30,000-Foot Bitcoin, Rates & Macro Update
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Good afternoon readers,
I write to you from 30,000 feet in the air, on a flight from Boston to Washington D.C. for the Bitcoin Policy Summit. As such, it's only fitting to provide an all-encompassing markets update that is just as high-level.
While spot buyers have made up an increasing share of bitcoin's market structure since the start of April, today's spike above the $71,000 mark saw a commensurate spike in long futures activity. The rate that long positions pay to short positions every 8 hours in BTC's perpetual futures market has doubled from 1.25 basis points to 2.5 bps today. A heightened amount of leverage is behind today's move, making price more susceptible to a forced sell-off if it starts moving in the wrong direction. However, the funding rate is still half what it was last time bitcoin was above $71k on April 1st, signalling that leveraged futures positions are waning in dominance relative to spot BTC buyers. The secular bull market remains intact:
Treasury yields hit new highs for 2024 today as waning geopolitical pressures and a hot economic growth outlook keep the US Treasury sell-off intact. The rotation out of US Treasuries and into risk is readily visible in stock prices, bitcoin, credit, and other risk; and frankly for the Treasury, low appetite for Treasuries couldn't come at a worse time, with the budget for FY2024 coming in more than half a trillion dollars over the approved mark, and the budget for FY2025 eclipsing peak COVID spending by more than $800 billion. The Fed will inevitably be forced to monetize, buy outright, a great deal of what the US Treasury is issuing in order to help fund it and pick up the slack. 10s hit their highest level since November of 4.46%, closing in on the 4.5% level, where 10s could make a run all the way up to challenging 2023 highs of 4.5% given the exceptionally strong US growth outlook. The 2-year UST yield also hit a 2024 high of 4.78% today, as the strong growth outlook has pared back rate cut expectations from three 25-bps cuts to only two this year:
As a result of the US Tresury's deficit which represents more than 5% of GDP, economic activity has been kept propped up even throughout the Fed's aggressive monetary tightening efforts. In the war between the central bank and a runaway fiscal problem spurred on further by the desperate need for election votes, the fiscal side has won out completely and totally. Business profitability remains very positive and is expected to boon in the rest of 2024 and into 2025. FY2024 profit estimates for S&P 500 companies are all higher than 2023, with the quarters we currently have estimates for in 2025 also higher than all quarters in 2024:
The downside to strong growth is strong price inflation, or at the very least, a very low likelihood that CPI inflation falls from where it is now. Spending is strong in a high-growth environment, and with CPI and core CPI still well above the Fed's 3% target, we will be hanging out here for the foreseeable future. Barring an unanticipated economic shock that induces a recession, this area above 3% and revolving around the 3.5% area could be where we hang out for the long-run, your wallet be damned. Economist expectations for Wednesday's CPI report is for the yearly rate of price inflation to rise from 3.2% to 3.4%, the 10th month in a row that CPI inflation has been above 3%. As I said, if a recession doesn't come wherein spending slows dramatically, this is the new normal. Almost twice the rate of annual price increases we've experienced on average for the last 25 years. Hold assets and hold them tightly, we can't rely on the competence of those in Washington to save us:
Final thought: Elizabeth Warren is on my economy flight today, a stark change to the usual private jet. Buying votes for November? Most likely.
Take it easy,
Joe Consorti
Theya is an app for simplified Bitcoin self-custody. With our Modular Multisig solution for self-custody, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store and secure your bitcoin with ease.