The Macro Backdrop Is Actually Dominating Right Now
Nothing would give me more pleasure than to talk about the fundamental growth stories in digital assets and the idiosyncratic nuances between coins. But even I can't find an interesting topic this week.
There were a few crypto-specific news items last week, but most were pretty uninteresting compared to the Iran war. The outperformance of Circle (CRCL) shares is noteworthy (+66% since their earnings at the end of February), but that seems to be largely due to short-covering of a heavily beaten-down stock rather than anything related to the growth of Circle or USDC. And it is definitely newsworthy that the Federal Reserve Bank of Kansas City granted Kraken Financial a limited-purpose master account, the first time a crypto firm has gained direct access to the Fed’s payment infrastructure. But that too has little market impact, as it is just one more step in the continued convergence of TradFi and crypto.
Hyperliquid remains a story worth discussing, as it once again outperformed this week and over the weekend due to its continued dominance of weekend trading in commodities and equities. In fact, total exchange volume across all crypto exchanges was +16.5% WoW, with Binance and Aerodrome outperforming on the spot side (volumes +27% and +54% respectively), while Hyperliquid perpetual futures volumes were +60%. Interestingly, on Hyperliquid, just 7 of the top 30 markets are crypto pairs, while the vast majority are commodity and equity pairs on Trade.XYZ. This makes sense given the moves in silver, gold, and oil over the past few months, and it is a testament to Hyperliquid that we finally have a real platform where tokenized trading of RWAs is happening in meaningful size. There is over $500 million in volume and $175 million in open interest on a single OIL market on Hyperliquid.
The growth of venues like Hyperliquid also comes at a moment when U.S. regulators appear ready to bring the product that made these exchanges successful back onshore. This week, Michael Selig, chairman of the Commodity Futures Trading Commission, indicated that a regulatory path for “true” perpetual futures contracts in the United States could arrive within weeks. For more than a decade, perpetual futures (arguably crypto’s most important financial innovation) have largely operated offshore on exchanges like Binance, Bybit, and Hyperliquid, generating the bulk of industry trading volume and exchange revenues while remaining largely inaccessible within U.S. markets.
The key distinction is that regulators are signaling support for true perpetuals rather than the long-dated futures currently permitted on U.S. platforms such as Coinbase. Crypto-native perpetuals track spot prices directly and rely on funding payments between longs and shorts to keep prices anchored, rather than requiring expirations or delivery mechanics. If approved, bringing perpetuals onshore would likely reshape the competitive landscape: liquidity that historically flowed to offshore exchanges could migrate toward regulated U.S. venues, potentially tightening spreads and reducing the structural profitability that has powered many of today’s leading crypto exchanges.
But alas, most of the crypto-specific news is being buried right now by the Iran headlines. As I’m writing this on Sunday night, U.S. equity futures were -2%, the Nikkei is -4% (up from -6%), and the market is preparing for a pretty ugly Monday post a weekend filled with increased uncertainty. Oil’s parabolic move over the weekend to new YTD highs has the market pretty nervous about both inflation and a consumer spending shock. Right now, bond yields are rising due to inflation fears, but that likely turns to bonds rallying soon if the market begins pricing in a recession.
This all sounds pretty bad. And yet, digital asset prices were actually modestly higher last week (or at least, not significantly lower). Digital assets have (correctly) been front-running the equity and credit market selloffs for the past five months, but have largely stopped going down in the past few weeks. In fact, as futures opened lower Sunday night, digital assets largely moved higher.
There is significant evidence in both crypto markets and equity markets that suggests investors are pretty well prepared for an ugly week. Hedge funds have been adding short positions aggressively in U.S. stocks, as evidenced by the VIX rising in line with increased put skew (puts are more expensive than calls). Similarly, funding rates on crypto perpetual futures are all negative, indicating that investors are pretty short digital assets.
From private credit to AI disrupting software stocks, to higher gas prices, to war headlines…there is a lot of bad news right now. But it’s going to be hard for the market to keep going lower on the same news over and over without a new catalyst, given the positioning. Equities probably dip tomorrow, and digital assets will likely follow suit, but the market has been trained for decades to call the bluff on Middle East war escalations. One announcement about lower oil prices (from the U.S. strategic reserve, or from OPEC), and a massive short squeeze will likely commence across risk assets.
In the meantime, while we await an ugly Monday, all eyes are on tokenized commodity perpetual futures markets trading on Hyperliquid over a weekend. What a world we live in.
