Seeing an uptick in FUD thanks to a ~20% drawdown that was previously covered this weekend by Weston already.  Thought a little pep talk about the real risks and rewards was in order as well as an affirmation that everyone needs to be their own risk manager before they get deep into the trade.

Folks, you need to realize that the same reasons you are in this asset for on April 14th haven't changed over the weekend because of any event, much less Japanese retail getting cold feet suddenly.  Stop looking for reasons for things to occur and start realizing that a 20% flash crash is par for the course when looking at an asset that appreciates over 100% in a quarter.  You can do all the prep work, and something completely unrelated takes you out at the knees.  That's life.

Humans are trading this, and have real gains on the line.  Someone is going to decide to take profits and run eventually.  You need to understand where you are and what your risk is.

You need to understand your risk before you go into a trade, or else people are GOING to scare your ass out of the trade.  You need to take ownership of why you are in a trade, properly size it so that you can sleep at night, and do your own risk management.  If you are uncomfortable with being in an asset that Mike Green says is going to zero, then you shouldn't be listening to Raoul to be irresponsibly long until you decide for yourself who is right and who is wrong.

Take around this time 2017 for example:

In 2017, we lost both the 50-day and 100-day moving averages around March of that year.  Everyone was bullish in Feb, and crying in March, and by the end of April, it wasn't clear which direction we were going.  But they recovered the 50-Day and the 100-Day, the dip was bought, and on we went.

That was then, and this is now.  One market in the past on the same asset has nothing to do with the other.  You need to understand that this is exactly what the asset does and be prepared for it.  No one hands you a potential 10x upside with no risk.  They are going to try to take it from you.  You need to understand why YOU are in the trade and live with the potential downside.

2021 by comparison:

So far, they are threatening the 50-day, but the story isn't finished yet.  See where the 200-day moving average is?  Back at 33K.  You need to understand that your risk is that wide, and plan accordingly.  This thing has been bought faster than in 2017 when you look at the disparity in upward slope and moving averages.  

Past performance is not indicative of future results. But you need to understand what you are getting into and not freak out with random FUD articles every time a bump in the road is hit.  I slept like a baby last night with my ~15-20% correction.  I'd love to wake up to $80k, but I knew I could wake up any day and see $30-45k and realize that I left money on the table and that I have to consider that the top might be in. Wake me up when we go below $30k and I'll have some real regret, but I know that going in and my eyes are open.  Yours need to be as well.  Don't do the risk management AFTER the risk is realized.  

THIS is what a drawdown looks like in Bitcoin:

If someone figures out how to do a double spend, we will wake up tomorrow and owe Mike Green an apology for ever doubting him.  At some point in the next 24 months, our current chart will look like the above chart in 2018 no matter what happens in Bitcoin and the crypto space.  At some point, it will overheat and need to come back in line with the trend.  All things I believe wholeheartedly.

Not all of us will get out at the right time, and we need to understand that.  That is investing, there are no guarantees.  Some of you reading this are going to lose money, maybe even me.  At a minimum, you aren't getting out at the top.  Forget it.  You probably aren't that good and won't time it perfectly.  Manage the risk to your own tolerance on an ongoing basis.

Remember though that some power outages in China, Japanese retail getting skittish, or a series of nation-states you can't even find on a map banning Bitcoin are not going to change the dynamics of how an entire asset class performs overnight.  Bitcoin market cap represents the growth of new technologies right now.  

Relax with the FUD, and do your homework before you get in too deep.  FOMO is how 99% of people lose money.  They jump before they look because someone else told them what to think about something and they themselves didn't do the work.  There is no room for regret here, the market will sense that weakness and take it from you in a heartbeat.

Know the risks so that you can sleep at night, and live with the consequences.  This is the most competitive intellectual game in the world, and everyone is playing against everyone else.

Pep talk over.  Now you know, and knowing is half the battle according to 1980's GI Joe cartoons.

Retail is alive and well, Coinbase is bouncing around the 420 level.  That is WSB price action.  Gonna just let that one play out for a bit on the sidelines, thanks =).

