Risk Rally to Be Faded

Geopolitics: Same Story, Different Week

The Iran situation remains highly fluid. The US has seized or attacked an Iranian cargo vessel and renewed peace talks are due to start in Pakistan today, with JD Vance en route. Russell continues to characterise this as a taco trade: plenty of noise and brinkmanship, but ultimately a move toward ceasefire and reopening of the Strait of Hormuz. The difference this week is that markets are starting to price that outcome in, particularly in oil and equities.

In a recently published article on the Hilbert website, Russell sets out his broader framework for thinking about liquidity and Bitcoin, explaining why he views the current environment as one where investors should be looking to fade strength rather than chase breakouts. The piece walks through how tightening financial system liquidity can cap medium term upside for Bitcoin, even in the face of an eventual Iran resolution and renewed risk appetite, and is recommended reading for clients who want a deeper dive into the thinking behind this week’s “risk rally to be faded” stance: Link to Russell’s article: https://www.hilbert.group/en/bitcoin-where-next-the-liquidity-lie/

Macro Data: Cold Again in the US

US: Inflation and Growth Both Soft

The inflation and activity data from last week were uniformly soft. PPI missed both month on month and year on year, and industrial production printed negative. Russell's conclusion is unchanged: there is no justification for rate hikes in the US. Inflation as he tracks it is now just above 1 percent on a core basis, and the growth data are weakening into an oil shock.

Europe and UK

Rates: Hike Hype Fully Unwound

Fed Funds Futures

Fed fund futures have moved decisively back toward a sensible configuration after the brief period of aggressive hike pricing in early April.

US Yield Curve

Russell reiterates his medium term view that the US yield curve will flatten into the second half of 2026 and would not be surprised to see it invert again. For now, the modest steepening reflects long end rates edging higher relative to the front end as markets price in some Iran resolution and strong equity performance.

Markets: Equities at Highs, Oil Off the Boil

Equities have pushed to new highs in spite of the geopolitical overhang. WTI is notably lower on the week, down 14 percent, reflecting a combination of improved sentiment on Iran and demand concerns. The dollar is weaker, and European gas prices are sharply lower on the month. Russell's interpretation is that markets are increasingly pricing in an Iran resolution, even as the headlines remain noisy.

Crypto: Billion Dollar Week for ETFs

Flows and Volatility

Crypto ETFs recorded about 1 billion dollars of net inflows last week. Monday saw outflows, but the next four days were strongly positive. This follows the 500 million dollars of inflows in the prior week and confirms a renewed institutional bid into the space.

Bitcoin Technicals and Gamma

Bitcoin rallied strongly over the week. Hilbert's 7-21 indicator has turned firmly bullish. Price has broken and held the 100 day moving average at $74,300. If BTC can hold above this level for several days, Russell sees the potential for it to become a solid new base of support, particularly if Iran headlines move toward resolution.

With substantial gamma around $75k on both the put and call side, Russell expects market makers to be actively delta hedging in a relatively tight band between roughly $73.5k and $76k. Without a new macro or geopolitical catalyst, this gamma structure is likely to keep Bitcoin pinned in that range.

Positioning

Open interest in Bitcoin options sits at 252,000 contracts, right in the middle of the recent range. Russell's read is that leverage in the system is not excessive. This, combined with cheap calls and expensive puts, supports the view that the market is still more worried about downside tails than positioned for an upside squeeze.

Stablecoins: USDe Update After KelpDAO Exploit

KelpDAO Exploit and DeFi Spillover

KelpDAO suffered a major exploit of nearly 300 million dollars over the weekend. This had a knock-on effect across key DeFi tokens such as Aave, Uniswap, and Chainlink, all of which traded down initially before starting to recover. Aave alone saw around 9 billion dollars of deposit flight as counterparties derisked.

Ethena responded by closing its cross-chain bridge temporarily as a precaution. Hilbert has reviewed the situation and does not see any imminent risk to USDe from the KelpDAO exploit, though we continue to monitor the situation closely. Stablecoin positioning at Hilbert remains unchanged.

USDe Metrics