DK
@dkcrypto13
Short version of what I think is happening in markets: In tradfi there are two positioning imbalances. They are driving markets incl crypto. Positioning is almost always the driver outside of truly catastrophic news or truly outrageously good news. Either kind of news is absent.
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DK
@dkcrypto13
The first imbalance is a hugely profitable and long lasting JPY carry trade. Funds take debt in JPY and invest in USD to pocket the interest rate differential and even the USD appreciation. Bonds are good collateral so leverage can be high.
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DK
@dkcrypto13
When it became clear the Fed would lower rates and Japan would raise them for the first time in 15+ years, the trade began to unwind. This caused the mini crash at the beginning of August. That was the most levered participants panic selling. Now the unwind continues.
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DK
@dkcrypto13
Second imbalance is opposite to November 22, when everyone was thinking tech stocks will die and “value” would rule the decade. Got into a few X fights then when I said $GOOGL & $AMZN below $100 were steals. Now all c 50-75% higher and magnificent 7 are every fund’s top holdings.
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DK
@dkcrypto13
The best example is, of course, $NVDA. They reported better than expected earnings across the board and better than expected outlook that saw everything rise c 100% annualized. But the stock is down. Why? Everyone already owns it 🤷🏻♂️. This is true to a lesser degree for most tech.
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DK
@dkcrypto13
Now this positioning was faced with economic data that went from “growth without inflation” (= goldilocks) to “wait we may have a slowdown and inflation is still lingering a bit”. That caused portfolio managers to adjust their books a bit & they can only sell what they own (tech)
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DK
@dkcrypto13
People have adjusted their books to “mild recession in the US with no large inflation issues” in this move. If data points that way, typical market forces (markets always want to go up, there is more liquidity over time etc) will resume. Possibly with a tilt to tech & small caps.
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DK
@dkcrypto13
Crypto is squarely in the “tech” bucket at the moment. Falling interest rates should benefit the sector strongly, but only after people have built down their excess positioning from ETF hype and when it is clear rates will actually fall sustainably without a huge economic slump.
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