Soaring liquidity to boost crypto in Q3: Are you positioned?

The message remains similar to what it has been in recent weeks, as this message and portfolio have been outperforming. 

There will be a time to be more heavily risk-on (diversify), but we think that time has not yet come.

TLDR

• Macro backdrop will likely improve liquidity conditions in Q3, potentially boosting crypto markets.
• Fed rhetoric on rates is shifting, requiring close monitoring for impact on risk assets like stocks/crypto.
• Large Caps Index shows Solana keeping it afloat; this signals the need to be positioned in the Solana ecosystem ahead of a potential alt-season
• A breakout in the new cycle memes index could fuel a rally in that meme sector.
• We still think your portfolio should remain concentrated in majors (BTC, ETH, SOL) and bluechip memes (WIF, POPCAT) until broader risk-on conditions emerge.

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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This week's macro and data overview 

This week, we have a plethora of Fed-speak and then Core PCE on Friday. 

The PCE data is the most likely to move markets if there is a meaningful upside or downside surprise (the further away the print is from the consensus, the greater the surprise and, therefore, the market move). 

The expectation is for Core PCE to come in at 0.2% or 0.3%; the lower, the better markets will take it. 

But, before Friday's data, we will see more Fed-speak. Yesterday (Tuesday), Minneapolis Fed President Neel Kashkari explicitly said that 'rate hikes aren't completely ruled out'. 

In Powell's last Fed Press Conference, he pushed back on any more rate hikes, which the market, of course, took positively. But, the market has reacted slightly negatively to Kashkari's comments yesterday. 

Eyes will now be on New York Fed President John Williams on Wednesday and Thursday to see if he has a similar tone to Kashkari. If so, the market may take this as a pivot in Fed rhetoric, and we may see a small/slight sell-off in risk assets (equities). 

For now, this isn't something that should worry us from the crypto point of view, but it's something to be wary of, as the major indices ($SPX and $NDX) will move on this, and that can impact crypto. 

Liquidity and its effect on the markets

General market liquidity is one of the main indicators I (Tom) use to gauge whether crypto prices will increase or decrease. 

In April, we began to see stalling or flatlining in liquidity, which led me to make my call of a range-bound market, prices-wise, throughout April and May—this is what we've mostly got. 

But how does this look moving forward? 

We're now moving into a period where the Treasury General Account has previously drawn down by $250b, which, if we were to get again, would be a liquidity injection for markets. 

Alongside this, the Fed will begin tapering its balance sheet in June, down from $95b per month to just $30-35b per month. With fewer assets being run off the Fed's Balance Sheet each month, this improves liquidity conditions. 

We would expect the markets (especially the crypto markets) to begin reaping the positive benefits of the above from July/August onwards, assuming we see the follow-through.

Cryptonary's market indexes

Let's now take a look at the indexes. 

We will be looking at the Large Caps Index with and without Solana. 

We'll also be looking at the recently built custom memecoin indices. These indexes help us to gauge how certain sectors within crypto are performing and how they're looking/set from a technical analysis point of view. 

Large caps index with SOL

Looking at the Large Caps Index with SOL, we can see that it has bounced from the horizontal support of $65 and moved higher to retest the $95 level. The horizontal resistance of $100 is the key level for price to clear above of. 

If/once price clears above $100 on this Index, we'll likely see a full-blown alt season. In the short term, however, it's possible we will see a retest of $75 on this Index. 

You will notice that this Index looks much weaker TA-wise but WITHOUT SOL. This is a clear signal to us that SOL is holding the Big Caps Index up, and when we diversify, we want to be positioned in that ecosystem.

Large caps index without SOL

This is the Large Caps Index without SOL. So, it is a weighted basket made up of AVAX, LINK, DOT, and MATIC. These are all major caps, but not this cycle's gems. 

This chart doesn't look great from a TA perspective. Price lost the horizontal support zones of $20 to $22 and then immediately broke the uptrend line (yellow line) below. 

Since then, price has formed a bear flag which is yet to break down. The positive part is that price is in the upper half of the flag and, therefore, possibly has a chance of breaking to the upside and invalidating the bear flag. However, just above it, there is a horizontal resistance of $20. 

Ultimately, we see this chart as likely being range-bound for more time. Again, the breakout will likely come in the upcoming months when overall market liquidity is expected to improve or if there is rampant demand for the ETH ETF.

Major memes index

This is a weighted Index made up of DOGE, SHIB, PEPE, BONK and FLOKI. We use this Index to gauge whether the older, more recognised and established memes are moving. 

We can see that price has broken out of the downtrend line and now also got above the horizontal resistance of $0.07, having retested it as support and bounced. 

The overhead resistance is at $0.09. Price is likely to be range-bound for more time between $0.07 and $0.09. But, a breakout of $0.09 and memes as a sector will likely send. At that point, you want to be allocated to the organic, new cycle plays.

Let's now examine the new cycle memes, mixed with some of the older memes that we think can also be winners this cycle. 

New cycle memes index

In this Index, we have a weighted basket of PEPE, BONK, WIF, POPCAT, and MYRO. Note that we are still experimenting with this Index, so its components and weightings may change over the coming weeks. 

But let's dive into this one and assess it from a TA perspective. This chart has been locked in a pennant pattern for the last two months, with prices being range-bound between $0.58 and $0.90 for the last six weeks. 

However, in the last few days, we have seen price breakout of the $0.85 horizontal resistance as price has also broken out to the upside of the pennant pattern. 

Now, if price does pull back slightly in the very short term, we'd like to see the $0.90 level retested and hold as new support—old resistance flipped into new support. 

If we were to get that, it would be a very healthy setup that could potentially help price test its prior highs at $1.30.

Cryptonary's take

Until liquidity improves—which we think will happen in Q3—we'll keep our portfolio more concentrated by having just the Majors (BTC, ETH, and SOL) and the bluechip memes (WIF, POPCAT—maybe TREMP if you got in early). 

We have maintained the above stance with regard to our portfolio for some time now, and honestly, it has paid dividends. 

We've managed to reap the upside of the majors, BTC and ETH are 10% moves away from cycle highs, whilst SOL is approximately a 20% move away. However, many ALTS are a 35%-50% move away from retouching their cycle highs. 

And the Blue Chip memes (WIF and POPCAT) have also held up well. This portfolio overall has protected us from major downside (holding big altcoin bags wouldn't have done this) whilst we've also been able to partake in the bright spots within the market. 

For now, the message may sound somewhat repetitive, but this portfolio has outperformed, whereas if you had held large altcoin bags, you wouldn't have the same performance In these times, remain patient and let the Spot market do its work for you. Don't let range-bound price action chop you up via leverage trading, for example.