This is a free preview of a paid episode. To hear more, visit newsletter.checkonchain.com Bitcoin rarely goes to sleep like this, and low volatility is certainly not something the asset has a reputation for. Volatility is of course a dynamic beast, and it ebbs and flows throughout the cycle. However there is a simple principle that markets tend to adhere to over time, and Bitcoin is no exception: * Range expansion lead to range contraction - this means that trending rallies or sell-offs are followed by a period of consolidation to digest the move. * Range contraction leads to range expansion - once the market has consolidated long enough, it eventually breaks into a trend in some direction. The interpretation of this framework related to today, is that low volatility (range contraction) is an indicator that higher volatility (range expansion) is very likely on the horizon. The last time I recall volatility compressing like this was in August 2023, and I prepared/edited two reports for Glassnode covering how derivatives markets and onchain data were pricing this in. The takeaway of that study was that a big Bitcoin move was well overdue, and downside was poorly priced in. The market the proceeded to sell-off from $29k to $26k in short order. There are many of the same conditions in play today. Disclaimer: This article is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions. Keeping One Eye on Macro With this as context, I want to set the scene with a couple of macro charts that caught my eye this week. I promise not to not add to our boredom, however I sense we’re nearing a key decision point in global markets. Whether we like it or not, the US Dollar, US treasuries, and oil remain the three most important markets, as they heavily govern the tightness of financial conditions. * The US Dollar is the global reserve currency, and when it gets expensive, countries and corporations have a harder time servicing their debts. * Treasury bonds are the global reserve asset which act as the worlds default savings vehicle, and form the foundation collateral supporting financial markets. * Oil is the energy lubricant which keeps the world turning. More expensive oil prices directly affect the bottom line as a primary input cost for productivity. For the time being, oil prices are range-bound, and I sense are a lesser part of the current story. The US Dollar is at a decision point. If it were to break lower, it would ease financial conditions overall, likely to the net benefit of assets like Bitcoin. However, should it continue higher within the established 2024 uptrend, it could portend signs of stress, and tighter financial conditions in the near-term. My instinct is that the dollar is going to be managed lower over the medium to long term, but this weakening may require near-term dollar strength and stress as the catalyst. The big one however is the US treasury market. Many analysts interpret Powell’s ‘higher for longer’ to mean the Fed Funds rate, but I believe it includes the following: * Inflation is structurally sticky, and will be higher for longer. * US bond yields may be mis-priced and will also be higher for longer. The US 10y Treasury is the de-facto global reserve asset, and yields have continued to grind higher within an established uptrend all year. When bond yields trade higher, it also means bond prices have traded lower. Since the US-10y sits at the foundation of the global financial system, higher yields mean tighter conditions, less valuable collateral, and a reduced overall risk tolerance. I’ve flagged in red the severe sell-off we saw in bonds between August and October 2023 on the chart below. During this time, US-10y yields approached 5.0%, equities sold off by -10%, and Bitcoin sold off -12% in one day. That said, BTC then consolidated for two months, and ripped +30% higher. 10y Yields trading up towards
