“The Q-Trap” - Arthur Hayes Condensed

Key Points

Tl;dr: By the end of the second quarter in June of this year, Bitcoin and Ether will have tested these levels: Bitcoin: $30,000 Ether: $2,500. Buying crash June 2022 puts on both Bitcoin and Ether. Previously wrote that ETH will be trading north of $10,000 by end of year. 

original post: https://medium.com/@cryptohayes/the-q-trap-f1a38312f00f

To Buy or To Sell?

• The inconvenient truth that haunts crypto at this current juncture is that crypto moves in lockstep with the debt-based, un-free risk asset markets like global developed market equities

• On a 3-5 year horizon, Bitcoin reaching $1 million and gold reaching $10,000

Big Bad Tech

• Justified or not, the market lumps crypto and big tech in the same cesspool. The Nasdaq 100 Index (NDX) represents big tech

• Short-term (10-day) correlation is high, and the medium term (30-day and 90-day) correlations are moving up and to the right 

• As long as the 10-day correlation stays high, we must stay defensive on our crypto positioning

• Big tech will suffer due to rising nominal interest rates, worsening global fiat liquidity conditions, and falling economic growth

Free Monay!

• In this age, valuation is based not on discounted future cash flows, but Metcalfe’s law (a principle that says when it comes to networks, users = value)

• Unprofitable tech, such as ARKK, got smacked as UST 2-year rates rose. Big tech (NDX) has been saved for now by a few profitable names, but even it has traded lower 

Ski Boots

• The Fed and most other major central banks are currently engaged in a theatrical performance of “fighting inflation”. The goal is not to actually fight inflation, but to appear to fight inflation so that domestic politicians can survive an angry populace that works more but can afford less

• Central bankers must tighten, tighten, and tighten some more, but not too much — because positive real rates would completely destroy the debt-based global economy

• The market tripled its expectation for the total number of rate hikes in 2022 from 3 to 9. The Fed ain’t playin’

China Can’t Save You

• In the aftermath of the 2008 Global Financial Crisis, China stepped up to the plate and re-inflated the world. China embarked on one of humanity’s biggest quests to print money and build stuff

• Created a faulted perpetual GDP growth machine

• Beijing knows it has a debt problem, and appears to be attempting to not make it worse. The West is on its own

Kuroda-san’s Bazooka

• Japan already reflects the rest of the world’s tomorrow

•  Felix Zulauf’s research: He is so on-point. His general thesis is that the tightening of liquidity globally will lead to a deeeeep, short-term correction in global equities

• Japan, even though it is pursuing accommodative monetary policy, can’t save the world’s risk asset markets because its bazooka is a pea shooter when compared to the Fed’s

Technical Analysis for Dummies

• If the chart and the fundamentals line up, then technical analysis has value. Mostly believe it’s a convenient tool for confiscating money from traders who are desperate to find a blueprint for making cash money as quickly as possible

• The NDX bounce failed at the 61.8% Fibonacci Retracement level, and will continue lower towards and below 10,000

It’s Time for the Percolator

• The Fed is done caring about whether equity investors are up on the year. That game is over. It’s all about credit. Watch the BBB 2s / 10s spread for a sign the Fed is about to abort the mission and juice the markets higher once more

• Global growth will decline on higher commodity prices driven by the continuation and possible escalation of the Russia / Ukraine war. This, in absence of accommodative central banks, will also weigh negatively on stonks

When War Over?

• Oversimplified analysis is that the war ain’t ending anytime soon. And if the war ends, it probably means some sort of partition of Ukraine into two sections — one Western and one Russian. If that happens, would the West reward Russia by immediately removing sanctions?

• Higher prices are here to stay, and global growth — which is a derivative of the cost of energy– must slow. Therefore, slowing growth will take global equities down with it, unless buttressed by ample liquidity from central bankers who are supposed to be fighting inflation

Crypto Crash Helmet

• The crypto capital markets are the only free markets left globally. As such, they will lead equities lower as we head into the downturn, and lead equities higher as we work our way out of it. Bitcoin and Ether will bottom well before the Fed acts and U-turns its policy from tight to loose

• Nothing is certain — Ascribe probabilities to outcomes and trade accordingly. Fully believes there’s a chance market prognosis might be wrong. Only lose the option premium paid on the crash protection

• Will be wrong if the correlation between Bitcoin / Ether and NDX starts dropping before a crash in risk asset markets