Feels like 2025
Inflation is up, and rates are breaking out.
But the underlying picture is more constructive than it might feel. Growth is strong, productivity is accelerating, and liquidity is rising (just not from the Fed).
We’ve passed through levels that prompted an abrupt reversal amidst the tariff tantrum of 2025, and will force the administration’s hand.
[TLDR] The left tail risks are well-discussed. Inflation, rate hikes, handicapping growth.
But the right tail risks are also in play - and stronger than the consensus seems to believe. This could result in a 1990s “run it hot” regime - some inflation, but rates maintained (i.e., not hiked), with accelerating growth.
Market snapshot
For the month of April.
Crypto:
BTC +13%
ETH +8%
SOL +0%
Equities:
S&P 500 +10%
NASDAQ +15%
Gold:
Gold (-2%)
Iran = inflation, the outcome = binary
3.8% April CPI + 6% April PPI: Effects from the Iran war are coming through, with energy inflation leading the way.
But 5-year breakevens sit below that: Markets are pricing this elevation as temporary over a multi-year time horizon.
The outcome in Iran is binary: It’s either fully resolved in short order, dropping oil and higher inflation being transitory (that dreaded word) - or it remains, and we’re in a new, sustained, elevated inflation regime.
The Iran War is much harder to reverse than tariffs: Tariffs were unilateral. War is multilateral.
But the political pressure is even stronger than last year: Midterms are 6 months away. The key issues for voters are economic ones, and they’ve deteriorated further from last year.
[TLDR] Inflation is running hot, but largely a function of one variable - the war in Iran.
Trump has got to end the excursion in Iran for his legacy and midterm chances.
The bond market is back in charge
The US has to roll ~$10T of debt in the next year (and ~$8T in the next 6 months): The Treasury has been kicking the can down the road by rolling debt via short-dated treasuries (vs. long bonds).
Rates are at key levels: Yields have blasted through the key levels where the administration capitulated and u-turned after dramatic tariff announcements in April of last year. 4.0% for the 2-year, 4.5% for the 10-year, and 5.0% for the 30-year.
The USD is at a key level: Similarly, the DXY approaching 100 seems to be another key level
[TLDR] We’re rhyming with 2025. The bond market is once again holding the administration honest. We saw last year that when we reached these key levels, a policy pivot was right behind it.
Despite the complexities of the Iran war, keep an eye out for an abrupt withdrawal in short order. If it happens, it will likely come from the US conceding to Iran over the remaining issues, but with overall victory claimed publicly.
If it doesn’t happen soon, inflation remains and midterms are in jeopardy.
Key risk? Stagflation
Inflation is elevated, but growth is strong in the US: PMIs are above 50, forward-looking expectations and new orders are climbing.
Productivity is inflecting upwards: Nonfarm business sector labor productivity is above-trend, at ~2.9% YoY growth (vs. ~1%-2% post-GFC average). Perhaps the tangible effects of AI aren’t so invisible after all?
Growth & sentiment are faltering in Europe & RoW: It’s worth noting that the regions more exposed to energy supply disruptions resulting from the Iran war.
The markets are pricing in a rate hiking response to inflation: A 40%+ chance of rate hikes at the time of writing according to Polymarket.
We think this risk is overblown: As mentioned, there’s $10T of debt that the US needs to roll in the next year. They need rates low. We believe the greater chance is that the “run it hot” regime returns - growth up, inflation up.
A chance for negative real yields in the short- to medium-term: Cue resumption of the debasement trade. Bullish crypto, and BTC in particular.
[TLDR] We think the chances of the debasement trade returning are higher than stagflation or rate hikes. The debt load plus the midterms coming up tilts the odds towards running it hot, and doing whatever possible to get out of Iran.
More like the 1990s than the 1970s.
The path out? Liquidity
US liquidity is rising: 90D RoC in Fed net liquidity has been trending up since Q4 2025. US M2 is also rising, alongside global M2.
eSLR reform is a key liquidity driver: Consistent with Scott Bessent’s plan to move liquidity creation from the Fed to the banking system, banks now have much greater lending capacity, driving liquidity and unleashing capacity in the real economy.
The Treasury is in charge: Financial conditions and liquidity are increasingly driven less by the Fed (QE & rates) and more by activist Treasury issuance (issuing short-term bills instead of long-term bonds), keeping long-term yields and the USD down, and freeing up bank balance sheets through eSLR reform. The net effect - financial conditions stay easy, and commercial banks channel liquidity into the real economy, not just the financial system. This is supportive of growth.
That said, the Fed is still doing QE on the margin: $200B+ YTD in reserve management purchases (buying treasury bills). This is QE.
[TLDR] Liquidity is rising. And it’s a bigger driver than rates anyway. It’s just coming from a different engine - the Treasury + the commercial banking system instead of the Fed. This new engine drives growth in the economy, as it puts liquidity into the productive businesses in the economy, not just the financial system.
Structural crypto catalysts are rolling in
CLARITY Act markup passed with bipartisan support: Now it passes back through congress for final signing into law, with a pre-August recess timeline. The crypto industry is following this, but we believe this remains an under-appreciated structural unlock for the industry.
SEC innovation exemption for tokenized stocks: The SEC announced they will allow tokenized stocks. Similarly, necessary and a strong catalyst. Tokenized equity volumes are hitting daily records in parallel.
White House Executive Order dismantling of barriers from crypto: The White House is directing financial regulators to remove friction from fintech and crypto firms from integrating with traditional banking and payment infrastructure. A stark reversal of Operation Chokepoint of years past.
Strategic Bitcoin Reserve announcement imminent: The administration is hinting at an announcement in the coming weeks, described as "a breakthrough as far as getting everything in place, legally sound, properly safeguarding the assets.”
Hyperliquid momentum.
Hyperliquid locked in a partnership with Coinbase and Circle in a strong vote of confidence from the crypto leaders most sensitive to regulatory risks.
Trade.xyz launched the first pre-IPO perp market on SpaceX ahead of the IPO. You can, today, own exposure to the SpaceX IPO. Huge expansion from crypto into the broader world of finance, and a taste of the future where crypto and other industries are no longer segregated and separate. They are colliding.
[TLDR] The regulatory catalysts continue to stack up. We are undeniably in a better place relative to any other point in crypto.
Until next month,
Devin