The Credit Cycle and Macro Liquidity are NOT contracting, but Bitcoin can keep falling 🧵

Capital is setting the stage to move even further out the risk curve, but the current rotation is confusing people about the next leg higher in equities

We want to see people misinterpret liquidity because they will be the forced buyers in the next leg higher.

Here is the full breakdown 👇 First, just recognize that popular narratives around "Liquidity contracting" do not account for the sheer size of credit issuance into the underlying economy.

High yield issuance by big banks is running above last year:

Hyperliquid Strategies ($PURR ) will have a gamma squeeze in the next 60 trading days (similar to GameStop)🧵👇

$PURR just had its largest day of trading volume, indicating how aggressively investors are establishing positions into the regulatory change for Hyperliquid

On top of this, call open interest for $PURR is surging, as traders buy the OTM tails. Watch very closely because once more OTM calls get listed, it will almost certainly cause a gamma squeeze. Right now, $PURR is the only liquid location to buy OTM calls on Hyperliquid, squeezing into the regulatory acceptance.

There is a massive problem with the calls right now, though. The strikes aren't listed very high. I'll explain this in the next tweet below for you. Most people only think about price action relative to fundamentals when there are so many microstructure changes and positioning changes that influence it. For example, across all expirations, we only have strikes up to $18 right now. As traders buy more OTM calls, market makers need to hedge their risk by buying the underlying stock as the price goes higher or volatility rises. Once new strikes get listed, this immediately creates an opportunity for traders to roll their calls. This is especially attractive if the stock is melting up as implied volatilitiy is rising. And guess what is happening right now with $PURR ? (next tweet shows the chart of this)

I want to explain the most misunderstood factor for Hyperliquid. If what I lay out is going to happen, the price will easily go to $350 this year. 🧵

Right now, everyone is overly fixated on the launch of the ETFs. The Hyperliquid ETFs are a drop in the bucket for the wall of capital that is going to hit the market

This is very straightforward if you understand global interest rates, fx, and the supply of money in the system. Most people have ZERO clue about how these markets function because they have never traded G7 rates. People think they understand liquidity because they traded Bitcoin during a dollar devaluation narrative but when asked about the most important input into macro liquidity, interest rates, they have no clue.

It is IMPOSSIBLE to have a view on macro liquidity and money in the system without understanding interest rates. These are two sides to the same coin.

Let me lay out this thesis very simply: 👇

Interest rates are all about the price you pay for money in the system. FX markets are the flip side of the coin, which is denominated the actual currency you are borrowing relative to other currencies and their respective interest rates.

Why does this matter for Hyperliquid? Because the largest markets in the world are all about interest rates and FX. Bitcoin and crypto are a drop in the bucket for large players who are managing massive balance sheets. If Hyperliquid can provide enough value via liquidity and low-cost leverage, then the largest players in the world will start moving more capital onto the platform to transact in the most important markets, interest rates, and FX.

Simply put, if you have enough liquidity on your platform, the price you pay for leverage can be LOWER than what you might pay somewhere else. Simple example: If you need a mortgage for your house, you are going to try to get the best rate possible. This is you trying to find the "cheapest leverage" possible in the system. If someone offers you a lower interest rate, with no trade offs, people will take it. Many brokerage accounts compete with each other on the margin rates you have to pay in order to use the firms margin.

The same dynamic is true for Hyperliquid. If they can provide attractive margin rates (or what we can funding rates on Hyperliquid), then this is the real value proposition for Hyperliquid. While everyone is focused on ETF flows, you want to ask what are the drivers of value that would catalyze the flows of the largest players to begin using Hyperliquid every single day.

Clearly, the regulatory constraint is holding capital back like a dam holding back water that wants to pour into a new market. But the most important thing to understand is that if the funding rates for interest rates and FX are low enough on Hyperliquid, this begins to attract capital from the largest players in the world. This especially attracts capital from the entire Eurodollar market that is constantly trying to hedge the surplus of dollar liquidity that is in the system due to the dollars reserve currency status and the historic level of trade the US has conducted which has pushed an unprecedented level of dollars through the entire system.

This flow mechanism connected to the larger macro picture is WHY I am so bullish on Hyperliquid. Notice that functionally, no one else has talked about this. They think this is just the regular "crypto cycle" where you buy momentum and fade the price once everyone starts talking about it on the timeline.

