Image Source: Unsplash

If you ever follow any of my live sessions here at TheoTrade, you’ve probably heard me poke some innocent fun at the crypto crowd. Let me assure you that it’s with the sincerest intentions - I don’t enjoy seeing people getting caught on the downside in market manias.

But at the end of the day, it’s all part of what makes a market. That said, I think it’s time that we start looking at opportunities in the crypto space again.

Let’s take a look at what some of the recent macroeconomic developments mean for this sector… 

The Return of the Crypto Carry Trade

In recent weeks, the blowup of the carry trade in the Japanese yen has been on everyone’s mind. In fact, it’s something that I pounded the table about in these newsletters before it all happened.

Now I’m here to tell you about another carry trade that could emerge - and it’s one that we can capitalize on from the long side.

If we go back and look at the crypto bull market that coincided with the December 2021 high from a macroeconomic perspective, much can be revealed.

The bull runs in Bitcoin that took place in 2018 and 2021 were largely a low-interest-rate phenomenon. If you recall, there was a lot of hype about “staking” crypto and obtaining yields in the high single-digits, and sometimes, even double-digits. This was fueled by low interest rates in the Treasury market.

But once the market sniffed out that the Fed was going to raise rates in 2022, it all came crashing down. Bitcoin suffered huge losses going into the lows of November 2022.

The Fed’s last rate hike was in July 2023, and just this past Wednesday, we saw their first rate cut. If anything, I think this is going to fuel another speculative bubble in cryptocurrencies, and don’t be surprised if we start hearing about staking again.

Not to mention, the dollar has been weakening, which is a recipe for most risk assets to head higher.

Let me be clear - I am far from a “crypto cultist,” but I do find crypto a fantastic way to generate alpha within one’s portfolio. I’m going to keep you posted on these developments, because they’re happening quickly.

More By This Author: