Catalysts cleared

Macro

We got the rate hike that the market started pricing in a week or two before. Odds sat in the mid-60s two weeks out and reached 93% on the day after August CPI printed hot on the 11th, the committee went 25bpd to 3.75-4.00% in a 12-0 vote, the first increase since July 2023, and 16 of 18 policymakers pencilled in at least one more this year. The projections do not show inflation back at 2% before 2029.

Looking ahead, the dots point to one more hike and then a hold at 4.00-4.25% through 2027, while the market prices three more to 4.50-4.75% by the second half of next year. A slightly hawkish hike was the best outcome for growth assets. A dovish one with the 10-year at 5% would have cost the Fed the credibility it spent the summer rebuilding.

Looking at the quilt above, crypto took the top three slots on the board and the Nasdaq was the only equity index in the green, while the Russell sat at the bottom and the Dow posted its worst week since March. The curve flattened on the hike, with the 10-year back at 5.006% on Friday after its first trip above 5% since July 2007 while 20Y+ Treasuries gained, and the Bank of Japan hiked to a 31-year high on Friday with more signalled.

Brent closed down 1.3% near $103 after trading near $110 early on as Saudi Arabia routed cargoes through Oman, but Hormuz still runs near 10 million barrels a day against more than 20 million before the conflict and Bab el-Mandeb crossings have halved since the Houthis took Perim Island on 11 September. Why the recap? Oil prices from here will largely define whether the October hike gets priced (~55% today).

Digital Assets

CLARITY and the FOMC were the two catalysts we set out four weeks ago as deciding the trajectory into Q4, and both resolved last week. Cloture failed 49-50 on Tuesday against the 60 required, and Atkins and Selig pledged the next day to write crypto rules under existing SEC and CFTC authority. BTC dipped below $76,000 on the vote and the tape reversed inside a session once the hike printed. CLARITY was a long shot and the agencies are filling the gap, so the failed vote cost the market one session.

ETF show us that the recent move is more than just a perp driven squeeze. Flows show $746M out across Tuesday and Wednesday, then $159.5M back on Thursday and $433M on Friday, the strongest day of the week, for a net of roughly $6M over five sessions. The entire CLARITY outflow was replaced within 48 hours. ETH ETFs recorded net outflows on the week, so the institutional bid remains BTC-first even as ETH led in spot.

Albeit already resolved to the upside this morning, the range held last week. BTC traded $75k to $81k and ETH $2,350 to $2,600, with the low printed on the CLARITY session and the high on Friday as inflows returned, and the $81,159 weekly close landed above the 50-week average for the first time since early November after 44 closes below it. The August move initially looked like a pure short squeeze at the time and has resolved into a range that held its first two macro tests.

Our take:

“Both catalysts cleared and the range broke, so this week is about establishing new levels and absorbing profit taking. BTC breaks range as focus will likely shift back to majors."

Both catalysts cleared and the range held, so we stay constructive. As of Monday morning both BTC and ETH have broken above their range tops within hours of each other on roughly $250M of short liquidations before US hours, with BTC now trading at $86k for an eight-month high.

On the option side, we see increasingly buying low-delta year-end calls and call spreads on BTC and ETH and the live debate is whether the $126k all-time high comes before year-end. The ATH debate is premature, and the fact counterparties are having it tells us positioning has moved from hedging the range to owning the upside.

BTC dominance rose again this morning through the first leg of this move and gave way to alt rotation two weeks ago, which is the normal early-cycle sequence, and a fresh leg of BTC price discovery should lift dominance again before flows recycle down the cap curve.

The 50-week average acted as resistance through every previous bear market on the chart, and the March 2022 reclaim was the one that failed into a lower low. We, like many others, would read this reclaim as confirmation that the June low holds.

The week ahead is another one littered with macro headlines from ten Fed appearances, flash PMIs on Wednesday, Xi in Washington from Wednesday to Friday with the bilateral on Thursday, and the quarterly expiry on Friday. However, we’d argue the big one (FOMC) is behind us for now.

We’ve just broken through the range. Here it’s about establishing new levels and absorbing some profit taking. Sentiment is clearly confident in year and the foundation of the move is looking healthy. We would expect focus for this week to shift back to BTC, ETH (w/ Glamsterdam), SOL and HYPE ($100). For the moment the excitement feels healthy. Green candles heal the soul