LFG
Weekly Recap
It was another week of green candles across the crypto ecosystem as bitcoin flirted with its 200-day moving average for the first time in several months.
Like last week, the more speculative sectors outperformed the prior 7-days, with the once-beleaguered DeFi sector continuing to turn some heads.
Source: Messari
Below we examine some of the reasons we think that this relief rally mirrors those seen in late 2021 and why this rally might have some legs on it.
No Signs of Overextension
A good barometer of whether a rally is sustainable or not is how traders are positioned. While every trade has a long position that counters every short, we can reasonably ascertain whether the market is positioned “net-short” or “net-long” using funding rates for perpetual futures contracts as a proxy for demand for a particular side of the trade.
As a reminder, high funding rates indicate increased demand for long positions – longs are paying shorts to take the other side of the trade. Conversely, negative rates indicate increased demand for the short side of the trade.
Below, if we plot rolling 30-day daily returns with rolling 30-day average funding rates, we can see a somewhat predictable pattern emerge where consistent daily returns result...Reports you may have missed
CORE STRATEGY: FOCUS ON MAJORS, KEEP HEAD ON SWIVEL UNTIL BONDS/DXY RELENT We think it's right to expect a bounce into year-end, potentially starting tomorrow if PCE data comes in soft. In our view, this cycle is far from over, but until bonds find a bottom and the USD tops, it’s likely best for the more tactical investor to stay nimble and prepared for opportunities upon confirmation of this trend...
CORE STRATEGY Our base case assumes that the macro environment will remain accommodative for crypto through year-end. However, in light of recent market action, we remain alert for signs of a local top (not a cycle top). That said, it is difficult to justify a risk-averse stance at this stage and think it is right to lean into this altcoin rally. Source: TradingView, Fundstrat Source: TradingView, Fundstrat STRONG DOLLAR +...
Today's employment numbers broadly met investor expectations, placating a nervous market. Risk assets rallied, aligning with our view that yesterday's de-risking would not persist through today. Yields continued their downward trajectory, and Fed funds futures also declined, reflecting the market's adherence to the Fed's dovish messaging. Yields Falling: Source: TradingView Fed Funds Futures Showing More Cuts: Source: TradingView Oil prices nearing YTD lows likely assisted in alleviating near-term concerns about...
INDICATIONS OF FROTH Given the violent nature of the past month’s rally, we have been vigilant for signs of a local top. It would be disingenuous to claim that some qualitative "top signals" are not flashing right now. XRP—which we noted as a possible election trade back in October—with only 1–2k daily active addresses (vs ETH's over 400k, source: Artemis), is ripping toward new highs while influencers take to TikTok...
