Written by: @zhili, @MacroFang, @chenchenzhang
Key Points
Part I Macro Market
- Market status: The collapse of the yen carry trade led to the liquidation of a large number of positions, the market corrected its mistakes, and the Topix index led the "deep V" reversal.
- Data adjustment: Although recent CPI, PPI and other data are in line with expectations, there are doubts such as the "forced" adjustment of energy and used car prices, which will reduce the market's implied volatility.
- Fed Movement: Speeches by Fed officials indicate cautious policy adjustments, and the September dot plot is expected to continue to maintain an accommodative stance.
- Federal deficit: The Fed’s dovish stance, the Treasury’s short-term bond issuance, and the bond repurchase program have eased market tensions. Although large financing programs may put pressure on market liquidity, the increase in reserves and the flexibility of fiscal operations have Help maintain market stability.
- Corporate Performance and Buybacks: S&P 500 companies performed steadily in the second quarter. The opening of the corporate buyback window will enhance liquidity, and the U.S. stock market is expected to continue to grow in the short term.
- Medium-term market outlook: The market outlook is complex, and uncertainties such as inflation, change of government, policies and fiscal deficits need to be closely monitored.
Part II Crypto Data
- Stablecoin growth: Stablecoin issuance continued to rise in 2024, indicating that market demand remains strong.
- ETF liquidity: Bitcoin spot ETF net inflows decreased after May, and market sentiment turned to wait-and-see.
- Holding cycle: Nearly half of Bitcoin is controlled by long-term holders, and market confidence is solid.
- Holding coin cost: The on-chain holding coin cost is higher than the current market price, and the market still has room to rise.
- Market resilience: Despite the volatility, investors are willing to hold on to their money and the market is healthy and stable.
Part I Macroeconomics enters a turning point
1. August: Will recover from the turmoil
1.1 The collapse of the yen carry trade led to the liquidation of a large number of positions, the market corrected its mistakes, and the Topix index led the "deep V" reversal
August 5 Bank of Japan rate hike: triggering collapse of yen carry trade
USD/JPY has fallen sharply over the past four weeks, from nearly 162 JPY/USD to around 142 JPY/USD, in line with our bearish outlook. This sharp decline was driven by the Bank of Japan’s rate hikes and the Japanese government’s July 11 While some doubt the effectiveness of foreign exchange intervention, we support its ability to change market trends by shifting supply and demand.
USDJPY's recent move mirrors similar declines in 1990 and 1998, but it's important to note that this move doesn't always signal a long-term trend reversal for USDJPY, unlike EURJPY and AUD. Against the yen, this deserves further consideration.
Panic selling on August 5: Global markets crash
The Bank of Japan’s surprise rate hike sent the Topix tumbling 20% in a single day as investors panicked to cover their positions. Stocks have tumbled in recent days as recession risks have risen and fears of a sharp yen move sparking a broader de-risking. It fell sharply in one trading day.
Weaker-than-expected ISM data, rising unemployment claims, and disappointing nonfarm payrolls paint a gloomier picture of the U.S. macroeconomic outlook, raising concerns about an impending recession. Rising interest rates and weak ISM may have signaled the beginning of a recession cycle.
Despite the absence of risk events over the weekend, S&P futures fell nearly 5%, NDX fell more than 6%, and VIX surged above 60. FOMC news hinted at a possible rate cut in September.
High leverage in the system, especially in cryptocurrencies and large-cap stocks, has led to market size and volatility. Notional volume was three standard deviations above normal, the highest in the U.S. market since February 2022. The largest volume on a non-index rebalancing day. Investor activity was mixed, with S&P bullish positioning declining and Nasdaq positioning relatively unchanged despite its volatility. We expect Friday's large new short positions to be reflected in the next few days. The trading day had a significant impact on the net long position of Nasdaq.
1.2 Market turmoil: Macroeconomic positives trigger risk appetite
After the leverage was removed, the market rebounded sharply, led by the Topix Index. Positive macroeconomic data released last week drove the return of bullish investor flows to the US index, with more than $16 billion in new funds added to the S&P index and further expansion of positions. . The Nasdaq and Russell 2000 indices rose modestly, with losses on Nasdaq long positions easing. Global market sentiment was positive, with nearly all European and Asian indices rising in nominal terms. The DAX and FTSE turned net positive The Nikkei saw the strongest fund flows in Asia, while the KOSPI hit a nearly three-year high. In contrast, the China A50 Index remains bearish, with limited risk in holding positions.
CTA quantitative buying also drives a huge amount of liquidity into the market, and in the short term, it is expected that CTA will buy more than 60 billion stocks, 30 billion of which will flow into US stocks. Strong buying demand will drive the market to rise further. According to statistics from Scott Rubner of Goldman Sachs Data shows that in the past three weeks, traders' Gamma has changed by 16 billion, with long positions turning into short positions and then turning into long positions. Traders' Gamma is no longer short-term and will serve as a buffer to the market in the future.
