“Life is a dynamic rather than a static process, and when we don’t change it kills us. It’s not running away, it’s moving on.” – Irvine Welsh
The bottom half of this Early Look has a lot of juice, so I’ll keep this top half brief.
A major part of what I have learned in my life so far is to follow the money. Find the spigot. Then track where that money flows. In this process we will identify the next major news story and where there is money to be made.
That is what I’ll try to do today.
Back to the Macro Grind…
A new player has entered the scene.
The large institutions are now in crypto and man have they added a new layer to the market. It was January 11th that Bitcoin spot ETFs were approved. Since then, Bitcoin is up 44% and hit an all time high on 3/5/2024 ($68,900).
Let’s first look at historical CFTC positioning to see who is holding Bitcoin and who is profiting. This first chart looks at Non-Commercial CFTC positioning within Bitcoin.
Definition: Commercial vs Non-Commercial: Commercial - If a trader uses futures contracts for hedging as defined in CFTC's regulations (1.3(z). Non-Commercial - someone who has no business activities related to a particular commodity in which they might have a position in the futures or options markets.
We can see that in June of 2021, Non-Commercial holdings did stay net long profiting from the reacceleration into November of 2021. But then overstayed their welcome wearing the entire drawdown from 67,734 till 11,785 (an 83% loss). Then these holders started rebuilding their net long position in 9/12/2023 capturing the initial uptick from 27,405 till 34,680 (a 27% gain). But these holders have remained net short since 10/31/2023 (when bitcoin was 34,680). I think it's safe to say that these holders have not been able to risk manage their positions very well. Wearing an 83% draw down and exiting after a 27% gain.
Now, lets take a look at Commercial CFTC positioning.
A bit of a different story here…
These holders seem to be timing these peaks and troughs quite well. In 2021, they were getting net long up until 8/3/2021, then immediately net short on 8/10/2021. Then repositioned again, to Net long into the peak of November of 2021. Officially getting net short on 12/7/2021 and remaining there until 6/28/2022 (from 50,635 till 18,731). Avoiding a 63% drawdown. These holders swung their positioning around in 2022. But have stayed net long since 10/31/2023 until today. That’s from 34,439 to 66,648, a 94% uptick.
I would summarize these two charts as the Commercial holders are timing this market extraordinarily well. While the Non-Commercial holders are not timing this market very well.
Now that we have established that these Commercial holders are the ones to watch, let’s look at market cap and the flow of money.
Before January 11th, Bitcoin’s market cap was $914B with 24hr volume of $45.8B. Today, the market cap is $1.3T with 24hr volume of $57B. That’s larger than Meta, Berkshire Hathaway, and Tesla.
Where is all of this new money going into you ask? Let’s check out the next chart. Where YTD flows have been coming out of Grayscale and into ETFs (iShares=IBIT, Fidelity=FBTC).
According to Bitcoin Worldwide, iShares now holds 151,536 Bitcoin, Fidelity owns 103,407 Bitcoin, and Grayscale owns 441,814 Bitcoin (as of 2/28/2024). Which combines to ~3.3% of the total market. So yeah, not a huge part of the total ownings, but worth watching in the future.
Here’s another breakdown of holdings as a percentage of the total market: Global ETFs hold 4.5%, Countries hold 2.7%, Public Companies hold 1.3%, and Private Companies hold 2.46%. Totaling 10.99% of the total market.
We can also see from the chart above that 94% of these new inflows are going to Bitcoin with Ethereum in second and other crypto’s not seeing the same type of inflows.
But with the large institutions arriving, the wild west has also returned. All of the people who were pumping you Crypto into the 80% drawdown in late 2021 have returned as the “experts” on crypto. It's pretty pathetic that they still have a platform…
For a little context on why crypto generates so much attention within the retail community, I started tracking ~400 crypto assets. Here are the top performing assets on a 3 Month basis: Mog Coin $MOG (+2,389%), MAGA $TRUMP (+2,297%), Arcblock ABT (+1,381%), MANTRA OM (+1,144%), and Myro $MYRP (+1,072%). Retail sees this, and like anyone is extremely intrigued by the returns… But here is the danger, these coins can and will be down -80% in a matter of days. Just as we saw in 2021, Pump and Dump schemes were at all time highs while Bitcoin was making all time highs (we are at all time highs right now in Bitcoin, making this the same environment). AKA the wild west has returned and it’s the retail community at the highest risk of losing -80% of their investments.
Let’s quickly go back to what was established above. The institutions are NOT participating in this market. They are participating in Bitcoin.
In case you were interested in what MOG Coin does: MOG is not just another meme coin, it's a TOTAL revolution in the world of crypto! We're breaking the mold, smashing through barriers, and leaving a trail of viral memes in our wake! We're on a mission to dominate the internet with the most hilarious, mind-blowing memes you've ever seen.
In case you didn't already know, Hedgeye is launching a digital assets sector to help everyone risk manage these assets. Stay tuned as we continue to dive deeper into this space.
Looking into the overall market and signals for today:
Your best performing ETFs yesterday were: Ether Strategy EETH, Bitcoin Strategy BTF, Palladium PALL, Bitcoin Miners WGMI, Rare Earth Metals REMX, Lithium Miners LITP, Hydrogen HDRO, Junior Copper Miners COPJ, Emerging Markets KEMQ, and South Africa EZA
Your worst performing ETFs yesterday were: Egypt EGPT, Carbon KSET, Cannabis MSOS, Tanker Shipping BWET, Wheat WEAT, Retail XRT, European Cabon KEUA, Nat Gas UNL, and Turkey TUR
Gamma is neutral/barely positive.
China Exports (Jan-Feb) came in at +7.1% YoY vs +2.3% YoY in the previous period, expectations were for +1.9% YoY. Imports were +3.5% YoY vs +0.2% YoY, expectations were for +1.5% YoY. We are waking up to the Shanghai -0.41%.
Since the Russell has gone bullish trend on 2/28. Tesla is down -12.6%, Apple is down -6.4%, and Google is down -5.1%. With all remaining Bearish trend.
Within HedgAI, I’m just waiting and watching for the next move to line up with the Trade and Trend duration. So not forcing into any positions just waiting patiently, as I’ve written about. The stars don’t always align. But when they do, we want to be paying attention. These signals have nailed the latest moves in Platinum, Wheat, and Google. But those trades have passed and we need some new flavor.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.08-4.36% (bearish)
UST 2yr Yield 4.51-4.75% (bullish)
High Yield (HYG) 76.66-77.49 (bullish)
Investment Grade (LQD) 106.88-108.76 (bullish)
SPX 5027-5152 (bullish)
NASDAQ 15,816-16,295 (bullish)
RUT 2011-2091 (bullish)
Tech (XLK) 202-211 (bullish)
Insurance (IAK) 110.05-112.98 (bullish)
S&P Momentum (SPMO) 75.50-79.96 (bullish)
Healthcare (PINK) 29.52-30.63 (bullish)
Shanghai Comp 2 (bullish)
Nikkei 38,690-40,588 (bullish)
BSE Sensex (India) 72,599-74,501 (bullish)
DAX 17,390-17,871 (bullish)
VIX 12.79-14.94 (neutral)
USD 103.01-104.19 (bearish)
Oil (WTI) 76.72-80.37 (bullish)
Nat Gas 1.70-2.05 (bearish)
Gold 2061-2175 (bullish)
Copper 3.82-3.96 (bullish)
Uranium (URA) 26.81-28.55 (bearish)
Best of Luck Out There Today,
Ryan Ricci
Macro Analyst