Weekly: Extreme Fear and the Contrarian Signal

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Weekly Summary

We cover:

• Extreme oil price swings

• Consensus vs. contrarian positioning in markets

• Relative strength of crypto vs. other markets and sectors

• State of the Yields

Extreme Fear and the Contrarian Signal

All Eyes On Oil…

The geopolitical conflict in the Middle East has investors gripped with every headline.

Oil prices have consolidated around the ~$100/barrel mark. The brief spike to $120 has not yet been reclaimed.

This short-term rally marked the largest deviation above the 200W MA in a few decades…

Crude oil (top). % deviation from 200W MA (bottom). Crude oil reached 56% above its 200W MA.

Oil’s 14D RSI also pushed >90 which last occurred in 1990. The key point is stabilisation in the region and perception of governments working towards resolution will allow markets to breathe.

Further escalation and much higher oil prices for longer would of course bring forward the timing of the business cycle peak.

At the same time, it’s not clear we’re anywhere near that now.

Higher oil prices are actually moving in line with where the business cycle is at today but we have some room still left until peaking…

US ISM (white) vs. Crude Oil 365D 1Y% Change (blue).

Sell the buildup, buy the invasion

This brings us to the power of the business cycle and why it matters.

All but one geopolitical conflict over the decades has brought positive returns for SPX over 180 days after the strike/invasion date.

At the very least it shows war isn’t de facto bearish for risk assets.

Source: TradingView

Russia-Ukraine invasion was arguably a negative performance outlier as the business cycle was in contraction mode in 2022 following the COVID expansion in the years before.

For the most part, the others were also coupled with business cycle expansion.

Max Fear is Becoming Consensus

But despite this, investors continue to be worried. What we have is a market that is apprehensive directionally given fear of an extended and/or severe market correction.

Put delta positioning for the S&P has become extreme.

This comes at a time when crypto sentiment is still within extreme fear although it is finally starting to recover from the cyclical lows…

Crypto Market Resilience

Part of this recovery is how resilient the crypto markets continue to be since the Iran conflict began.

BTC has recovered +21% from the lows with $74k still acting as key resistance that BTC is struggling to break.

Alts are also outperforming BTC by +7% off the Feb lows a typical dynamic in an economic expansion and rising liquidity environment.

The other reason for sentiment recovery is how well the crypto market is doing on a relative basis.

Crypto markets have outperformed NASDAQ by +16% since the invasion after reaching 6 year support and declining >50% from its 2025 peak…

Crypto global market capitalisation/NASDAQ ratio.

…and outperformed gold by +21% over the same time period in what now appears to be a bounce from its six-year support.

BTC/Gold ratio.

The Outlook

The contrarian call was that crypto could outperform other sectors following its earlier sharp correction.

The asset class had already diverged from other high-growth technology segments, which remained relatively extended, leaving crypto comparatively reset from a positioning and valuation standpoint.

Looking ahead, equities are continuing to contract broadly in line with expectations.

However, barring any material escalation in the conflict, we would expect relief to begin emerging across markets over the next one to two weeks.

SPX (white) and QQQ futures (blue) vs. global net liquidity (yellow).

This path of least resistant upwards can translate into relief for crypto markets too…

…especially given US net liquidity, which once acting as a headwind for the crypto market since October, is now turning upwards and becoming a tailwind.

Staging such a recovery would match prior bear market seasonal patterns where March tends to be the approximate period when BTC finds its bottom.

Final Remarks

Unless the conflict materially escalates, the current alignment of sentiment extremes, recovering liquidity and seasonal patterns points toward potential near-term relief across risk assets.

Despite the prevailing uncertainty, the underlying cycle dynamics suggest the path of least resistance may soon shift back toward recovery rather than deeper contraction.

State of the Yields

• Stablecoin lending yields: ~2% on Aave, now below the ~3.7% 3-month T-bill rate. Variable-rate lending premiums have compressed materially.

• Fixed-rate DeFi lending: yield premium concentrated in fixed markets.

  • Pendle:

    • sNUSD: 7.5–9.4%

    • sUSDAI: 8–11% (Arbitrum)

  • Both offer defined maturity and predictable rates without incentive dependency.

  • sUSDe holding ~4%.

• Institutional DeFi positioning: Morpho advancing toward fixed-rate lending as part of its institutional strategy, with integrations involving Apollo Global Management, Anchorage Digital, and Taurus SA.

• ETH yield benchmarks:

  • Lido staking: ~2.7%

  • Fluid Lite ETH vault: ~4.6%.

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