2. Data inconsistency
2.1 Data "falsification" helps restore market sentiment and strengthens expectations of a Fed rate cut
Last week's CPI, PPI, retail data, and PMI data all "just happened" to meet market expectations, dispelling market expectations of a recession while maintaining expectations of a rate cut by the Federal Reserve. However, we see the "irrationality" in the coincidence of the data. For example, the PPI data showed that energy rose by about 2% year-on-year while remaining unchanged from the previous month. Although this can be explained by exports and government purchases, the used car sub-item of the CPI (-10.9%) does not conform to normal logic.
Due to a network failure in CDK's software and technology in June, most used car dealers were unable to deliver vehicles, resulting in a large backlog of orders. According to the Mannheim Used Car Report, the transaction volume and transaction price in the first half of July were Both rose (1.6%), and we expected a decline in the second half of July, but according to our estimates, a year-on-year decline of more than -10.9% is very unreasonable, far exceeding our expectation of -4.3%.
In general, although the recent CPI, PPI, retail and PMI data are in line with expectations, there are doubts, such as the energy risk in PPI and the fluctuation of used car prices in CPI, which shows that the real data may be biased, reducing the market's future Implied volatility.
3. Fed’s moves
In response to recent adjustments in remarks by Federal Reserve officials, we expect that the future dot plot will emphasize expectations for three rate cuts.
3.1 Official Statements
3.2 Dotmap Prediction
Powell's speech and interest rate changes in September are not expected to cause volatility. The dot plot in September is more likely to determine the market trend. Combining the above Fed speeches and our subjective judgment on the long-term officials, we believe that the dot plot shown in September The median and mode in the figure are 75 bps.
3.3 Interest rate cuts will usher in a super cycle
In recent minutes, most federal officials support easing policy if data meets expectations. Chairman Powell acknowledged that a rate cut was mentioned in the July discussion, and several officials also supported a 25 basis point rate cut, while leaning toward a possible September rate cut. Officials expressed confidence in slowing inflation, citing slowing wage growth and consumer resistance to high prices, while risks to employment increased.
While August employment data will be key to determining the size of the September rate cut, the minutes suggest that officials are likely to support a larger 50 basis point rate cut. In addition, if the labor market continues to deteriorate, balance sheet reduction could be delayed in December. Otherwise, it may extend to the second quarter of 2025.
Yesterday's revised employment data from the Bureau of Labor Statistics showed a loss of 818,000 jobs over the past 12 months, reinforcing the signal of labor market weakness, which will affect market sentiment and FOMC pricing.
Labor force data on September 6 will be critical, but we view the risk of this event as low.
The S&P 500 is likely to end the month with a rise. In the past history, it was rare to close with a rise before a rate cut (1973-Now), only in 1984 and 1989, and it did not rise within 1m, 3m and 6m after the rate cut. A sharp correction. (However, due to the small amount of data, the judgment on the market trend after this rate cut is limited and is for reference only).
4. Federal Deficit
-- The federal deficit widened, but the Fed's dovish stance, the Treasury's short-term bond issuance, and the bond repurchase program eased market tensions. Although large-scale financing programs put pressure on market liquidity, the increase in reserves and the flexibility of fiscal operations Sex will maintain market stability.
4.1 Adequate financial liquidity
Markets expect the deficit to total $1.6 trillion this fiscal year, or about 6% of GDP. The increase in debt levels alone has led to higher interest payments that soared $185 billion year-over-year. What is surprising is that the federal government's total debt as a percentage of GDP remains around 110%, which is relatively healthy among major economies.
Major primary dealers have accumulated record-high U.S. debt and must reduce leverage. In the long run, this will put great pressure on the U.S. government, but in the short term it will allow the Federal Reserve to maintain a more "dovish" tone. Chicago Quantitative measures such as the Fed's Financial Conditions Index (NFCI) show that financial conditions have reversed all the tightening pressures that the Fed had in place when it was raising interest rates.
4.2 Debt structure adjustment
The Ministry of Finance plans to raise 740B in July-September and 565B in October-December. Although the amount is huge, it is slightly lower than our team's forecast (due to the Fed's slowdown in quantitative tightening and the previous quarter's Higher cash surplus at the end of the quarter due to higher tax revenues).
There are voices in the market that are worried that the Treasury's massive financing plan will drain liquidity from the reserve market, leading to a market decline. We are not pessimistic about this.
Since the Fed began quantitative tightening in June 2022, ON RRP balances have decreased by $1.68 trillion, while reserves have increased by $15.5 billion. Last week, ON RRP balances fell by $127.7 billion and have fallen by $141.1 billion over the past four weeks. Reserves increased by $186.2 billion last week, up $30.5 billion from the previous month. Therefore, the impact of the balance sheet reduction is felt more in ON RRP balances rather than directly in financial flows. The main source of sex - reserves.