I'll let the article and the paper do the talking:

https://www.zerohedge.com/crypto/former-cia-director-destroys-yellens-illicit-crypto-use-fearmongering-narrative

https://cryptoforinnovation.org/resources/Analysis_of_Bitcoin_in_Illicit_Finance.pdf

So I missed this on Thursday because I was selling a house and not paying as close attention, but what the heck happened to the GEX on 4/8?

https://squeezemetrics.com/monitor/dix
 

Data on squeeze metrics goes back to 2011, and we have never seen this much positive gamma on the GEX:

With this much mm-positive gamma, we are rangebound as long as the GEX is up here.  As the market moves, market makers will be acting as a counterweight in order to maintain a market-neutral book.  I don't know what is the underlying condition causing this, but I was shocked when I found a minute to go thru the data I normally do and I spotted this.

Any ideas from you derivative guys who understand these mechanics better are welcome.  I'm just getting up to speed on this and I have zero theories so far.

Also, a hypothetical question:  

I'm not a short-term trader, but am I nuts to think that hypothetically if I was going to do a butterfly trade at any point in my life, this would be a good sign if I could find one that was worth putting on?  I mean, to a novice like me if I am going to bet that the market sits still for this week, something like this would be what I am looking for.  A market so tilted toward positive gamma that market makers are actively trying to keep the market exactly where it is in order to keep their book neutral.

(Note:  Don't do that trade based on anything said here, I don't understand it and I am not recommending doing it - and I'm not going to put one on even if it is a good idea.  It is just novice theory and I want to check if my understanding is correct).

¥ > $

Props to @Weston Nakamura who has been all over how influential JPY has been post-March 2020, and whom without his posts, I wouldn't even be looking at BTCJPY today.

So it seems that over the past 2 weeks, we have been bouncing like a pinball in ~$1k increments.  But nothing visualizes that as good as looking at BTCJPY.  When you draw outlines in ¥100,000 increments from ~¥5.9 million thru ¥6.6 million yen, you can see just how tight Bitcoin is moving to JPY price levels.

Need more proof?  Graph USDJPY after Turkey fired the central bank head (that weekend highlighted).  It has become the same chart.  There was 'some' correlation before, but it has gotten very tight in the past two weeks.
 

So what is going on?  Hard to say, but the Japanese Yen appears to be the single most important fiat to follow in order to spot emerging trends in macro right now (based on Weston's work), and it is currently having a major influence on the direction of Bitcoin recently.  When Erdogan fired yet another banker, something broke in JPY that is still trying to sort itself out.  

I am paying close attention to this right now given the fact that this pattern is a rising wedge that is scheduled to break before or on April 15th.  If we get some JPY strength in the next two weeks, we may need to brace ourselves for one of those pullbacks Bitcoin is known for.  Further ¥ weakness (if the correlation holds - remember that all correlations are transitory when it comes to Bitcoin) indicates Bitcoin strength.
 

GBTC vs BTCUSD
But there is some other interesting stuff at work too that might be good for Bitcoin.  GBTC's discount to BTCUSD closed somewhat today and may be showing signs of trying to break out of its recent downtrend.  This has happened before, so I'm not going to hold my breath till we actually see BTC rise.  But this downtrend has preceded the consolidation period we are in now, so if we start seeing a premium again (or just get back to even +/- 2%) then that might indicate the supply/demand of GBTC is coming back into balance from the recent arbitrage trade.  

https://www.bloomberg.com/news/articles/2021-03-10/-slam-dunk-bitcoin-arbitrage-fizzles-for-biggest-crypto-fund

I don't think we go back to 100% premiums now that ETFs are coming online (and that trade was so damn crowded that with the downward GBTC pressure you can kind of do a buy GBTC / sell BTCUSD arbitrage right now if you wanted to), but if you are in Bitcoin, you want to see a small premium in GBTC to show that retail demand is still there.  Continued GBTC weakness may not be an immediate concern, but it isn't something that should be allowed to get worse if we are still in the bullish phase.
 

