Market Report #5

Abstraction Capital’s Market Updates provide insights into the crypto market and strategy performance. Please enjoy Market Update #5.

High Time Frame

Although I remain bullish on Bitcoin on a 12+ month time horizon, I believe we could have a sustained pullback in the short term. Bitcoin was rejected at previous all time high resistance with a weekly RSI div as confluence.

The Federal Reserve's meeting last Wednesday was surprisingly hawkish. Contrary to market expectations, which had anticipated multiple rate cuts in 2024, the Fed's dot plot signaled only a single reduction, reflecting a more hawkish outlook. Additionally, the Fed revised its neutral rate estimate upward from 2.6% to 2.8%, indicating a higher baseline for evaluating policy restrictiveness. Surprisingly, the unemployment forecast was maintained at 4% for the year-end, despite prevailing labor market conditions suggesting otherwise. Collectively, these elements point to a deliberate approach by the Fed, potentially prolonging the timeline for rate cuts and sustaining a tighter monetary stance than many market participants had envisioned. It seems if we are going to get rate cuts, it is going to be through the unemployment channel.

Medium Time Frame

Since March, there has been a noticeable pattern where each spike in Bitcoin's IV is followed by a sell-off, resulting in a series of lower highs and lower lows on BVIV (Bitcoin Implied Volatility Index). This trend continued with a recent 10% drop from 55 to 50. The market's behavior of consistently selling off IV suggests an expectation that Bitcoin's price will remain within its current range.

However, historical patterns indicate that prolonged periods of low volatility are often succeeded by sharp reversals, raising the potential for a sudden spike in IV. The upcoming $6.5 billion notional value options expiration at the end of June is a critical event that could prompt significant price movements. With high levels of open call interest at $70,000 and above and substantial put interest at $65,000 and below acting as resistance and support, respectively, many participants anticipate Bitcoin to stay range-bound through Q2. Nonetheless, the end-of-June options expiration might catalyze the momentum needed for a breakout, especially if price movements below $65,000 or above $70,000 occur alongside rising BVIV. The advisable strategy is to wait for clear market signals before making decisive moves. If the quarterly VWAP is lost, a move to the yearly VWAP is expected.

Short Term Developments

Gensler said that ETH ETF trading will go live sometime in summer, which explains the relative ETH outperformance over the last week. With that said, altcoins continue to make lower lows. There is no sustained bid in the market right now, and my worry is that any negative catalyst could cause the market to drop substantially. With crypto twitter in shambles and the only meta being C-List celebrity meme coins, my worry is that a large flush out is more likely than upside.

Cross-Asset Momentum Strategy

The strategy is currently long ETH and UNI.

1 Week Performance	-5.30%
Performance since Market Report #1	-3.91%