China crypto ban made the sell-off worse, but PBOC balance sheet growth matters more than posturing and is not the only key market driver - rally remains intact
In our crypto flash Monday night, we laid out 9 reasons we thought Bitcoin was close to a bottom around $40k.
But yesterday crypto markets went for a wild ride. We got yet another sharp move lower below $30k but have since bounce back and are now at $41k.
Part of this was due to leverage liquidations, but part of the move was also sparked by negative news of China banning crypto.
Source: Fundstrat, Google
This is not the first time China has made such a move. It happened back in December 2013 and September 2017.
In 2013 it marked the top of the bull market cycle. But in 2017 it preceded a massive move higher.
We can look at the timeline of these events in the context of Bitcoin’s prior market valuation cycles using the Grider Bitcoin Book Value multiple.
Source: Fundstrat, Coinmetrics
After the Bitcoin sell off we just had one question, could this China ban cause us to enter a new bear market or is this just a correction in a bigger move higher?
We think this China news headline posturing impacted the market, but we don’t think it matters as much for the cycle as the People’s Bank of China (PBOC) balance sheet growth.
We can see there is a strong relationship between PBOC year ov...Reports you may have missed
CORE STRATEGY: REMAINING TACTICALLY CAUTIOUS, TGA RUNDOWN + EARLY JAN FLOWS COULD PRODUCE NEEDED SPARK In our view, this cycle is far from over. However, until bonds find a bottom and the USD peaks, it’s prudent for more tactically-minded crypto investors to remain nimble and ready to capitalize on opportunities once a trend reversal is confirmed. While this could happen as early as next week due to early-January inflows, additional...
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...
