Crypto shrugging off rates

Macro

The national debt crossed $40 trillion on Wednesday's Treasury print, and the same day the Treasury announced it will at least double its long-end buybacks to at least $4 billion per operation from September 9, targeting the 10-to-30-year sector that has seen a buyers' strike since late June. The bond market faded the fix inside a day, with the 30-year back near 5.23% on Thursday, broadly where it sat a week earlier, even as Bessent insisted the $4 billion could grow further, and the sell side was unsympathetic, with some even calling it a a soft-form financial repression.

The quilt above shows that rotation, and the shape matters more than the numbers. Oil sits on top because Middle East tension kept crude bid into a CPI print the Fed cannot look through, which is the loop that keeps hike odds pinned. Under it the board splits into the assets that need Fed easing and the assets that do not, with equities stalling flat, duration and gold the only red prints, and crypto taking the three spots directly behind oil. A hike-repricing week is historically when crypto bleeds with the rest of risk, and last week it led everything except oil, which is the anomaly the rest of this piece is about.

Crypto has historically sold off during weeks like this. A hawkish repricing is usually when crypto bleeds with the rest of risk, and instead the three crypto lines took the three spots directly behind oil.

We have argued since the June low that the next crypto cycle needs equities to lose some steam first, and last week is the first clean read of that thesis with the tape holding a hot jobs number that equities could not. Capital leaving exhausted equities and a consolidating gold trade is finding its way into crypto, and that is a reallocation story ahead of a macro one. Equities are losing froth after the AI run and situational awareness, which is a different thing from a bear market, and crypto is the marginal beneficiary.

Digital Assets

BTC pressed on $82k all week, cleared $80k Thursday on a soft ADP print and Waller's comments, and hit $82.4k early Friday, the highest since May. Payrolls then knocked it $3k lower in minutes. It still closed the week up 3.45% and above $80k, so a hawkish surprise was the test for the under-allocated bid we flagged two weeks ago and it passed. $82k remains the level to clear, $72k is where the view changes.

ETF flows are supporting these levels nicely. BTC ETFs took $987M on the week for a third straight positive week, close to $3.8B over the run, after a $237M outflow on Tuesday and a $731M Thursday that was the biggest day since January. ETH ETFs slowed to $215M from $816M with an outflow day midweek, so the broadening we called in W34 has pulled back into BTC for now.

The alt bounce is narrow. DeFi and Layer 2 are flat over two weeks while DePIN and AI have run, and the leaders are the small high-beta names that fell hardest in the drawdown. Majors led, then the perp DEXes and Robinhood Chain names, with UNI up 36% and ARB up 40% since we flagged it midweek.

Over the past 24 hours it feels like something is brewing in the AI names, mostly TAO on its emission gate and December halving pulling ICP, FET and RENDER along. There’s also anticipation for Antropic’s S-1 which could revive appetite for the vertical, however one session is not a trend, it’s still early days. Regarding the current meta, the Robinhood Chain gas subsidy ends late September and is the first test of whether that activity is sustained.

Our take:

“A hot payrolls print couldn't break the tape, and that tells us more than the FOMC will."

Crypto held a hot payrolls print that equities and duration didn't, and the money that left gold and stalled equities showed up in BTC and ETH. That is the equity exhaustion we've been waiting on as the precondition for a new cycle. Positioning is still the main support, with plenty of investors under-allocated, but it now has a second driver in capital rotating over from equities.

Whether June was the bottom is still open. 340 days after the peak BTC is down about 50%, where the 2018 and 2022 bears were down over 75% at the same point and needed 500+ days to get back to today's level. Each cycle has bottomed shallower, 83% then 77% then 50%, consistent with ETF and institutional money stepping in earlier. Breadth is improving and profits from one cohort are funding the next, which is how a young cycle looks. It breaks when a rotation lands on a cohort that doesn't lift or the majors roll over without a new leader.

CPI on the 11th feeds into the FOMC on the 15th and 16th with hike odds near 60%, CLARITY lands the same week. The back half of the month is a supply test, with large unlocks on the names that have led and the Robinhood Chain gas subsidy expiring. Glass half full. We'd revise on a clean break below $72k with ETF outflows turning meaningfully negative, faster if CPI pushes hike odds through 70%.