In this report:
- Nvidia Earnings.
- The Dollar and Bond Yields and Their Effect.
- Current Portfolio Approach.
- 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.
Nvidia earnings
Nvidia makes up 6.9% of the S&P, and its biggest customers are the Big Tech companies. So, Nvidia doing well is a sign that Big Tech is still spending on investment, and we're likely to see a continuation of growth driven by this capital investment into AI.Today (after the closing bell), Nvidia released their Earnings. Previously, they consistently beat their earnings estimates, and then they raised earnings forecasts. The expectation going into this evening is that, once again, Nvidia will beat expectations.
However, this is somewhat priced in to the stock price, so Nvidia will now need to comfortably beat to hold the price. Alongside this, investors will likely look to see if the number of buyers (of the Nvidia chips) broadens out.
Currently, five companies (Big Tech companies) make up approximately half the demand for Nvidia chips. For the stock price to rally further, Earnings will need to beat expectations and also likely see that the buying demand is broadening out to more companies.
If we get this, the S&P will likely react positively, and the risk-on environment can continue.
The dollar and bond yields
Over the last 8 weeks, we've seen the Dollar and Bond Yields drive higher. This is due to increased confidence from market participants in economic strength as the data continues to show this.Bond Yields have been driven higher as market participants look for more risk-on exposure (in equities, etc) rather than the "safety" of Bonds. Therefore, bonds have sold off; yields are up.
Bond Yields are now back in the mid-4 %. This is reasonable considering the economic strength, and the FED looks to be dialling back some of its future interest rate cuts as inflation stays sticky at a high of 2%. There is also less of a need to bring interest rates down dramatically, considering that the economy is strong at present.
US 10Y bond yield 3D timeframe:
Alongside this, the dollar has also moved drastically higher as the market prices out some of the future interest rate cuts due to US exceptionalism - strong US, weaker Europe, etc.- are cuts in the US and more in Europe. The dollar gains in value against the Euro.
Another component of this is that the market is also pricing in the possibility of strong tariffs under a Trump regime. Tariffs increase prices, meaning imports likely decrease, and therefore, there's less general demand for foreign currencies, so their value against the home country (US Dollar) decreases. Economics 101.
So, the market is pricing increased tariffs under Trump and fewer interest rate cuts. Both of these increase the value of the Dollar.
Historically, an increase in dollar and bond yields has tightened financial conditions, and it usually results in a risk-off environment. However, due to economic strength, a likely pro-crypto, and a reduced regulatory regime under Trump, the risk assets of crypto have rallied under these conditions.
The potential change in the regulatory regime is likely the dominant factor at play here as to why BTC and other Majors have rallied as they have. This is despite financial conditions tightening with the Dollar and Bond Yields going meaningfully higher over the last 8 weeks.
DXY 3D timeframe:
It is now quite possible that the Dollar Index and Yield will move higher and are now mostly priced in. There may be further to go (up), but it's quite possible that the 'meat of the move' has been had here.
If we're right, this would mean that the Dollar Index and Bond Yields might be at the top in the near term here, and therefore, a pullback is on the cards. This would be beneficial for risk-on assets, such as BTC and Equities.
Current portfolio approach
We believe we're in a great spot here from a medium and long-term approach. We're moving into a period where regulation will decrease (particularly for Crypto), economic strength is likely to hold, and the FED is likely to continue along a steady easing path. This is all very positive for Crypto.Alongside this, many of the on-chain pricing models suggest a 2025 cycle top might be somewhere between $115k and $145k for Bitcoin. There's still a long way to go.
We're now also in that part of the cycle where Bitcoin goes on a mad run, and the rest lags BTC. So, BTC Dominance is up, with ALTS and Meme to catch up with Bitcoin price performance in the coming months/quarters.
We can see this with BTC breaking out and now substantially above its all-time highs. However, Total3 (the total Crypto market cap, minus BTC and ETH's market caps) is at cycle highs but nowhere near 2021 highs. We believe this is all still to come.
Total3 3D timeframe:
But...
In the immediate term, the two core Majors we're looking at (this cycle) are BTC and SOL, and they both look quite extended to the upside. Now, we are in an extremely positive phase of the cycle, and the market is pricing in the Crypto spaces' new potential value under a pro-crypto administration.
So, it's possible prices continue to grind higher. However, both BTC and SOL do look cooked in the immediate term. Both are up substantially whilst their indicators are in overbought territory and printing bearish divergences (higher highs in price and lower highs on the oscillator).
The last time BTC was this overbought and printed this bearish divergence, BTC fell 17% in a week. If that were to happen again, and from the current price, that would put BTC at $78k.
BTC daily timeframe showing divergences and outcomes:
Now, we don't necessarily expect this as we are in a much more positive environment. However, it's possible that a pullback in the price will occur in the short term.
We're not looking to sell any positions based on this, and we're definitely not looking to Short. But we would refrain from putting in fresh capital at this time if there is a more meaningful pullback (we don't anywhere near as deep as $78k; maybe it's as shallow as $87k); this would be where we'd put fresh capital to work.
If we do have a pullback, we expect that might be where Meme's bottom is (we think they've already done the majority of their pullbacks, even if BTC sees a more meaningful pullback).
Cryptonary's take
We'll keep this super simple, and we'd almost recommend that you read the section above again: 'Current Portfolio Approach'.Ultimately, we're in a new and much more positive regime, with many models suggesting that we're in the 'euphoria' part of the cycle, but we're likely just at the beginning of it.
We're looking to let Spot positions keep riding, and we're only looking to add fresh USDT upon meaningful pullbacks. We expect the coming months/quarters to be really positive for Crypto.
Sit tight in Spot, and let the market do the hard work for you.
Recommended from Cryptonary