The place we are at with Hyperliquid is actually taking advantage of the biggest blind spots for both people in crypto and people in traditional markets. Crypto people have been conditioned to just think in terms of pump and dumps instead of value creation and flow mechanics in the global interest rate complex. Traditional finance people have functionally dismissed crypto as something that is worthless because no one has really provided true value that has lasted.

This is why I wrote this article on the blindspot that existed earlier this year, before Hyperliquid made its massive YTD rally: x.com/Globalflows/st…

There is a reason that no one is talking about these mechanics. The crypto influencers or VC establishments won't talk about it because they didnt get to invest in Hyperliquid before it launched or get a crypto allocation to schill. On the flip side, the largest institutions won't talk about Hyperliquid because they dont want to draw attention to a market that they havent established a dominant positioning in yet.

"Do you mean to tell me you've finally established a position, so you can price mine?" - The Big Short

My job is a trader. I get paid to hold risk and I have established a position in $PURR which is the largest Hyperliquid treasury company and the only treasury company in the world with a positive P&L right now. It is up over 140% since I originally published the view (see my pinned tweet). But we have only just begun to price what is possible for Hyperliquid and what is possible for $PURR.

Once you realize that Hyperliquid sits in a massive gap in the tradfi and crypto space, then you will realize why $PURR sits as the bridge to BOTH of these.

I continue to hold my $PURR position and it is my strong conviction that Hyperliquid will have a significant rally beyond anyone's expectations and $PURR will be the direct beneficiary of this in addition to adding additional shareholder value on top of HYPE returns.

There are several things that you need to know in order to navigate these changes in Hyperliquid:
1) Understand that we are in a credit cycle melt up that in its very nature is currently sowing the seeds of its own demise. None of this will end well given the amount of liquidity that is in the system but first we are melting up MUCH MUCH HIGHER.
2) Hyperliquid underlying drivers in its value proposition that could catalyze capital aggressively moving onto the platform to access cheap leverage.
3) All of the signals for positioning in global risk assets, interest rates, Hyperliquid, and $PURR.

I will be providing an entire playbook for #1-3 in a livestream tomorrow at 8:30am MST. You will walk away with a playbook for the credit cycle, a model with the code included on mapping funding rates on Hyperliquid, and Tradingview models for monitoring the positioning signals. This will be 100% free for everyone who is a subscriber here. I will send out the links tonight and resend them tomorrow morning so no one misses it: capitalflowsresearch.com/subscribe

Below, I will link the most important tweets and videos I have done thus far that you should review before the livestream tomorrow

Welcome to global macro

HYPERLIQUID My entire video on $PURR post the ETF launches:

https://x.com/Globalflows/status/2054418652863312293?s=20

Want to explain several important dynamics with positioning in equities here as we head into $NVDA earnings 🧵

First, skew has turned positive for the first time in years, indicating a lot of net long positioning into earnings. This isn't just about $NVDA though I will be covering this entire idea in depth on the livestream starting in 30 mins: youtube.com/watch?v=XnNtPg…

You want to notice that the entire semi sector has been in a positioning squeeze as implied vol rises at the same time as price. In simple terms, panic buying and now we are approaching $NVDA earnings but here is the thing, what in the world could Jensen possibly pull out to surprise the market EVEN MORE?

The Credit Cycle Melt UP and Coming Crash 🧵

We have seen one of the greatest melt ups in US history since the 2022 lows, as we begin entering unknown territory of the highest valuations in human history

The melt up isn't driven by europhoria or sentiment, it is driven by liquidity and credit that is directly linked to the AI retooling occurring in the financial market and underlying economy

This thread is meant to be a complete breakdown of HOW to think about what is happening, and WHEN risks begin to build that will cause the next bear market 🧵 The current credit cycle melt-up is being driven by two things:

1) Financial market liquidity is expanding AT THE SAME TIME credit is being injected into the underlying economy. This creates a reflexive feedback loop between the market and economy as they feed on each other and risk assets are the release valve of this liquidity and credit.

2) AI is fundamentally retooling the market and economy in a manner that people don't really understand yet. AI is speeding up the pace at which goods and services are transacted in the economy. It now costs a lot less to spin up a company, market it, and build a brand. This can happen with very little upfront capital which means that more businesses generate cash flow with less up front investment. On net this basically injects more cash into the system without being very capital intensive. The same thing is happening in financial markets with capital allocation decisions.

