Market Lab Report - Pessimism at extremes; BTC trading like gold?

by Dr. Chris Kacher

Pessimism at extremes

Both of these charts show extreme pessimism on behalf of investor sentiment, the 5th lowest level on record, and global growth expectations, a record 30-year low.

• A record 82% of investors forecast weaker global growth

• Nearly half of respondents expect a “hard landing”

• 80% say the biggest tail risk is a trade war triggering a global recession

But notice how such extremes mark major bottoms in markets. Of course, this time could be different given Trump's tariffs, but certain metrics seem to continue to obey such as global liquidity correlating with stocks at least on a quarterly basis but often over tighter timeframes. While there is never a guarantee that such capital will continue to find its way into stocks, it will until it doesn't. This would be a material change to markets. I will continue to monitor the situation closely, but until there is a decoupling of sorts, rising global liquidity tends to find its way into stocks, real estate, and bitcoin.

Going forward, expect volatility but also expect markets to find their footing as tariff deals are worked out and quantitative easing (QE) in all its forms that spurs global liquidity continues to soar. The worse things get, the more central banks turn on those digital printing presses. We saw this in the great financial collapse of 2008, COVID's 2020, China's QE in late 2022, and the collapse of major banks in early 2023. Meanwhile, central banks continue to print to service record levels of debt. All this bodes well in the long run for stocks, real estate, and bitcoin.  

BTC trading like gold?

As mentioned in a prior report, BTC was holding its own relative to stocks which were in crash mode. Instead, BTC was not crashing out but instead gaining support, trading as it has during prior corrections as shown in the chart. While BTC has corrected more than stocks, on a relative basis to itself, BTC is correcting less than in its prior cycles as volatility has diminished in bitcoin over the last decade, so its current correction is a sign of strength relative how it would have performed in prior cycles.




On Monday, bitcoin put in enough volume for a pocket pivot. At the time of writing when the report was sent based on the daily 24/7 trade, its 24 hour trading day resets at 8 pm ET, so there was still 9 hours left in its trading day. This suggests MSTR and GBTC are actionable as well since they correlate highly with BTC but dont buy extended.

Global liquidity has also been surging as represented by the yellow line. Global liquidity levels rose by a whopping US$1.49 tr last week Apr 1-4. Two-thirds of this increase can be attributed to the slide in the US dollar. Year-to-date global liquidity is up US$5.3tr and has surpassed the previous all-time high of US$175.8tr recorded last September. The factors that held liquidity growth in check last year – weak Central Bank liquidity and a strong US dollar – reversed in Q1. Liquidity impacts risk asset markets and cryptocurrencies with a delay of up to 3 months. The Q1 liquidity upturn should help BTC (and stocks) recover in Q2.

As for tariffs, the BTC market may have priced in much of the shock. As negotiations continue, this should be bullish for BTC. Though Trump most recently softened on his stance toward tariffs on China, the US-China trade war could always escalate further, so keep stops tight.

For now, the market remains risk-off so gold shines while bitcoin lags, but to get back to risk-on markets, the trade war needs to end and/or we get rate cuts. It will still be some years before bitcoin becomes a risk-off asset like gold.

Music that induces alpha state

Off the topic, in these stressful times, for those who love emotional piano and violin, here is one of my performances of my song used in the world's second Greek classic opera, Ilios.