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Topics this week:
Paul Tudor Jones 3 TradesBitcoin, Ethereum and BNB
Last week, I wrote about The Bitcoin-Gold-China Connection. I pointed to the recent bitcoin and gold indirect correlation, but also to several interesting correlations between the three assets. I want to revisit that topic upfront, because a pioneer of the modern hedge fund industry, Paul Tudor Jones, said in an interview that he is bullish on the “barbarous relics,” lumping bitcoin in with gold.
“You know more likely than not, we’re going to go into recession, and there are some pretty clear cut recession trades.”
Paul Tudor Jones’ Three Recession Trades
1) “The yield curve gets really steep, and the term-premium goes into the back end.”
Translation: The short end of the yield curve falls relative to the long end. We already see this in the yield curve steepening, specifically the 10Y-2Y (2s10s) and the 10Y-3M (3M10Y). Yields tend to un-invert prior to recessions. In 2008, it took 36 weeks between un-inverting and recession. In 2020, it took 25 weeks, but easily could have taken longer.
Projecting forward, the curve is still inverted, and if we estimate an un-inversion by November this year, a delay of 30 weeks takes us to July 2024. Not surprisingly, this matches the Fed Funds futures pricing in the Fed cuts we discussed in a previous letter. It also gives bitcoin plenty of time to rally through the halving.
2) “The stock market typically, right before a recession, declines about 12%.”
We’ve written about this topic recently as well. While Jones is correct that “right before” the recession stocks typically fall, it is the 18 months leading up to recession that we are in right now that are very positive. He acknowledges this with his clarifying statement, “that’s probably going to happen at some point, from some level.” The emphasis here being that this is his statement, meaning it could climb a lot before that imminent recession drop.
3) “You look at the big shorts in gold. More likely than not, in a recession the market is really long assets like bitcoin and gold. So, there’s probably about $40 billion in buying that has to come into gold at some point. So, yeah, I like bitcoin and I like gold right here.”
Jones says that bitcoin and gold will be correlated and rising in a pre-recessionary environment. We agree, and that being the case, recession is likely further out than many expect as we wait for the recent disconnect between gold and bitcoin to sync back up.
Checking in on bitcoin and gold, we see the indirect relationship continues. It is likely the gold side of this correlation that is the one out of sync. It remains a high probability that China was dumping gold to protect the yuan instead of dumping dollars. Gold and bitcoin will likely get back into sync soon, as Jones predicts. We are also watching the yuan closely in this respect, hoping it has bottomed for the time being.
Ethereum and BNB Dragging Bitcoin Down
Let me make a case for uncoordinated price suppression in bitcoin with a few charts. I do not think it is a grand conspiracy against bitcoin, but a natural result of the market structure as it exists today.
Ethereum is bleeding out. Fee burning couldn’t save it, Proof-of-stake couldn’t save it, and now the futures ETFs can’t save it. It’s going down versus the dollar and much more versus bitcoin itself. The recent BitVM on Bitcoin is not an Ethereum killer, but it does rob Ethereum of tons of excitement and hype. There’s simply no momentum to speak of left in altcoins.
I have a theory why bitcoin is having a little trouble here compared to our other calls. Bitcoin is being held back by algorithmic trading bots built to arbitrage bitcoin/ether discrepancies in price movement. I don’t have direct evidence as of yet, but this could explain the disconnect between bitcoin’s price movement and all other markets right now.
Another source of bitcoin price suppression is Binance. Rumors are flying that the BNB token is also highly leveraged like FTX’s FTT token was. The allegation is that Binance is trading bitcoin for BNB to prop up the price.
Here we have two temporary sources of bitcoin selling: Ethereum arbitrage and Binance trying to prop BNB up. Even if there is partial truth about either one, it would be a good reason for bitcoin’s relatively unexpected weakness.
This weakness is likely temporary because the stock market is rising, bonds yields are falling, and the dollar is falling. This adds more weight to the Bitcoin industry explanation for the slight price dip.
We can see above that the 200-day (gray) fought off repeated and prolonged attempts to continue higher. In our estimation, this is evidence of heavy marks on that level from trading bots with a simple rule: If bitcoin is at the 200-day and ether is below, short bitcoin and long ether. Something like that.
Daily momentum indicators are threatening a bearish shift. RSI has broken trend and MACD could cross bearish. On the weekly timeframe however, these same indicators are markedly more bullish.
Bitcoin is sitting right on solid volume support at $27,000, with plenty of room above the strongest support area if there was a dip. Once bitcoin breaks this downward trend, it will rapidly test the resistance band at $31,000.
There is another possibility we have to mention: Bitcoin is the leading indicator in this market. If that is the case, we would expect stocks to rollover and yields to continue higher, sending us back to the drawing board on our model. Of course, I don’t think that is the case, but we will have to cross that bridge when we get there. For now, the model has been successful on many macro and micro calls and the traditional markets agree with us.
Summary
Legend Paul Tudor Jones outlined three recession trades we took a look at above. They are a steepening trade that we already see taking shape, a short stock market trade that we don’t quite see developing yet, and bitcoin and gold. A deep dive of the Ethereum, BNB and bitcoin charts reveals some insights about correlation and the state of this market.
The below is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