Overall, my bias is risk-on, but with the understanding that BTCUSD is not immune to outside influences.  We are now high enough into the bubble phase of this cycle that you have to be paying attention to what is going on around you.  The safety of the BTCUSD growth channel is below us now, and we will need to keep our ear to the ground to tell when the price action is about the Bitcoin bubble itself, and not the macro influences flowing around us.
 

And remember, at the end of the day, in my view Bitcoin is a representation of monetary growth and asset price inflation.  Thus, we need to pay attention to all of the bubbles around us:
 

https://qz.com/africa/1983610/bitcoin-draws-millions-of-workers-sending-their-money-abroad/
 

From the article:

it’s become a cost-effective way to transfer money throughout the developing world. Nowhere is this clearer than in Nigeria, where the central bank is so worried about Nigerians choosing cryptocurrencies over the naira for overseas remittance payments that it is now paying them to use official channels for those transfers instead. The central bank announced the scheme after international remittances inflows plummeted last year, as more Nigerians abandoned official banking channels by turning to cheaper cryptocurrency exchanges. The move came on the heels of a nationwide crackdown on banks dealing in cryptocurrencies, which the government enacted in an attempt to counteract the naira’s declining value.

And there is the real threat to Nigeria, India, and other jurisdictions that rely heavily on labor abroad sending remittances home.  Their margins are getting cut, so they are taking an ignorant action in an attempt to stem the tide of progress.  That never works.  This is one example of decentralized finance cutting into the margins of traditional finance and disrupting the industry.  And it doesn't even require a smart contract to have an impact.

To turn back the tide, central banks have been scurrying to build out official digital currencies to compete with private crypto companies. The question is how quickly they can develop those channels as private players rapidly expand their reach. So far, governments banning cryptocurrencies to buy time have found that, in the digital age, blocking enterprising crypto investors from global markets doesn’t work. Die-hards have simply moved on to smaller peer-to-peer crypto exchanges, making traditional outlets look worse.

Blocking access to something does not guarantee that people will not continue to seek it out.  If that were the case, drugs and prostitution would have ceased to exist a long time ago.  All it does guarantee is that you force people to break the law or work against their own best interests.

What central banks REALLY want to go after in my eyes is the stable coins.  That to me is the biggest threat to them.  Bitcoin is too deflationary to be useful as a currency.  Trying to use it as a currency will only see the asset over time concentrate in fewer and fewer hands.  It is much more useful today as a reserve, where you move into and out of in order to avoid counterparty and debasement risks or to transfer sums of money abroad.  

And if something as simple as using bitcoin as a replacement for money wires is able to generate this much reaction, imagine how disruptive smart contracts are going to be to real estate transactions, the collectible space (NFT's), and for generating a private loan market that has no barriers to entry.

As always, I am an idiot and I have zero training.  Do your own homework.

So a side effect of the SLR that bears watching is what does liquidity do when it is forced out of the banks (because banks balance sheets are full)?

https://apps.newyorkfed.org/markets/autorates/tomo-results-display?SHOWMORE=TRUE&startDate=01/01/2000&enddate=01/01/2000

Fed Reverse Repo was 40B yesterday on 22 counterparties, 100B today on 35.  

Deal Date: Tuesday, March 30, 2021
Delivery Date: Tuesday, March 30, 2021
Maturity Date: Wednesday, March 31, 2021
Type of Operation: Reverse Repo
Auction Method: Fixed-Rate
Settlement: Same Day
Term of Operation - Calendar Days : 1 Day
Term of Operation - Business Days : 1 Day
Operation Close Time: 01:15 PM
Participating Counterparties: 35
Accepted Counterparties: 35

 

When was the last time we saw this pattern?  At the end of March 2020 around the time the Fed made it rain:

 

We know where liquidity wound up the last time, in equities.  That was with a ~30% drawdown first, this time we are at all-time highs.  Do we see capital hide?  I don't know.  But the setup looks the same except for the fact that the market hasn't crashed this time (unless you are in TESLA).

Maybe it builds up here till the forced liquidation period is over with these hedge funds and then shoots asset prices up higher again.  Or maybe the margin calls are happening because banks need to reign in lending and are tapping their clients on the shoulder? I don't think we know for sure because we don't know why the liquidity is hiding out in short-dated bills in the first place instead of finding a return someplace.  

