FED Pauses, Deficits explode—BTC hits ATH as risk builds

TLDR:

• FED Signals Delay: FED members suggest no summer rate cuts; market shifts expectations to September or October.
• Rising Yields & Deficit Worries: A new tax bill may add $3.8T to U.S. deficits, pushing bond yields higher and pressuring risk assets.
• BTC Leading the Pack: Bitcoin is breaking into all-time highs, but the broader crypto market hasn't followed yet.
• Outlook & Strategy: If BTC enters price discovery, expect capital to rotate into majors and altcoins; otherwise, prepare to accumulate on dips to $95k.

Topics covered:

• FED Speak This Week.
• The Tax Bill & The Market's Reaction.
• Cryptonary's Take.

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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FED speak this week

This week, on the data front, there aren't any major releases, and therefore, there isn't much to get excited about. However, this week we do have a plethora of FED speak. So far, the most notable of these is FED Member Williams (a voting member), who said "it's not going to be that in June or July, that we're going to understand what's happening. It's going to be a process of collecting data and getting a better picture".

This is a key FED member essentially suggesting that the FED will be taking the summer off, not cutting rates. As a result, the market is now pricing in the first Interest Rate cut to come at the October FED Meeting, but the September Meeting is still on the table. But, to put this in perspective, just 6 weeks ago, the market was pricing for the FED to cut at the July Meeting.

Our view is that it's still very possible that we see a slowdown in the economic data (due to high uncertainty) over the summer, and therefore the September Meeting is still in play, for an Interest Rate cut.

What's next

With $3.8T in new deficits looming and 30% of U.S. debt needing refinance this year, markets are nearing a flashpoint. If yields break higher, the rotation into hard assets could accelerate overnight. Will you be positioned on time?

The tax bill & the markets' reaction

Another topic of interest for markets is the new, large budget reconciliation bill that's working its way through Congress. This bill is essentially re-laying out where and how the US is going to increase and decrease its spending over the next 10 years, with there also being adjustments to taxes.

The expectation for the bill is that it'll increase deficits by $ 3.8 trillion over the next 10 years, with the majority of it being front-loaded in the first 5 years. Essentially, this means that the US are continuing to print money with deficits continuing to increase at an alarming rate.

This is despite DOGE and the lack of impact DOGE has had in reducing the deficits. The result of this has been a downgrade in US debt from Moody's, and Bond Yields have continued to move higher, which is concerning for the Treasury that must refinance nearly 30% of the total US debt this year, at far higher rates than that debt was previously issued at.

US10Y Yields are now pushing towards their recent highs, alongside the US30Y Yield breaking above its range highs. Historically, rising Yields have put pressure on risk assets.

US10Y Yield 1D Timeframe:

US30Y Yield 1D Timeframe:

Currently, there are multiple narratives that support Yields moving higher. These are the fiscal and budget concerns, and then the fact that the macro data has come in more positively than expected recently, potentially pushing recession fears slightly further out.

This big question has recently been around the dominance of the dollar, and the concerns around the fiscal situation in the US have resulted in a more general move out of US Treasuries from market participants and the 'hard' assets catching a bid. That is Gold and BTC.

Gold 1D Timeframe:

However, despite the bid in Gold and BTC, we're not really seeing this spill over into the rest of Crypto, at least not yet. Sure, we've had some pockets of the market that have seen relief rallies, but many coins remain well below their all-time highs.

We're not seeing animal spirits in the market, and this may not come until some of the Trump policy uncertainty is behind us, which would give the FED greater clarity, which would then open the door for them to begin cutting Interest Rates again.

However, there is another scenario in which we could see a more meaningful amount of liquidity flow back into Alts/Meme's. This would be Bitcoin breaking out above its all-time highs and going well into price discovery.

With that being said, today we have seen BTC break up into its all-time highs. If price can meaningfully push higher into price discovery, that'll likely be a catalyst for retail to start flooding back in, and result in liquidity flowing into riskier assets like Alts and Meme's.

If BTC breaks out (above $110k) or it can consolidate above $105k and then break out, the expected target would be $120k.

BTC 1D Timeframe:

So far, the rally in BTC is just that, isolated mostly to BTC, hence we keep seeing Dominance push higher (BTC outperforming the wider market). In previous cycles, we have seen BTC move up first, Dominance go higher, and then, when BTC consolidates after having gone into price discovery, that's when ALTS make their respective breakouts and Dominance comes down for a few months. An indication of this would be BTC.D breaking below its uptrend line.

BTC.D 3D Timeframe:

Cryptonary's take

This remains one of the trickiest market environments of recent times, with volatile price action just adding to that. Overall, the outlook remains really 'hit-and-miss' with the economic data holding up, but showing signs of slowing, whilst the whip-sawing policy out of the Trump administration increases the level of uncertainty.

This means risk appetite in markets is reduced until either the uncertainty clears, or the FED steps in and lowers rates, which won't happen unless the uncertainty is removed or there is a material breakdown in the macro data.

However, the "hard assets" (Gold, and now BTC) have broken out, and if BTC goes into price discovery, we'll have to get more risk-on in the Majors, and we'll also look to potentially pull the trigger on some new plays. Previously, BTC going into price discovery and then consolidating has always brought about new opportunities, which we've been fantastic at taking advantage of.

If BTC can't go into price discovery, then a pullback into $105k is the most likely outcome, and if that support cannot hold, then $95k will be on the cards. $95k is where we'd look to accumulate BTC again. But if BTC goes into price discovery, we'll look to deploy our capital into the other Majors, which we then would expect to play catch-up to BTC.