Singapore based cryptocurrency investment firm QCP Capital released a statement today stating that the market has been very boring in the past two weeks. Despite the back and forth tariff measures between the United States, Canada, and Mexico, as well as the imposition of tariffs on steel and aluminum imports from China and the United States, the traditional financial (TradFi) market has not yet found a clear direction. From multiple indicators, there are no signs of panic on Wall Street. The credit yield is still at a cyclical low point, and the credit spread between investment grade bonds and junk bonds has not widened. The VIX index seems to be stable at around 16, indicating that market participants have purchased protection for any further negative news. Powell's testimony in the Senate reinforced the Federal Reserve's' wait-and-see 'attitude towards interest rate cuts, suggesting that the pace of rate cuts may slow down in 2025. However, despite this hawkish tone, the US dollar index (DXY) failed to rise.
Based on data from the Commodity Futures Trading Commission (CFTC) in the United States, we infer that the market is heavily long on the US dollar. The difference in interest rates also indicates that the US dollar is overvalued relative to other currencies, which may explain why the US dollar index struggles to gain upward momentum. Given that negative news may have been factored into the price, we believe that the US dollar is now facing greater downside risk. Any positive news could force long dollar investors to liquidate their positions on a large scale, potentially pushing up the prices of risky assets. The release of tonight's Consumer Price Index (CPI) may become a catalyst for triggering a significant drop in the US dollar index.
However, this rising tide may not benefit everyone. Bitcoin's performance continues to lag behind stocks and gold, indicating some hesitation within the cryptocurrency community. The liquidity of numerous newly listed projects every week is still thin, and last week's large-scale liquidation has left many traders penniless. For investors who are still holding long positions in cryptocurrency, following the flow of institutional funds and purchasing downside protection may be the best strategy - especially since put options are still relatively cheap at present
