• crypto, much like tech or meme stocks, attract the last tranche of liquid capital. After bonds, stocks and private credit

• since COVID, liquidity has been plateauing/shrinking by the Fed ➜ liquidity not able to reach all aspects of crypto, especially altcoins

• for "tide to lift all boats" scenario where everything pumps regardless of quality or rationale, we need liquidity events (eg 2008 GFC, 2020 COVID)

• else it's selective diversion of liquidity from one area of the market to another

• the $BTC ETF is a good example of an endogenous catalyst that diverted liquidity from stocks into crypto and for a while diffused into other close proxies

• but given that it's also narrative driven, there is bound to be reversal of that flow and we are seeing it now. The main liquidity hypothesis still holds

• liquidity conditions in US still tight. 2 cuts in 2024 is highly suspect and the swaps mkt is pricing in a total of 175-200 bps of cuts all through to 2026. That's 7-8 cuts over the next 2 years.

• for context the Fed hiked 11 times sinc Mar 2022 and not all hikes were 25 bps

• we plot Fed Liquidity against $BTC price over a short time frame

• we can clearly see the lead-lag effects between liquidity and price, both on price rises and falls

• Note #1: the Fed is reducing liquidity again in the monetary system

• Note #2: $BTC do seem to have an "intrinsic" floor that is a function of recent-bias and price which is less sensitive to liquidity conditions

Think this is a good framework to think about long term price action from macro perspective.

For any price predictions on assets (eg. altcoins), I will be looking for any catalysts for liquidity provisions by the Fed that will drive speculative assets further down the risk curve.

Macro indicators like RRP and TGA balances will be useful metrics to monitor. As for bigger drivers like recessions or crises, I reckon we will see it in the news