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SwissBorg MacroScope - March 25th

SwissBorg MacroScope - March 25th

Crypto land continues to breathe

Crypto land continues to breathe

Bitcoin and the crypto market are still recovering from their recent run. So far, this correction is healthy and in line with our expectations, especially as it occurred near all-time highs (ATH), which are difficult barriers to break and often require multiple trials.

Will we experience further dips, or is this correction over? Those are challenging questions to answer. However, one thing is certain: our vision of a continuation of this bull market is not being questioned for now.

That being said, let's review what has happened in the past weeks.

The first slow down in ETF flows 

Bitcoin ETF flows have emerged as a critical metric for assessing the overall dynamics of the crypto market. After two strong months of inflows, during which Bitcoin ETFs crushed all past records and became the biggest ETF launch in history, this week witnessed the first consistent net outflows from ETFs, with a decrease of around $886 million.

Bitcoin Spot ETF total cumulative flow
Source: BitMEX Research

This was led, as usual, by outflows from Grayscale , while BlackRock and Fidelity experienced a slower week of inflows. To date, Grayscale has sold approximately half of its BTC holdings. Initially holding around 620,000 BTC prior to ETF approval, Grayscale now retains approximately 350,000 BTC, and this number is expected to continue its downtrend.

Outflows from Grayscale
Source: Coinank

While this situation is not currently a cause for concern, as a slowdown in flows was anticipated at some point, we should remain vigilant. In the upcoming weeks or days, it will be crucial to observe a resurgence in inflows, indicating a renewed interest from institutional investors.

BlackRock is BUIDL’ing

Last week, BlackRock publicly announced that they were launching USD Institutional Digital Liquidity FUND (BUIDL) on the Ethereum network. "This is the latest progression of our digital assets strategy," announced Robert Mitchnick, BlackRock's Head of Digital Assets.

US securities and exchange commission
Source: SEC

The fund invested 100% of its total assets in cash, US Treasury bills, and repurchase agreements and seeks to offer a stable value of $1 per token and pay accrued dividends directly to investors’ wallets as new token each month.

This is the first real practical application of tokenisation of Real World Assets (RWA) from big TradFi institutions. This has huge implications and acts as a signal to the world that tokenisation is being taken seriously and could well have a big role to play in improving capital markets functions.

BlackRock publicly announced that they were launching USD Institutional Digital Liquidity FUND (BUIDL) on the Ethereum network

The halving is fast approaching

The next Bitcoin halving is less than one month away. While this event is known and predictable, the halving acts as a supply shock to Bitcoin and price always reacted positively afterwards .

Source: Hocus Pocus SwissBorg

In previous cycles, the parabolic phase of the run typically started after the halving. While this cycle is behaving a bit differently and moving a bit more rapidly, with Bitcoin crossing its previous ATH before the halving for the first time in history, there’s a lot of reason to think that the post-halving period could be really favourable for crypto land.

Just as a reminder, this is the price performance of Bitcoin following each halving :

Bitcoin price performance 365 days after halving
Source: Glassnode

TL;DR: Don’t fade the halving

Japan raised its interest rates for the first time

The Bank of Japan raised interest rates for the first time since 2007, ending an extraordinary era of negative interest rates. While the new policy rate is set in the 0-0.1% range (a 10 bps increase), which is not a lot, this is a strong signal to investors: Japan is ending its era of loose monetary policy and massive money printing.

Japan raised its interest rates for the first time
Source: tradingeconomics

“We reverted to a normal policy targeting short-term interest rates, as with other central banks,” said the BoJ Governor Kazuo Ueda in a press conference after the decision.

Given that Japan is one of the biggest exporting nations in the world and the biggest foreign holders of US debt, this shift in regime could have a lot of consequences on global liquidity and on the US treasury market down the road, especially if the BoJ continues to tighten up.

While this is too early to tell what could happen, this is a structural macro change that is worth keeping an eye on because ultimately, whatever impacts the US treasury market can have a lot of ramifications on other markets. 

$1.2 trillion in government spending just got approved

President Joe Biden just approved a $1.2 trillion government spending package where 70% of the funding will go towards the US national defence, including investments that will strengthen their industrial base, provide pay and benefit increases to their service members and support their closest allies.

Given the already pressing fiscal situation of the US, it seems that this spending program is yet another step into a potential debt spiral for the US.

Growing spending is the problem

This US fiscal problem is a complex topic and we already covered it in depth in two previous posts: money debasement and debt issuance.

But anyway, the long term ramifications are huge and it seems that this could lead to another cycle of monetary debasement. And guess what? This is the perfect macro storm for Bitcoin and crypto land more generally.

Our Long-Term in-House View

  • We are in a bull market and we expect to see BTC > $100k, ETH > $10k and SOL > $500 as new ATH in the next leg of the cycle.
  • A dovish stance is starting to appear on central banks' sides and global liquidity is in positive territory. Long term, this is bullish for crypto assets.
  • We believe in ETH as the superior asset to Bitcoin for the next decade. Further, our view is that SOL has the biggest potential for consumer app adoption.
  • Our favourite altcoins thematics for the next upleg are Socialfi, Gamefi, DePIN, AIfi & Infrastructure for scalability.

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