Since last update: BTC +18.0%, ETH +55.8%, large cap alts +26.9%, mid cap alts +19.8%, stocks +8.7%, bonds +2.5%, gold +2.7%
1) July is on track to be the best month for ETH since Jan 2021. What began as predominately a short-squeeze (though rumors swirl of several funds allocating 9 figures to spot ETH) has begun to create a bit of an “everyone back in the pool” moment.
The speculation has spilled over to BTC, culminating in the single largest 1 day open interest increases in the history of both products on FTX. Funding rates remain far from extreme but the price action leaves no doubt as to what kind of orders were going through.
2) We left off our last update sharing that we were positioned for ETH outperformance (subsequently vs. alt basket +20%) and a general move higher across crypto (subsequently total market cap +20%).
The case for allocating further here in our view can no longer be made as strongly around a thesis of under-positioning (although compared to last year’s levels, of course this remains) and oversold conditions.
It seems to us that most people buying *today* should believe in several more days of blow-off euphoria to end the current stretch of narrative and performance chasing, or that BTC and ETH prices seen last month were the lows for the year.
3) We think the rally seen in March of this year is the best analog available for the current state of markets. This does not mean our base case is that an equally catastrophic selloff need follow.
In fact, due to the magnitude of losses seen before this, some measures suggest there are pockets of the market that can get a little bit more euphoric should you believe March is the right measuring stick.
Recent price action is a symptom of active trader positioning and not uncommon in bear markets. But it is hard to imagine that the current downturn in equities will end without outflows (unless of course “it’s different this time”).
5) Option prices have rapidly normalized following record put-buying activity last month, even briefly tilting to the call side in ETH. Spot-vol correlation is now the highest since ETH was >$4000 as the right tail becomes more explosive.
6) In summary we have been happy to play along with this rally, but do not think anyone can claim reasonably that adding right now is ‘early.’ We own call options but have removed most of our long exposure in majors over the last few days and await further developments.
