Dear Readers,
In the late 1940s, a man roaming the streets of Memphis, Tennessee, was soon to become a Grammy-winning musician and, ultimately, a Blues legend: B.B. King.
In 1969, King produced his Completely Well album, which peaked at number 38 on the Billboard 200 chart in the US, making it one of his most successful productions ever.
Not surprisingly, the album included his hit single, The Thrill Is Gone (which I am definitely not jamming to right now). Though King did not write this song himself, his jazzy guitar certainly made the song legendary.
The song has a happy yet melancholic feeling to it.
“Sappy,” some would say.
I’ve heard many times before, from artists within my family, that there is something very cathartic about music.
Music facilitates the expression of feelings in a manner that speech alone cannot achieve. If you ask me, I don’t think there’s a better avenue, or song, to represent the current state of markets and bitcoin.
Side note: all the charts in this article were drawn using our MCP Server, which is now available to all of you
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Whenever our TBL Liquidity indicator flips green or red, and the market doesn’t follow suit, we receive messages with concerns about a given call not going our way, and thus the validity of our indicator. These are completely valid concerns, and something we take seriously when considering improvements in our public communications.
That is why I encourage all of you to take a look at our TBL Liquidity Indicator explainer on TBL Pulse (here):
There, you will find exactly how we built the indicator and our intuition behind its construction. I would like to point you all specifically to this section:
Notice how the section mentions “identifying liquidity headwinds and tailwinds.” In other words, our indicator is an attempt at gauging isolated liquidity-related variables in markets…not markets themselves.
It’s important to note that our indicator has zero direct connections with bitcoin and the stock market (which is what makes it all the more impressive in our view). It is built using bond volatility, dollar strength, US Treasury prices, and banking assets.
No bitcoin in the components. No S&P 500.
And yet, it still (almost magically) manages to find bitcoin and stock market peaks and troughs from our liquidity measurement alone, generally speaking.
In short, when our indicator lights green, it means that, from a liquidity-isolated perspective, we read tailwinds (and vice versa with a red dot).
Like most indicators out there, a TBL Liquidity signal does not mean that the market will magically go up (or down) on TBL liquidity factors alone…in the same way that the song The Thrill Is Gone could not become a hit without the right factors (such as B.B. King taking a stab at it).
That’s why transparency is important to us, and why we have performance tables on TBL Pulse, where you can find red dots that were counterintuitively followed by positive performances in risk assets.
This week, the Fed’s preferred inflation metric (core PCE) came out well within expectations at 0.3% MoM for May, but elevated on a YoY basis at 3.4% (higher than expectations and previous months):
At the same time, US GDP for Q1 was revised upward from 1.6% to 2.1% (QoQ annualized):
In a linear sense, these are all factors pushing yields higher…yet interest rates have been falling lately:
Looking at jobless claims, we see that continuing claims have somewhat bottomed and are on their way back up (bottom pane below):
The labor market may be starting to put a thumb on the scale, creating some angst among investors about this seemingly never-ending AI boom…that plus an oversold Treasury market with dip-buyers stepping in.
Overall, however, it seems like anxiety in Treasury markets was there on its way up, but the way down has reasonably been smoother as the market corrects. Rising yields came primarily from uncertainty about the war (chart below):
In contrast, falling yields today are coming in the form of a correction (a far more predictable movement). These certainty shifts can be seen on the MOVE index directly (a lot more active when yields were rising than it is now - chart below):
Further showing how the market seems a lot more certain about the path in yields at this point in time, making for better liquidity conditions, and therefore our current TBL Liquidity indicator call (despite a strong dollar). MOVE is well within normal conditions:
It is important to note, however, what is happening in broader markets, and how this is affecting bitcoin. Correlations remain elevated since the 2024 lows:
At the same time, we are seeing a compression of the volatility term structure (top pane below), which has led to a small rise in volatility in VIX itself this month (bottom pane below):
Volatility term structure compression has been historically associated with dips in risk assets:
In short, despite TBL Liquidity tailwinds, markets (specifically Mag-7) are struggling to find some solid footing right now. Have a look at the Mag-7 YTD performance versus an equal-weight S&P 500:
The top performer here is the equal-weight S&P 500. Let’s isolate it now:
The thrill for top stocks is on pause, but it is certainly not gone given how the rest of the market is performing since our indicator flipped…
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Nik’s letter went out on Tuesday;
Johan’s weekly letter went out on Wednesday; and,
Nik’s Macro Video Update went out on Friday.
Here are the links to our latest episode:
SPOTIFY
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Inside SpaceX's $60 Billion Bet on Cursor with Charlie Hu The Bitcoin Layer Episode |
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What Bitcoin Twitter Is Signaling About the Market Bottom w/ Michael Sullivan The Bitcoin Layer Episode |
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Disclaimer
The TBL Model Portfolio, TBL Liquidity Indicator, and all TBL research outputs reflect Nik Bhatia and team’s analytical positioning for the macro and bitcoin environment. They are published for educational purposes only and are not investment advice, not a solicitation to buy or sell securities, and not a recommendation tailored to any individual’s porfolio. The Bitcoin Layer is not a registered investment advisor and does not manage client money. Please consult a professional financial advisor and conduct independent due diligence before making investment decisions.
