- Crypto is finishing an eventful week on a strong note. Coming into the week, I thought the setup was favorable because there was already substantial pessimism embedded around both Clarity and the Fed. Clarity ultimately failed to advance, which was disappointing, but the downside was relatively contained as expected. Since then, constructive agency-level developments from the SEC and CFTC have helped partially fill the regulatory void left by Congress. Meanwhile, the Fed delivered a more hawkish outcome than the market expected, yet crypto has continued to outperform broader risk assets.
- On the regulatory front, the SEC’s Innovation Exemption is a significant step forward for tokenized equities and on-chain capital markets. The five-year, conditional exemption allows Tokenized Securities Venues to facilitate trading in tokenized NMS stocks through permissioned AMM liquidity pools deployed on public blockchains. Importantly, qualifying venues receive relief from the Exchange Act definition of an “exchange,” while certain liquidity providers receive relief from the definition of a “dealer.” Eligible tokenized stocks must provide holders the same rights and privileges as the underlying traditional shares, and the program includes limits on eligible symbols and trading volumes.
- I think removing those two regulatory gating items, exchange registration for these AMM venues and dealer registration for qualifying liquidity providers, meaningfully widens the aperture for experimentation with on-chain securities markets. As tokenized equities and other real-world assets increasingly move on-chain, they should broaden the collateral base available to DeFi and potentially reduce the cyclicality of activity that today remains heavily dependent on crypto-native collateral. I would view this as a tailwind not only for decentralized L1s and DeFi protocols, but also for centralized intermediaries that eventually integrate with this infrastructure.
- The regulatory momentum continued today with the CFTC submitting “Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets” for White House review. The proposal remains under review and the substance is not yet public, so there is not much to underwrite from the title alone. But its advancement is another indication that agency-level crypto rulemaking is moving forward despite Clarity’s failure in Congress.
- The other important takeaway from this week is that crypto has absorbed a fairly aggressive hawkish repricing without much damage. The Fed raised rates 25 bps on Wednesday, and its signaling was objectively hawkish. Yet BTC outperformed broader equities on Fed day and has accelerated higher through today.
- As discussed Wednesday, some of the outperformance from crypto since the Fed decision may be due to the amount of hawkishness priced in. But one other interpretation is that additional Fed hikes are necessarily bearish for monetary debasement hedges in the current fiscal regime. A meaningful portion of today’s inflation pressure is tied to supply-side factors such as crude, which monetary policy cannot directly repair outside of suppressing demand. Against a backdrop of deficits around 6-7% of GDP and federal debt above 120% of GDP, further tightening raises financing costs while simultaneously weakening demand and, at the margin, tax receipts. That can ultimately worsen the fiscal problem the Treasury is trying to manage.
- That is where the Fed/Treasury tension becomes important. Treasury has already demonstrated a desire to reduce pressure on long-term financing costs through more active duration management. If the Fed continues tightening into largely supply-driven inflation, I think the probability of additional intervention from Treasury through some evolution of the Treasury Twist / YCC-lite framework increases. That is not an immediate catalyst or something I would view as guaranteed, but it provides a plausible bullish interpretation for monetary debasement hedges even as the front end remains under pressure.
- Against that backdrop, BTC is now testing one of the more important technical levels on the chart. BTC is trading above its 50-week moving average, a level that has historically served as an important marker for longer-term trend changes. Going back to 2015, I count only four comparable instances where BTC conclusively reclaimed the 50-week after spending a prolonged period below it. All four were followed by positive 20-day returns, with a median gain of roughly 27.5%. The sample is obviously tiny, but the historical acceleration following confirmed breaks makes this a level I would not want to be sidelined for if the breakout holds.
- Some leverage naturally returned alongside today’s roughly 6% BTC move, but the underlying flow picture looks healthier than a pure derivatives-driven squeeze. IBIT traded nearly $4B in volume, DATs saw significant trading volumes, and the Coinbase premium returned after the seven-day average had drifted into discount territory during the recent consolidation. The shorter-term Coinbase spread moved meaningfully into premium territory as BTC accelerated higher, suggesting U.S. spot demand was participating in the move. ETF flow data will provide another useful confirmation once available.
- Bottom line: A lot went wrong on paper to start this week. Clarity failed to advance and the Fed delivered a more hawkish outcome than expected. Yet crypto absorbed both events, agency-level regulatory progress accelerated, spot demand returned, and BTC is now pressing through a technically important 50-week moving average. A confirmed breakout would add another piece of evidence that the regime has changed (my view), while continued SEC/CFTC progress and the growing tension between Fed tightening and Treasury’s fiscal objectives provide additional support for the intermediate-term thesis. No changes to the model portfolios today.
Portfolios
Tickers in this video: BTC 4.19% IBIT
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