- October is starting on a more constructive footing. ISM manufacturing was fairly hot, with both new orders and prices paid accelerating, yet yields still rolled over across the curve. We also saw a meaningful bull steepening for the first time in a while, with the front end leading the move lower (good for crypto).
- Softer inflation momentum and more measured Fed commentary helped. Yesterday’s PCE report was flattered somewhat by methodology changes, but the underlying trend was still encouraging, with 3-month core PCE momentum moving back toward ~2%. Vice Chair Jefferson emphasized patience around additional hikes, while Kashkari said he has no strong view yet on an October move and remains open-minded on the pace of tightening. Together, that helped price roughly one hike out of the curve over the next 12 months.
- Lower front-end real yields would be an important tailwind for BTC. BTC has historically traded inversely with changes in the 2Y real yield, and that relationship has diverged recently. Those “jaws” should eventually close, and I think the data increasingly favors real yields moving lower rather than BTC giving back the recent rally.
- Rate volatility remains the key tactical variable. MOVE held firm at ~108 today despite the move in yields, so the rollover I have been looking for has not happened yet. But the higher rate volatility goes and the more sustained it becomes, the more potential energy I think builds for a subsequent rally if and when that stress begins to recede. Tomorrow’s jobs report is the next important catalyst.
- STRC continues to improve as a potential flow catalyst. STRC traded up to $99.50 today, just one day after the latest ex-dividend date. Strategy also scheduled a 10/28 shareholder vote to move STRC to a daily dividend cadence, similar to Strive’s SATA structure, which could help improve demand for the product.
- A sustained move to par could matter beyond STRC itself. Strategy has done a lot over the past couple of months to repair the balance sheet and support the preferred complex. If STRC reaches par well ahead of the next ex-dividend date, I think the market could begin to front-run the possibility of renewed issuance and incremental BTC demand, regardless of how much actual preferred demand ultimately materializes.
- Seasonality is also becoming a tailwind. October has historically been crypto’s strongest month, with the highest median and average returns and an ~80% win rate.
- Bottom Line: The tactical tension we have been discussing still persists, but the setup shifted in a bullish direction the past couple of days. Inflation momentum showed signs of cooling, Fed rhetoric is becoming somewhat more measured, and front-end yields are finally moving lower. Rate volatility remains elevated, but if MOVE begins to roll over soon, I think that could provide the catalyst for BTC and the broader crypto complex to extend its rally since August. STRC nearing par remains an underdiscussed potential catalyst.
Portfolios
Tickers in this video: BTC -0.70% STRC
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