QCP Market Update
Tomorrow’s FOMC: 4 things on our mind
- Tomorrow's FOMC is priced at an 80% chance of a 25bp hike. The consensus has shifted to what we posted last week, that no hike, or worse, a surprise cut, will ironically signal more panic for markets.
- This FOMC is crucial for markets as a pivot - BTC and Gold rallied exponentially partly because of the large Fed liquidity injection, but more so because of the lack of resolve amongst Fed policy makers. Having already designated SVB as not-too-big-to-fail, and agreeing on a cap of $250k for deposit insurance, at the first sign of trouble they did a complete 180 degree turn and unleashed what we consider a bazooka, even, in the face of an inflation monster.
This is a terrible precedent for future crises, where massive money printing will be the norm for generations to come. Perhaps seeing BTC hit $1m in this lifetime is possible after all. In any case, this meeting will show whether the liquidity injection was just a one-off insurance ringfence or the real dovish pivot for this cycle.
- The best way to see such a potential pivot will be through the Fed dots - which is the biggest question mark, and will likely drive the next directional move. If they do cede to market pricing and start forecasting cuts this year, equities and crypto will certainly continue their rally.
However if they stick to their guns, trusting their ring-fencing to take care of the liquidity issue, and choosing to ignore potential credit issues to come, then we will likely see a premature top for this BTC rally tomorrow.
- In the options market, we have seen huge interest for BTC topside all week, even as the fast money flow is starting to flip the other way with long downside structures. BTC implied vol is trading at 75 vols for this Friday, a level which we still see as low considering the event risk ahead.
We continue to like owning gamma and longer-dated wings for tomorrow's event. Volumes this past week have been 10x of what we usually see, and we expect interest to continue growing, amidst all the new narratives for BTC out there.
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