PANews reported on February 12 that QCP Capital, a crypto investment institution in Singapore, published an article today saying that the market has been very boring in the past two weeks. Despite the constant back-and-forth tariff measures between the United States, Canada and Mexico, and the imposition of tariffs on Chinese and US steel and aluminum imports, the traditional financial (TradFi) market has not found a clear direction. Judging from a number of indicators, there are no signs of panic on Wall Street. Credit yields remain at cycle lows, 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 bought protection against any further negative news. Powell's testimony in the Senate reinforced the Fed's stance of taking a 'wait-and-see' approach to rate cuts, suggesting that the pace of rate cuts may slow in 2025. However, despite this hawkish tone, the US dollar index (DXY) failed to rise.
Based on the data from the Commodity Futures Trading Commission (CFTC), we infer that the market is heavily long USD. Interest rate differentials also suggest that USD is overvalued relative to other currencies, which may explain why USD Index has difficulty gaining upward momentum. Given that negative news may have been priced in, we believe that USD now faces greater downside risk. Any positive news may force investors who are long USD to liquidate their positions on a large scale, which may push up the prices of risky assets. Tonight's Consumer Price Index (CPI) release may be the catalyst that triggers a sharp drop in USD Index.
However, this rally may not benefit everyone. Bitcoin continues to underperform stocks and gold, suggesting some hesitation within the crypto community. Liquidity remains thin for many new listings each week, and last week’s massive liquidations wiped out many traders. For investors who still hold long crypto positions, following institutional money flows and buying downside protection may be the best strategy — especially as put options are still relatively cheap.”