Or, if it stays here and builds up while equities show weakness, then anyone who isn't a primary dealer and can't access the Open Market Operations desk has a problem because they are going to have to go into the Repo market proper and pay negative rates to hide out in.

I don't know what will happen, but I never like it when Fed open market operations start showing signs of large-scale activity.  Means something is wrong with the shadow banking market and the Fed is acting as the safety release valve.  

All I do know is there is too much liquidity and not enough collateral for that liquidity to find a home (that it wants to be in).

Watch the Reverse Repo market, and see if this trend continues, or abates after a couple of weeks like it did last time.  And trade tactically right now, this week is not the week to try to YOLO and get rich unless you are holding a Gray's Sports Almanac in your hands and know what happens next.

Random Thoughts 1:

Wonder if Wells Fargo has its restrictions lifted for no other reason than to allow its balance sheet to expand again as Zoltan theorized recently in his blog/report service.  That would provide a place for money to go that has room on its balance sheet.  

Also, if this is money that is hiding that would otherwise look to go into risk if a forced liquidation wasn't causing havoc in the financials right now, then I would eventually expect squeeze metrics to show a very high DIX eventually, cause it went to ~50% the last time the markets turned.  That is almost always a bullish sign for risk.

Check out the DIX on April 1st, 2020, and what the market did after that.  Let's keep an eye out for this before we take on too much risk.

https://squeezemetrics.com/monitor/dix

Random Thoughts 2:

Does the Fed have enough short-term bonds in its inventory to even lend out?  What is the cap, and how soon does that debt roll-off?  

They stopped buying the short-dated maturities and left that collateral to the market with the recent QE infinity.  Those bonds I imagine are going to start to mature soon.  If the demand gets so nuts that the Fed has no collateral to lend, only the Treasury can provide the release value to prevent rates from going negative on the short end.   That is also going to force people to arbitrage between short-term bills and longer-term duration potentially.  How much of this is going to bleed into higher duration as the >1Y stuff that the Fed is still holding starts to expire?  Did they buy enough 1Y and 2Y over the years that are > 1Y till maturity to deal with this issue, or are people going to need to roll up on duration?  

Watch the yield spreads to see if the belly starts getting pulled back towards the Bills.  The 5Y looks to be the pivot on this currently, the 2Y and 3Y pretty much are chilling down with the rest of the bills.
 

Random Thoughts 3:
Also remember, the Treasury is constrained by law to allow their balance sheet to be above the level it was the last time the budget was decided by Congress, so we DO have the potential for negative rates here on the short end if these morons aren't thinking two or three steps ahead of this and don't do something if this thing starts to get out of hand before the budget is resolved at the end of July.  I don't think they are this stupid to allow negative rates by accident, but maybe it is the next phase of the plan or maybe they are more inept than the market realizes.

Just when I was starting to get at least somewhat neutral to optimistic lol.  Here comes more uncertainty.

Second Update:

Make sure this doesn't turn into systemic risk before doing anything, it will overrule anything else short term if this causes a cascade of forced liquidations.  Naturally, I write something, and 4 hours later this sort of stuff shows up:

https://www.zerohedge.com/markets/archegos-fallout-nomura-crashes-after-reporting-record-2bn-loss-transactions-us-client

Update:

I wrote all of the below, then something like this shows up on my radar.  So patience, don't yolo in but don't go max short at the drop of the hat either this week.  Be tactical.

https://www.zerohedge.com/markets/traders-brace-shock-after-archegos-forced-liquidations

As always, I am an idiot, do your own work and don't trade based on what I say alone.  

Bitcoin looks about done with consolidation.

Bitcoin looks to be breaking its bear flag and just needs to come back and retest and bounce off of ~54,500 and move up.  There isn't a lot of resistance above here, the main point being the 1 standard deviation move @ ~58k and the all-time high at ~61k.  If it breaks above that, it should run for a bit.

