06 Jun 2023

June Outlook: Momentum Mori

Now is the time to buy options with far-dated expiries and read a good book over the summer while you reinitiate your BTC accumulation.
Market Wrap Up

The blow-off top that never came

Last month I played around with the idea of the close relationship between the 2019 fractal and the current price trajectory. I stated that I would sell if we were to experience a surge towards $40k, while I, back then, remained neither a seller nor a buyer. The 2019 fractal did not play out as BTC momentum faltered in May, and we entered a choppy environment. I now expect the chop to ensue. There are relatively few catalysts ahead, and we enter a season typically affiliated with shallow volumes and activity in the crypto market. While ever so boring, the time to resume accumulation is now. If BTC follows any previous cycle playbooks, the coming year should be rather slow until we approach the halving.

Supply on its way

Silk Road-related BTC held by the U.S. government did not hit the market in May. Thus, the assumed bi-monthly batch schedule of the selling of the Silk Road coins was wrong. The remaining 41,500 BTC are still held in bc1qf and bc1qe. If the second batch does not move by the end of June, I am inclined to believe that the U.S. govt is selling its batches in an OTC arrangement, with the final on-chain settlement occurring by the end of the year.

Macro matters – Or does it?

Correlations between BTC and other major equities have diminished in the past few months. This changing regime should be understood by all, with the key takeaway being that a critical source of the current market fluctuations stems from flows from within, with a considerably lower contribution to the flows to and from outside capital. Limited institutional activity and limited retail activity should keep correlations low in the unforeseeable future. With that said, major economic events will likely still contribute directionally in the short term. The next week’s back-to-back CPI release and FOMC interest rate decision should enhance short-term volatility in BTC, while the long-term impact of the events is far more unclear. Down the line, a regime with destabilization and a policy pivot will ensue, and then BTC may again recouple properly with risk assets. Meanwhile, BTC’s return towards an uncorrelated regime represents clear diversification for investors with wide investment strategies. BTC may again resume acting as a solid diversifier, strengthening risk-adjusted returns while investors await the inevitable unpredictable changing economic environment somewhere down the line.

Was the Monday sell-off justifiable?

As the largest crypto exchange in the market, regulatory developments related to Binance are clearly relevant. Still – Binance’s path in the U.S. market has been challenging for a long time, and Monday’s SEC lawsuit follows a long list of U.S. governing bodies aiming to take down Binance. While the lawsuit suggests questionable handling of customer assets, providing grim flashbacks to the FTX collapse, the primary focus on the recent lawsuit and CFTC’s lawsuit aims to limit Binance’s presence in U.S. markets. One may argue that the sell-off was justifiable as yesterday’s developments represented yet another sign of relative hostility against the industry from U.S. regulators. However, a substantial amount of the focus from U.S. regulators of late has been directed towards Binance and, in extension, cleansing the U.S. crypto market from foreign forces, potentially culminating in a shutdown of Binance US. Bitcoin is classified as a commodity. Americans can purchase BTC through a plethora of exchanges, exchange-traded funds, payment apps, and more. Binance.US is not a significant loss. Liquidity could consolidate further towards Coinbase and Kraken, but the market should not crash 5% on these developments.

Cheap IV, time to take some directional risk

Options are currently pricing in extremely low volatility ahead, and it is getting increasingly more irresistible to add directional risk through options. The 29 Dec 28k strike is in the money from 31k, a viable path and price area to surpass by year-end.
I brace for choppy conditions throughout June and will resume incremental purchases as we consolidate, adding to my directional exposure through cheap options.
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