Bitcoin-Massive Deleveraging coming you have been warned!
Sometimes you have to pull back from the noise and see the world from a high altitude, like a HALO jump with full combat gear on as I did in the days of yore.
The stocks, bonds, currency markets are still the tail that wags the dog and a wholesale deleveraging event is coming. In short, Bitcoin is about to be punched in the face. Let me explain.
It boils down to one word. Leverage, wholesale de-risking in the equity, bond and currency markets is coming as negative gamma builds like a coiled spring at the S&P options strikes and other large tech names.
Like it or not, this will have an big effect on the BTC market as pension funds and hedge funds are forced to de-lever and unwind easy money bets. This would include all their winners, loser etc especially made in the over leveraged UST and MBS markets which will have a spill over effect into every market. Think of looking at your screen and the only thing green is you VIX!
The first shot across the bow, was Yellen coming out and talking about tapering 100BN/month, and I sent out an alert to everyone I trade with and they didn't understand why it was critical, sort of "meh", was how it was received. The equity markets however, didn't like it and she quickly walked backed her statements.
This issues around leverage have been slowly gathered steam all day, which the Fed Dallas President came out today and doubled down on Yellen's initial comments and said tapering is in the cards.
Goldman's Prime brokerage had this to say:
In a world of Pension Funds/Hedge funds starving for yield, leverage has been the only solution, fueled by C-Suite buy backs and record levels of margin debt, the stock market has been like a Yamaha running at 17,000 rpm with little room for error. Any blip in the, leveraged UST/buy- tech- equity crowded trade" is going to be a brutal unwind as everyone heads for the doors at the same time.
Hedge funds have seen it coming and have been taking their positions and have been brutalized for being first to party but wrong on timing. There is more evidenced by the 'thin prints' at record highs as the bear trap squeezes those first to the trade.
The final, nail in the coffin from the financial perspective, is the euro/dollar whales stepping into the market betting on rising rates. It is an enormous market and you should spend sometime down that rabbit hole if unfamiliar, in short its a big deal.
Now for the policy implications. If I could I would post every Ag commodity (monthly chart), metals chart, etc. as you will see they are parabolic.
Also in the real world an entire Dollar store quit as they were disgusted that a living wage is not sustainable and inflation is soaring across all sectors.
There is no need to put your helmet on and rock back and forth under your desk just yet, but instead it might be a good idea to raise some cash create a shopping list and grab some popcorn cause its coming. Options positions across the board in May and June are a tell in all markets as risk is accumulating.
Again this will be nuts and if you have never traded a wholesale deleveraging event they can be brutal. Additional evidence of the same, comes from the mini BTC's being offered just last week as this reduces margin in such high volatility environments and we may for the first time in our analysis find that the bears are short, and in this case, I don't think their wrong. Also the smart money is leaving the market 100-10k absolute addresses...why?
We often focus exclusively to on chain analysis, (which is good) but it is also imperative to consider external factors as they can potentially bleed over into your metrics to help you try and makes sense of the undercurrent.
Grab your popcorn pull up a chair and enjoy the show cause it is about to get brutal, IMO.
Why is the smart money bailing?
If the futures pumped us up to these heights with dwindling supply perhaps we should watch the futures for the other direction as well? If banks are pulling leverage from PF/HF's are they limiting other trading firms as well....? We will see.
Soybean...Pick any commodity chart ...they all look like this....
LT I think BTC does well (not bearish) just need a healthy pullback to rest the euphoria....
FOMO mentions via San trends...
Houston we have a problem...if the leverage isn't sucked out of the system soon we will be going to the grocery stores with digital wheelbarrows.....and that process will leave no market unscathed. Again just my opinion, FWIW, and be careful....
Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.