Research Summary
The report discusses the author’s perspective on the current state of the crypto market, focusing on Bitcoin and Ether. It outlines potential market scenarios based on decisions by central bankers and politicians, and the author’s planned trading strategies in response to these scenarios. The report also considers potential curveballs from China and Japan that could impact the market.
Key Takeaways
Market Analysis and Trading Strategy
- Market Predictions: The author believes the crypto bull market is in its early stages and predicts a potential washout of crypto tourists in March. This prediction is based on various signposts, including the Reverse Repo Program (RRP) balance and the Bank Term Funding Program (BTFP).
- Trading Strategy: The author plans to short the crypto market using Bitcoin puts and then resume selling US Treasury bills and acquiring more Bitcoin and other cryptos. The author also plans to buy a sizable put option position on Bitcoin around early March.
Key Variables and Probabilities
- RRP Balance: The author predicts the RRP balance will hit $200 billion in early March, which could lead to a sagging financial market.
- BTFP Renewal: The author speculates that the BTFP will not be renewed, leading to a lack of liquidity and potential decimation of the global financial markets.
- Fed Rate Cut: The author anticipates a Fed rate cut in March, which could lead to a sharp decline in Bitcoin but a subsequent rebound before the Fed meeting.
Alternative Scenarios
- Slow RRP Decline: If the RRP declines slower than anticipated, the author will not put on the put position at the beginning of March.
- BTFP Extension: If the BTFP is extended before March 12th, the author will exit the no-trade zone and resume selling T-bills for Bitcoin and other cryptos.
Curveballs from China and Japan
- China: The Taiwan elections could result in a pro-China candidate winning, leading to a surge of yuan credit into the global markets, which could impact the crypto market.
- Japan: If the Bank of Japan allows Japanese Government Bond yields to rise, it could lead to repatriation of capital, potentially placing upward pressure on US Treasury bond yields.
Actionable Insights
- Monitor RRP Balance: Keep a close eye on the RRP balance as it could significantly impact the financial markets and create trading opportunities.
- Stay Informed on BTFP Renewal: Stay updated on the status of the BTFP as its renewal or cancellation could have significant implications for the financial markets.
- Consider Potential Curveballs: Be aware of potential curveballs from China and Japan that could disrupt the market and affect trading strategies.