The problem is that there is an increasing amount of money chasing the same amount of investments even though things in the economy and market are operating faster due to AI.

I have been explaining all of these factors daily on the livestreams I do and in the daily reports i send out (both of which can be found on my website which is linked in my bio)

Let me explain WHERE we are in the risk curve for equities. This will frame how aggressive you should be right now 🧵

RISK CURVE: The spectrum that traders allocate capital to higher risk vs lower risk names, which indicates how much money is in the system

Notice the chart below, it is all of the equities that have high yield debt vs the S&P500 as they just made an all time high. Why? Because traders understand the liquidity spigot is being turned on right now. I explained in my last thread how the changes in inflation and response of central banks is creating a net liquidity injection as real rates fall and capital moves out the risk curve into the largest IPOs in US history.

https://x.com/Globalflows/status/2042992389602840986?s=20

The Credit Cycle is setting up for another shift, and consensus is being misdirected by geopolitical risk without realizing the 2nd and 3rd order effects 🧵

We are about to see a quantifiable credit and liquidity injection that will force traders to buy equities and move out the risk curve. This will force everyone to get net long equities as we hit the highest valuations in human history, which will in turn set the stage for a massive bear market

MELT UP FIRST (this is where we are), bear market later

These are all the moving parts you need to be monitoring 🧵 First, you need to understand how capital works in the system. Melt ups NEVER occur because of "investor sentiment" or euphoria, those are simply a reflection of the liquidity changes under the surface.

One of the main ideas I have been explaining and tracking on Capital Flows is the entire risk curve as it relates to the changes in real interest rates: capitalflowsresearch.com/subscribe

In a recent note, I explained that when real rates move DOWN into a resilient economy, this decreases the real return investors receive for holding risk-free treasury bills. The subtle thing people don't talk about much is that it is the real purchasing power of money in the system that moves a ton of capital back and forth along the risk curve.

PPI coming out above expectations was a given

All of us knew PPI and headline CPI are likely to rise from the oil shock

The more important question is HOW MUCH will this drag core CPI up, and TO WHAT EXTENT will the Fed "look through" this inflation

Playbook for FOMC 🧵 The view I have been laying out for FOMC is straightforward. The exit is getting more and more crowded as traders bid up large premiums across equities, FX, bonds, and crude.

The regime dashboard is showing a short-term impulse of stagflation over the last 20 days but consencus has extrapolated this into a full blown 2022 inflationary bear market. You can find this dashboard here: capitalflowsresearch.com/p/the-position…

The Crowded Exit

Markets are pricing geopolitical risk as a short-term inflation accelerant, which is pushing rate cut expectations lower and raising the specter of stagflation. Dollar strength reflects this dynamic precisely: short-end inflation expectations (1y and 2y swaps) are rising while real rates climb on the long end (10y and 30y), a combination that has been mechanical support for the currency.

We are approaching a critical inflection. FOMC this week creates a binary setup. If geopolitical risk fades and crude sells off, or if the Fed signals less concern about inflation on the grounds that the current move is supply-driven rather than demand-driven, the market’s hawkish repricing could unwind quickly. Either catalyst would likely produce equity buying and dollar selling. That reversal would carry extra force right now, given how elevated implied volatility is, which tells you hedging premiums are stretched and any shift in sentiment gets amplified as those positions unwind. I explained the mechanics of the dashboard above, along with an extensive breakdown of the macro regime in the livestream earlier today. You can find the full recording here:

The credit cycle is in the process of one more injection of liquidity, as equity valuations across every country are sitting at all-time highs

None of this is going to end well but the KEY will be playing this final stage of the endgame

This thread explains everything 🧵 I am going to explain WHERE we are in the credit and liquidity cycle and then break down HOW I am looking at the signals for taking risk. These set the stage for the S&P500, Bitcoin, gold, silver, and every major asset.

What is driving the drawdown in Bitcoin?

When you stop listening to Bitcoin pundits and start listening to what Bitcoin is saying about itself, then you will see the real truth

I am going to lay out the 3 major things you need to watch for Bitcoin right now 🧵 First, Bitcoin functions as a release valve for macro liquidity on the RISK CURVE. This means Bitcoin is telling you that it is a risk asset.

https://x.com/Globalflows/status/1953525747349586218?s=20

The credit cycle is starting to flash yellow for the first time in this regime

Most investors will only notice once spreads are blowing out

Here’s the framework I use to track the credit cycle and front‑run where capital goes next: 🧵 First, my macro thesis is simple: Since April we had a massive injection of credit into the underlying economy and liquidity into financial markets. This created procyclical liquidity where growth and liquidity rose at the same time. This is why asset prices melted up.

