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Key Takeaways
As I wrote about at the start of May, US $82k was a key break-even level for exchange-traded funds in the US. Currently, it has proved to be a ceiling for the recent march higher.
Measuring risk appetite in the broader market through credit spreads: What they are and what they show us.
Chart of the week: The risk spectrum within crypto. What does the year-to-date data show us?
Is this the sell-off I’ve been anticipating?
At the start of May, I wrote about how a certain segment of institutional buyers in the US were approaching a decision point. IBIT investors were about to hit the emotionally significant milestone of breaking even on their average buy price. This level was just a nudge over US$82k, which is around the price at which the market has, for now, hit a ceiling.
But that doesn’t mean we have to go down, right? In this week’s Squawk we’re going to step back and look at some of the macro forces and talk about how they could be influencing what comes next in the market.
Let’s dig in.
The cost of credit
One area I’m watching closely right now is credit spreads. Credit markets are a higher-risk alternative for those seeking cash yield beyond government securities. Why do people do this? Because more risk can mean more return.
But within the private credit market, there are different grades of risk – follow me for a second.
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Credit ratings are often denoted by various lettering combinations, which, if you’ve seen The Big Short, is a way of measuring how much more market participants are paid for taking on more risk (BB) vs. a less risky bond (AAA).
That’s what this spread figure in the chart above means – the premium the market is receiving for taking on more risk. (Sorry I don’t have a celebrity cut-away to explain this bit, not in the budget!)
The way to read this is that when spreads are falling, or holding sideways, it usually indicates investors are more comfortable taking credit risk. It’s play-on.
But, when spreads are rising, it may infer the market wants more compensation for default risks, which is another way of saying the market is a bit more concerned about financial conditions.
Right now, credit spreads are not showing panic – it suggests that credit market participants are reasonably happy to take on risk as a whole. Now, just because they’ve been trending lower doesn’t directly translate into crypto market movements, but it could provide a backdrop for the April-May rally.
However, we are at multi-year lows in these spreads. If we do start seeing this figure climb, that would be a signal that maybe things aren’t as rosy as we want to believe. And risk could be….at risk…
Chart of the week: The risk spectrum in crypto
So now we have a view of how the broader economic appetite for risk is holding steady currently. But how has the crypto market’s appetite for risk evolved in 2026?
A way to look at this is by comparing altcoin dominance with stablecoin dominance.
Firstly, altcoin dominance shows how much money is sitting in the riskier segments of the crypto market, while stablecoin dominance shows how much is sitting in on-chain cash (typically signalling a risk-off attitude).
So, when altcoin dominance is rising against stablecoin dominance, it suggests investors are becoming more willing to take risk. Think of it as capital stepping out on the spectrum, into those higher-risk assets.
But when stablecoin dominance is rising instead, it suggests the opposite. Investors are becoming more cautious, choosing to hold stablecoins rather than chase altcoins. I’ve also thrown Bitcoin on here to show how the market preferences the top assets by market cap, vs the tail of lower cap assets (Others).
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Since February, we have seen a market peak in the dominance of Stablecoins (USDT and USDC). This was a period where we saw quite sharp drops across the board in crypto, and if you scan your eyes back to credit spread above, we also saw a sharp rise in the perceived risk in traditional markets as well. The backdrop therefore was to be risk-off.
What I also find interesting is that altcoins (black line) have, for the majority of the year, outperformed Bitcoin (but with quite a bit more volatility).
But the most recent trend provides a clear scenario to monitor. And that is stablecoin dominance is falling, while altcoin dominance is rising and Bitcoin remains flat. Turning that data into a sentence, we are starting to see stablecoins flow into altcoins faster than Bitcoin right now – indicating more of a risk-on attitude across segments of the market.
I hope this helps everyone understand how I’m thinking about risk in crypto, set against the macro backdrop. I’ll be keeping an eye on whether stablecoin dominance keeps falling, or if/when it starts rise as a time to be concerned that altcoins might fizzle.
Catch you next time.