If you have been looking to get in but haven't been paying attention, you should start taking a look now and planning for what you intend to do. We should know in about 24 hours if this is a fake-out or a legit breakout (I think).  If it falls back into the bear flag, we probably get another retest of the 50-day moving average.  Then it is back to waiting and seeing.

But if you wanted to add to a bitcoin position, you should probably be paying attention this week as a nice entry may show up for you.  

Thoughts for the week

I'm actually thinking this week is going to be a risk-on week, and I haven't said that for a long time.  I'm predisposed bearish, so this isn't my base reaction.  But we got out of March more or less intact, so that makes me optimistic till Q3 that an anvil isn't going to hit me on the head like Elmer Fudd.

I don't see much more on the radar short term that should spook the risk-on crowd.  I mean, maybe people sell and that alone causes it.  But that to me feels like a June story if anything, not an April one.  Most of the near-term land mines that we were aware of are behind us.  

Even the cargo ship in the Suez just makes the inflation crowd pound the table harder because it is going to give a short-term spike to the supply side input costs going up and make them feel ultra-superior.  Wait to see if manufactures can pass on full costs to consumers before declaring the next Weimar Republic though.  I think this ends with disinflation at some point if demand slacks in the face of rising supply costs.

Also, a personal anecdotal observation I made this weekend.  

I live in Clinton Hill, Brooklyn NY.  The restaurants were packed this weekend, seriously packed.  The upper-middle-class was out enjoying the weather and spending money.  Everyone was out.  They did not have enough workers to keep up with the demand.  Rumors of the demise of NYC are premature, at least in my neck of the woods.

Driving back from a datacenter in New Jersey and the city looked almost normal - masks and protests at city hall aside.   Warm weather is coming, the authorities are coming thru with vaccines, and people want to get out.  I expect optimistic news in the short term will drown out even the most pessimistic person.  The powers that be want people to FEEL better.  Expect a massive media push to talk up any good news and bury any bad news.  Don't fight it, but don't be an idiot either.  Q3 is where stormclouds start to lie from here.

Keep an open mind till Q3, when the YoY comparables should be shit and the summer of optimism is over.  That doesn't mean go YOLO into GME; but instead, take a tactical view.  I think right now everyone should be thinking with a 3 month time horizon for any position they intend to trade into or out of for the next 6-9 months.  Now is not the time to try to get rich, so keep a more neutral posture if you aren't in love with holding your position thru a ~30% drawdown because some hedge fund blows up on you and kills VIAC.  But I wouldn't buy into going massive bear short right now either.   This is a good time now to let someone else be the hero, while we sit and wait for the markets to tell us what it wants to do now.

Summary,

Have some patience this week, don't be too predisposed to bullish or bearish.  Watch Bitcoin, I think it signals a risk-on move if it breaks out here.  But be tactical.  The air is thin up here and we still have problems with tech and long bonds to keep an eye on.  Also, if the dollar keeps rising, we will need to have a long hard think about that too.  Dollar strength is not an ally to equities right now.  But if the rug pull was coming absent an unknown trigger, I'd have expected it in Q1.  

I want nothing to do with being heavy short in Q2.  If shit is confusing, take some risk off and chill till you have a better picture.  Not unless something unforeseen gives us a reason to.

 

Well, that is one way to support suddenly sagging oil prices and boost supply-side inflation a bit more.  As if the supply chain wasn't backed up enough.  Murphy's Law strikes again.

https://www.zerohedge.com/energy/megaship-blocks-all-traffic-suez-canal-after-running-aground-bizarre-incident

Probably not an immediate concern, but I don't know exactly how you move a ship that big.  Curious how often this actually happens, and what the fines are going to be to the owner of that ship.  I gotta imagine blocking half of the world trade for a few days costs SOMEONE some money.

https://www.zerohedge.com/markets/turkey-turmoil-again-erdogan-fires-second-central-bank-chief-4-months-sparking-foreign

I mean, what the fuck do you want the central bank guy to do, dude?  You fired the last guy because he wanted to lower rates, you fucking idiot.  He can't fight inflation and make the economy go 'vroom' at the same time.

Seriously, at this point, anyone who invests in Turkey is asking for trouble.  They make Argentina look competent.