Breaking Point

“It’s all one trade.”

For the last year, plummeting prices have been the result of a strengthening dollar and tightening liquidity. Almost everything, in dollar terms, has struggled.

Year-over-year, major currencies of the world are down over double digits against USD such as the Euro (-16%), the Pound (-18%), and the Yen (-23%). As shown below, you would have been better off owning the S&P 500 than the British Pound or Yen.

Source: Tradingview

US dollar strength is a mark of economic stress. As liquidity tightens, people and institutions sell their assets for dollars. The year-over-year change in the dollar index (DXY) is near historical highs.

The US 10-YR yield briefly touched 4%, the highest level since 2008. Yields have respected a 40-year downward trend, in part because inflation expectations have remained low and in part because the growing debt becomes heavier under rising rates; in other words, the economy starts to break.

Source: Tradingview

The VIX (top) and MOVE (bottom) indices which measure the volatility of the S&P500 and US Bond Option market, respectively, show slightly different stories. The bond market has been erratic as noted with the rapidly rising yields and that is evident in the spike in bond volatility below. But the volatility in the equity market has been relatively muted despite the -24% YTD performance in the S&P 500.

Source: Tradingview

This is all to say that we may be nearing an inflection point in the market, but the market has not broken yet. It’s clear that central banks are on high alert to mitigate the possibility of cascading defaults. The Bank of England announced bond purchases on “whatever scale is necessary” and the Bank of Japan stepped in to purchase Yen to slow the depreciation relative to the US dollar.

Timing is tricky and we could see a short-term reversal after sweeping the lows in the SPX. There are possible tailwinds approaching if CPI continues to fall. The sensitivity analysis below shows possible outcomes based on average MoM changes in CPI. With the assumption that the Fed Funds rate will eclipse the CPI before a pivot, we’re looking at potentially February 2023. If this were to come true, the market would likely price in the expectation much earlier.

Source: Bespoke Investment Group

Switching gears to crypto-specific events, the Ethereum Merge took place on September 15, at 6:42am (UTC). It was an incredibly impressive engineering upgrade. The engineers managed to transition a $200 billion network securing another $150 billion or so of value, across millions of users and thousands of validators without any issues. The chart below demonstrates the reduced issuance of ETH as a result of switching to Proof of Stake. When on-chain activity increases we’ll likely see ETH become deflationary.


Bitcoin gained interest this week as the dollar was surging against the Euro and British Pound. It will be important to watch if a narrative can form around Bitcoin serving as an exit point from depreciating currencies.

In a similar vein, Stanley Druckenmiller commented on Bitcoin in light of central bank actions globally.

“I could see crypto currency having a big role in a Renaissance because people just aren’t going to trust the central banks.”

It’s a reassuring comment from one of the best investors ever, at a time when a lot of people may be questioning the future of crypto. At the first sight of a Fed pivot, it wouldn’t be surprising to see Bitcoin and crypto be the primary benefactors.


I feel like a broken record talking about macro factors but unfortunately, they are the driving force in the market right now. Above all, you don’t want to be a forced seller. Rather, you likely want to be a buyer when volatility spikes because that will be a sign of a breaking point. The closer we are to a breaking point, the closer we are to a Fed pivot and a reversal in dollar strength. When that happens, crypto should benefit tremendously as the most liquid 24/7 risk market.