Caution in the Near-term Still Warranted, Q4 Setup Remains Compelling (Core Strategy Rebalance)
This Week’s Economic Data Skews Toward Hard-Landing
For this week’s note, we will begin by revisiting our market map for the near-term outlook on crypto. Over the past few months, the market has oscillated between expectations of a hard landing, soft landing, and no landing. However, since Powells’s speech at Jackson Hole, market outcomes have narrowed, leaving only the two scenarios furthest to the left—hard landing and soft landing. Both scenarios are cyclically favorable for crypto, though the hard landing carries short-term downside risk.
This week, we received a subpar ISM Manufacturing report. The ISM Manufacturing PMI came in at 47.2, lower than the expected 47.9, indicating a contractionary environment. The most disappointing subcomponent was the new orders figure, which posted 44.6, well below market expectations of 47.2.
This led the crypto market, along with broader risk assets, to shift toward hard landing pricing, as concerns about a potential Fed policy error grew among investors.
On Wednesday, the JOLTs report posted a weaker-than-expected number, showing approximately 7.7 million job openings, significantly below the forecasted 8.1 million.
Thursday’s ISM Services PMI, however, met expectations, coming in at 51.5,...Reports you may have missed
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...
TURNING CAUTIOUSLY OPTIMISTIC There is a lot of pain in the ETHBTC chart. It peaked in December 2021 and, save for several brief rallies, has been on a downwards slope ever since. It peaked at just under 0.09 and currently trades around 0.038. Source: TradingView Fortunately, we have anchored most of our attention on BTC and SOL this cycle, as BTC has continued to lead the market in a generally...
