Fri, December 6, 2024 | 7:43PM ET

Adding ETH Beta (Core Strategy Rebalance)

Name: FS Insight
Price range: $$$

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:

Adding ETH Beta (Core Strategy Rebalance) — Source: TradingView

Fed Funds Futures Showing More Cuts:

Oil prices nearing YTD lows likely assisted in alleviating near-term concerns about inflation reigniting.

With the weekend approaching and no critical macro data expected until Wednesday (CPI), barring any geopolitical surprises, we recommend leaning into the currently favorable market conditions within crypto. This environment appears especially conducive to weekend trading.

Of note, ETH has shown significant strength over the past couple of days, rallying above $4,000—a level it hasn’t sustained in some time.

Last week, we highlighted how conditions and flows in traditional markets (CME basis, ETF flows, small-cap tech outperformance) pointed to strong risk/reward for ETH, and this thesis appears to be playing out.

Small Cap Tech Outperformance:

ETHBTC Ratio Following Suit:

Given ETH’s momentum, we anticipate increased participation from ETH-adjacent altcoins in the ongoing rally. Accordingly, we are adding MKR and OP to our Core Strategy portfolio.

MKR

MKR was part of our Core Strategy earlier this year but underperformed, likely due to negative sentiment surrounding its rebranding efforts. However, the current setup looks compelling:

ETH is rallying sustainably against BTC for the first time in a long while.
DeFi has been the best-performing sector today, with other “blue chips” like UNI and AAVE (a Liquid Ventures constituent) rallying strongly.
ETH beta outperformance is evident today, yet MKR remains a laggard, signaling catch-up potential.

While not a technical analyst, I note that MKR appears to have bottomed and is moving higher against BTC, which is a promising sign.

OP

OP, the third-largest Layer 2 by total value locked (TVL) on ETH, is another logical addition.

It has previously been a strong performer in our Core Strategy, excelling as ETH beta during periods of ETH strength.

We expect similar performance if ETH continues to outperform BTC—or even if it simply maintains its current pace.

Despite doubling in recent weeks, the chart (again, not as a chartist) suggests OP may be completing its bottoming process against BTC and could be on the verge of breaking higher.

Both assets align well with our macro view and Core Strategy framework, offering solid risk/reward in the current market environment.

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.

Tickers in this report: BTC -0.53% , XRP -3.69% , SOL -4.17% , ETH -1.87% , HNT -0.85% , STX 14.30% , MKR, BNB, CORE, JTO -3.84% , BONK -7.10% , RAY, MSTR, SMLR, COIN, HOOD, MARA, RIOT, WGMI, CLSK, WULF, IREN, CORZ, BTDR, BTBT, HUT, HIVE, AVAX -3.44% , XRP -3.69% , GDLC, BITW, OP -0.85% , MKR

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