The latest Macro Markets show begins by exploring why the crypto market capitalization is some 60% below its all-time high, while the S&P 500 is less than 15% away from its peak. For Pechman, the sector is suffering from a huge problem, as it doesn’t fit a commodity nor does it fit a foreign exchange currency. Moreover, not every mutual fund can hold crypto.
The lesson? If Bitcoin (BTC) and Ether (ETH) are mostly understood as alternative risk assets, that’s how they’ll trade. Consequently, one should not waste time looking for theories explaining why crypto has been unable to break new highs.
On to the next topic, according to Pechman, NVidia’s $2.3-billion short seller losses don’t provide the real picture. That’s because a short seller can endure pain if they don’t close the borrowing — so, as long as they have enough collateral deposits, those losses are still open.
That’s similar to what a buyer who paid a much higher price for their crypto is experiencing. Until this person makes the sale, the losses are not concrete. The difference is that the short seller needs to find someone willing to lend those shares to keep the trade open.
A Bloomberg article mentioned that Nvidia is the fourth-most shorted stock in the United States, behind Apple, Tesla and Microsoft. According to Pechman, the four most shorted stocks also happen to be top 10 S&P 500 components, which leads to an issue: Those short sellers may have been market neutral the whole time, buying index futures and selling individual stocks.
Lastly, the show debates China’s 5% growth, disappointing investors, and its consequences for the markets. For Pechman, the most important news is China’s reluctance to issue new stimulus packages, which could be a strategy to further weaken the remaining global economies.
The Bloomberg article shows how China is a key player in global commodities. If commodity prices and the global trade balance continue to weaken, that means less tax revenue for those other governments. Pechman highlights that Germany has just entered a technical recession, and the U.S. is right behind.
Pechman believes the outcome for crypto is initially negative, as it drains liquidity from markets, and investors will further reach for short-term government bonds and cash. But if the U.S. dollar loses strength, that’s positive for crypto in the medium term.
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