stocks? Because if state-owned funds are buying, someone is selling. And domestic sellers could be looking for an alternative unrelated to the Chinese economy.

What’s more, the outlook for the yuan is increasingly tenuous – it’s not just the likely increase in the rate differential with the US should China have to lower interest rates for stimulus reasons before the Federal Reserve does. (The likely increase in the rate differential with Japan, which is expected to increase official interest rates early this year, is also significant.) Chinese investors are probably also concerned about the money printing that could be needed to fund the market interventions, which are unlikely to be over any time soon.

Indeed, BTC is not falling as much as you would expect, given the continued walk-back of US rate cut expectations, the climbing DXY dollar index, and the overhang from the likely redemptions of Genesis Global Capital’s GBTC holdings.

Could it be because of buying from Asia?

Check this out:

(chart via TradingView)

Over the past couple of Chinese trading sessions, BTC has climbed. When Europe and the US take over, it drops.

This divergence highlights how investors tend to look at markets through a local lens. Investors in regions with weak economic outlooks and volatile currencies are likely to focus on Bitcoin’s long-term capital preservation qualities. Those in relatively stable regions are likely to see BTC as more of a risk asset, and trade according to expected moves in liquidity. Bitcoin’s diversity of theses is one of the many factors giving its price a relatively strong floor.