Assessing the Damage
The question remains – wen[1] bottom?
Since the November highs, most of the downward pressure on crypto prices has been the product of macroeconomic headwinds. Inflation has yet to conclusively rollover, and the Fed appears intent on stifling demand to bring down the costs of consumer goods. Last week, we had the first instance this year of an idiosyncratic event specific to the crypto markets shaking investors and sending prices lower.
The collapse of UST, combined with the macro backdrop, has had a chilling effect on the overall sentiment among crypto native investors and has sent many towards the exits. For more information on the events that unfolded last week, we direct you to our previous note and a market update video we put together late last week.
Below we will address several data points that will help us determine how close we are to the bottom of this bear market.
Capitulation
The bright side of last week’s carnage is that we finally started to see signs of capitulation. While never enjoyable, capitulatory selling – such as that seen in November 2018, March 2020, and May 2021 – is often the market rinse needed before asset prices can move higher. Capitulation is often the product of long-term holders, “top-buyers”, and crypto “tourists”...Reports you may have missed
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...
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...