Crypto Bounce Into Year-End Likely, But All Eyes on 10Y (Core Strategy Rebalance)
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 reversal. With that in mind, we raised our allocation to stables to 25% in our Core Strategy Portfolio.
Taking Inventory
Pre-FOMC, we anticipated that heading into year-end, with the market pricing in an elevated level of hawkishness (only two cuts were priced for next year in the futures market, and the 10Y was approaching YTD highs), a hawkish Fed would result in a “buy the news” event. Alas, it did not, as Jerome Powell donned his best hawk costume and took a bite out of rate-sensitive assets. Below, we take stock of how we got here and where we might be heading next.
Why We Have Been Bullish
To begin, it’s essential to revisit why we’ve been bullish so we can assess whether these reasons remain valid.
Regulatory Risk Repricing – This is an obvious but difficult-to-quantify factor. Over the past four years, the government has exerted significa...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 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...
