The Growing Case for ETH Outperformance in Q4
The US Dollar Wrecking Ball Continues
Last week, our near-term outlook remained uncertain, though we leaned toward the possibility that a positive catalyst, such as a victory for Grayscale, could coincide with easing liquidity conditions. This would mark a significant departure from the tightening conditions—indicated by the DXY—that followed the last two crypto-specific catalysts this year.
The likelihood of interest rates reaching a peak, the dollar beginning to decline, and liquidity conditions finding a local low was supported by several factors: (1) ongoing softening in U.S. economic conditions, which is disinflationary; (2) the RRP's continued drain back into the banking system, and (3) China's addition of liquidity to the market.
Technically, all three of those things have happened, unfortunately, due to prevailing weaknesses in the global economy, the liquidity China has injected into the global market continues to diminish when denominated in USD. Encouraging economic data from either China or Europe could certainly help counteract the recent increase in interest rates and the DXY.
There is also a particular importance in next week’s CPI reading, as continued disinflation coupled with strong economic growth moves us from a stagflationary picture (b...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...
