The next two weeks are critical
MacroTactical Crypto #22
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Today’s note is 1,500 words (6-minute read)
The next two weeks are critical
The most stunning feature of this bear market in crypto is its monotonic relentlessness. There is no sneaky underlying bull narrative to occasionally catch the market short. Nobody cares how oversold things get. The bounces are miniscule. What was once a massive flood of FOMO money trying to get in is now an equally raging torrent the other way.
Recent news that Three Arrows Capital is struggling and unconfirmed reports that it may be insolvent is the tip of the iceberg as many smaller funds quietly liquidate levered positions. The nature of the biz is that most crypto hedge funds are run by true believers and as such, there is very rarely much of a short base on the institutional side. Long only, pretty much.
The tide takes a while to turn in a bear market because allocators and real money flows are slow. You have a meeting in October, another meeting in December, authorize the $40 million disbursement in February and the money gets deployed in March. Flows into and out of hedge funds always lag performance and market prices because there are delays in the process in both directions. You can’t just drop money in and take it out on a whim like an ATM. There are gates, lockups, and other measures that mean when an asset class turns lower, it will still see inflows for 3-6 months before the outflows start.
Crypto inflows look to have stopped in April. The outflows are coming soon.
Tracking flows
You can track crypto flows various ways but my favorite way to track flows in any market is to look at the movement of price by day of the month (and sometimes by time of day). Here is the cumulative return of bitcoin by day of the month since crypto peaked in November 2021.
BTC cumulative performance through the month (since November 2021)
This shows that bitcoin is sold continuously at a steady pace throughout the month but then bounces in the final week. This is most likely new institutional inflows being put to work ahead of the turn of the month. This next chart displays the same idea in a different format. I have circled the last week of each month so you can see how the end-of-month effect has dissipated.
You can see that inflows appear to continue until March… and then April and May there’s pretty much nada…
This is a paid note. The rest of the note talks about why these next two weeks are critical and why if we can hold 20000 into July, it’s super bullish (at least in the short-term).
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bd