We are now seeing the beginning of some headwindes in the credit cycle. The entire questions is are these risks shrot term signals or could they materialize into a larger issue?

Real interest rates have been driving the pullback in equities and Bitcoin

You will notice that 2 year real interest rates have begun to drag up credit spreads, which is a very clear signal about how liquidity is impacting risk assets

Here is how to understand this 🧵 Real rates tell you the true cost of money after adjusting for inflation.

Real rate = Nominal yield minus inflation expectations

So real rates move for only two reasons:

- Nominal yields move

- Inflation expectations move

The chart below shows 2 year real interest rates. Notice that they were deeply negative during 2021 when the Fed held rates below inflation. As we moved into the 2022 hiking cycle this reversed. Since this time, we have been normalizing lower.

There has been a lot of talk around how 10 year yields in Japan are melting up and how this is an indication that a massive carry trade is about to unwind

The problem with this is that it doesn't match up with ANY of the actual evidence 🧵 First,

yields have been rising for years now and the Nikkei has been moving in lockstep ever since the BoJ stopped doing yield curve control. On top of this, every major carry trade unwind that pushed the Nikkei and US equities down was when JGB yields were going DOWN, not up!

The credit cycle is in the process of shifting, and this is going to begin increasing volatility significantly

The most important thing you can do is be on the right side of the macro volatility

This 🧵is a breakdown of WHERE we we are and risks for markets The primary place to start is HOW interest rates are impacting equities

You will notice that the bottom in real interest rates created the top in S&P500 market breadth. Why? Because when real rates begin to rise, it begins to contract liquidity. This begins to weigh on some sectors before others.

The macro risks for equities are building but a recession risk remains a LOW probability

It is the tension between liquidity and recession risk that will determine WHERE equities go from here

🧵👇 The main divergence we are seeing taking place right now is Mag7 (blue) has been pulling the index HIGHER as the broad market breadth is falling

In simple terms, we are see dispersion where a small portion of stocks are accounting for the majority of gains in the index

Developing a macro thesis is THE most important skill set to have as we move into a world where geopolitical risks and AI developments could quite literally mean you don’t have a job in a month.

You either understand cause and effect in markets or you get run over by them.
🧵 Every thesis starts from first principles.

Forget what the market narrative says.

Ask: What are the fundamental drivers of this asset?

Growth, inflation, liquidity, and policy are the real levers.

Everything else is noise layered on top.

The Fed is going to keep creating inequality in the system until the middle class gets completely cooked

This means that managing macro flows and cycle risk is the only way to maneuver through the next decade 🧵👇 The Fed’s transmission mechanism lifts asset prices faster than wages. QE and low rates raise the price of duration assets first. Households with assets gain. Households living on labor incomes lag.

Even though we have come off a little, we have a MASSIVE amount of reserves in the system.

We are seeing equities hit ANOTHER all time high as the credit cycle is in full swing

This continues to confirm the view I have been laying out about the amount of money in the system

This is pushing us closer toward the macro endgame as positioning risk into FOMC builds 🧵 Many people are saying the rate cut this week is WHY equities are rallying, but this is completely wrong.

We are already pricing a 100% probability of a cut for BOTH meetings this year.

The dollar debasement narrative is now consensus. Everyone is afraid that cash is trash and they will miss the rally in equities, Bitcoin, or gold.

The problem is that it misunderstands how money actually works

That kind of thinking usually marks market tops 🧵👇 When I analyze the macro flows across every asset, I am always looking for where expectations have a significant divergence from what is likely to take place. The key thing I look for is when expectations are based on an uninformed presupposition.

The reason WHY tariffs have an impact on markets is that they influence the most significant source of liquidity YTD: CROSSBORDER FLOWS

When these flows shift, they will mark a top in the credit cycle

Here is a full breakdown + how it connects to equities and Bitcoin 🧵👇 Foreign direct investment is one of THE critical drivers of flows in US financial markets. The fact that the dollar is the reserve currency and global trade is transacted in the dollar creates a significant surplus of dollar liquidity

This is WHY we have seen equity valuations at all time highs right now

(Chart below is foreign direct investment into the US)