Relief

Macro

Two things drove the relief, and they pulled in the same direction for once.

First, May CPI. Headline came in at 4.2% YoY, a third straight monthly acceleration and the highest since 2023, but it landed in line with expectations. That distinction is the whole story. The bond market had been bracing for a hotter print that would force Warsh hawkish even sooner, and it didn't come. Core was the better signal, softening to 2.9%, which hints the energy-driven impulse is peaking rather than broadening into services and wages. After three weeks of the market fearing a double-dip inflation spiral, an in-line print was enough to exhale.

Second, and bigger, the Iran conflict ended. After more than 100 days, Trump declared the deal complete on Sunday, authorising the reopening of the Strait of Hormuz and the removal of the naval blockade, with a formal signing set for June 19 in Switzerland. Brent has collapsed from the low 110s to the high 80s over the past month, down 6.6% this week alone. The geopolitical risk premium that has driven this market since late February is unwinding fast, and it's dragging the dollar (DXY -1%) and yields (10Y back to ~4.50%) lower with it. Lower oil feeds directly into the softer forward inflation path, which is why the CPI and the ceasefire reinforce rather than fight each other this week.

The cross-asset tape tells the relief story cleanly. Russell 2k led at +4.0%, Nasdaq +2.3%, alts +3.1%, BTC +1.9%, while Brent sat dead last. Risk-on rotation, energy premium bleeding out. The one laggard worth noting is the long end: 20Y+ Treasuries only managed +0.8%, because 4.2% headline inflation caps how far yields can fall even as the war premium comes out.

All of this combined are a set up for a genuinely difficult FOMC. Headline at 4.2% argues for higher-for-longer. Softening core and collapsing oil argue the impulse is temporary and the next move could even be a cut. No one expects a change Wednesday, so the dot plot, the updated projections, and Warsh's first press conference are the entire event. How he frames that tension, whether he anchors on the headline or looks through it to core and oil, sets the tone for the back half of the year.

Digital Assets

To read this week you have to start two weeks ago, when the whole complex fell more than 10% and BTC dropped 14% in a single week. The crypto-only crowd pinned it on Saylor selling 32 BTC and the capital worries that followed. The reality was two other drivers: (i) a broad risk-off rotation on rising inflation fears and the strong NFP, (ii) plus the crypto-specific confirmation that the run from the low 60s to $83k had no further legs. That was a bear market rally, now confirmed as one.

This week was the bounce. BTC recovered off the low 60s to close +1.9%, alts +3.1%, on the in-line CPI and the ceasefire. ETH was the notable laggard, down 0.4% on the week while everything around it rallied, continuing its relative underperformance. Nothing structural changed here. This is high-beta risk reacting to a better tape.

Step back and we've now had three drawdowns of more than 20% since last October. The difference is character. The first two were directional selloffs. This last leg from $83k to $60k was a bear market fakeout, the kind that chops up bulls and bears in both directions. Perps and options show little appetite for directional exposure, which is normal here. Barring a headline, consolidation into the summer is the base case.

The harder question is when this turns, and the answer runs through liquidity. Crypto is still a macro asset, an escape valve for excess liquidity, and that liquidity arrives through three funnels: stablecoins, ETFs, and DATs. None is reversing. DAT AuM has fallen to ~$140B from ~$220B, and outside Strategy, Bitmine and Strive, fresh raising has effectively stopped. ETFs just printed their longest outflow streak since launch, and last week didn't mark a turn. Stablecoin flows are draining on the same trend.

Worth remembering how the last cycle actually started. There was a low and a recovery, but the real move started with ETF approval in early 2024, which was fortran and the capital it brought. If the thesis is a blast back to $100k, the question is where that capital comes from, with institutions now sidelines and retail busy trading leveraged ETFs and single-name equities. Until this turns, a bottom call feels somewhat premature. We need to see structural changes in momentum behind stablecoin mint/redeems, ETF flows and/or DAT activity.

Our take:

“Don't get chopped up

Risk-reward in the low 60s looks attractive longer term, and each flush leaves a higher-quality, more convicted holder base behind. That's not the same as the bottom being in. It's not ruled out that we trade into the 50s before any of this improves. Positioning has cleaned up and net selling pressure has eased, but that's on dwindling summer volumes.

The one thing to watch is flows, not price, not headlines. A sustained turn in ETF and stablecoin inflows is what marked the real move last cycle, and there's no sign of it yet. The message into this tape is not getting chopped by going too hard on any rally.

Near-term, Warsh on Wednesday is the catalyst. A dovish read on softer core and lower oil extends the relief; a hawkish read on 4.2% headline ends it. Beyond that, the Switzerland signing Friday between the U.S. and Iran are the events that matter.