Buying More SOL, Plus Another Election Trade Idea (Core Strategy Rebalance)
Small Cap Breakout a Positive Indicator for BTC
It is a common refrain among passive industry observers that BTC is strongly correlated with large-cap tech stocks, leading some to view BTC as a quasi-leveraged version of QQQ. However, we think this perspective is limiting. If you were to rely on QQQ as a barometer for crypto market conditions, you would experience several periods of underperformance over the course of a liquidity cycle.
For instance, in Q2 of this year, when the market was awash with bullish fervor around NVIDIA and AI, tech stocks soared on solid earnings and growth projections. Yet, BTC performed rather poorly during this period. This disparity arises because BTC trades according to shifts in monetary and fiscal conditions. Historically, these conditions have also affected large-cap tech stocks for extended periods, but they are not always in sync, such as during the earnings-driven rally of earlier this year.
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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...