The Treasury introduced liquidity management repo in the last refunding in May. Although cash management repo has not yet started, we think it is reasonable to conduct repo in the weeks of September tax period, which will reduce the September tax period. T-Bill issuance requirements.
In the future, the market estimates that the proportion of Treasury T-Bills held may rise to more than 20% (meaning that the scale of long-term bond issuance will be relatively reduced), which will drive down the term financing premium in the medium and long term and further guide the loose financial market. Given the negative attention recently drawn to the TBAC financing guidance, the Ministry of Finance may not abandon the 15%-20% guidance in the short term.
5. Corporate earnings and buybacks
S&P 500 companies performed stably in the second quarter and are expected to continue to grow rapidly in the next two quarters; market repurchase activities will also continue to inject liquidity into the market.
5.1 Optimistic profit growth
Although the market is obviously more critical of the performance of the highly valued M7, the S&P500 as a whole performed normally in the Q2 earnings season. This quarter is different from the previous growth quarters led by M7. The Q2 earnings of S&P493 were the driving force of the US stock market in this quarter. One of the important factors for the rise is to offset some of the impact of M7's substandard financial report. We expect that S&P493 will see double-digit growth in Q3 and Q4, while driving up risk appetite, and risk assets (Russell 2000 and Bitcoin) will also rise. Spring will come.
5.2 The scale of corporate buybacks is huge
Most companies are now in an open window for buybacks, and when the market fluctuated greatly on August 5, the speed of corporate buybacks increased significantly. According to Goldman Sachs block trader data, compared with the average daily trading volume (ADTV) so far in 2023, the buyback rate has increased significantly. Compared with the ADTV so far in 2022, the repurchase volume is 1.8 times; compared with the ADTV so far in 2022, the repurchase volume is 1.3 times. On September 13, most companies entered the pre-earnings repurchase lock-up window, so we expect that in the short term (before mid-September) The liquidity of the U.S. stock market will be relatively abundant, and the amount of corporate buybacks will exceed $50B per day.
6. Medium-term outlook
The macro market is in a very complex state. We can only infer short-term market trends based on the currently available information. For the medium term, our judgment will be vague.
6.1 Inflationary pressure still exists
The decline in inflation is mainly due to the sharp decline in oil prices and used car prices, while service inflation, especially housing inflation, remains high. The layoff rate has not increased, and the wage growth rate is even higher than the inflation index. After that, companies will inevitably speed up financing and expand their business territory, which will be more unfavorable to the suppression of inflation.
6.2 Change of government increases uncertainty
Tariffs - Harris's policies will be more moderate than Trump's, especially in terms of tariffs, which will help reduce global trade disputes. Trump's policy of significantly increasing tariffs will significantly increase global trade disputes. It is possible that increasing tariffs, especially against China, will lead to increased commodity prices and a significant increase in domestic employment, which will put tremendous pressure on inflation.
Federal Reserve - The short-term impact of the change of leadership on the Federal Reserve is not significant. The president cannot directly influence the independent Federal Reserve in the short term, but if Trump comes to power, he can appoint a "friendly" person when Powell's term expires in May 2026. Chairman, increasing our uncertainty.
Deficit - According to CBO's projections, the initial deficit in 2025 is expected to decline to 3.1% from 3.9% in 2024, but if Trump is elected we expect the deficit to increase to 4.1% (based on Trump's tariffs). Policies, tax policies, immigration policies, energy policies, etc.) When fiscal stimulus continues to increase, monetary policy will continue to fluctuate in order to maintain the inflation rate. At the same time, it will also increase market concerns about the sustainability of debt, which is very unfavorable for us to judge future market trends.
6.2.1 Bipartisan attitudes towards cryptocurrencies
Republican-Trump criticized Biden's anti-cryptocurrency stance, including the expulsion of Bitcoin mining companies and the threat of potential tax increases, and stressed that the government and U.S. Securities and Exchange Commission Chairman Gary opposed the FIT21 bill's regulatory measures as unreasonable.
Democratic Party - The Democratic Party has also been increasingly accepting of cryptocurrencies, recognizing the importance of attracting crypto-enthusiast voters in a heated race. Democratic presidential candidate Harris plans to promote the cryptocurrency industry at the Democratic National Convention in Chicago. At the Bloomberg Roundtable, Nelson emphasized Harris's commitment to supporting policies that allow emerging technologies to flourish. In addition, Harris has begun reaching out to cryptocurrency executives to better understand and advocate for the development of the industry.
6.3 About Japanese Yen Carry Trade
The carry risk of the Japanese yen is worth noting. The market expects that the BOJ will resume raising interest rates at the beginning of next year. Combined with the Fed's interest rate cut, the interest rate spread between the Japanese yen and US bonds will inevitably narrow significantly. However, the specific carry position and risk cannot be measured now. We are more inclined to This was discussed in November.
7. Summary
We believe that whether from the perspective of market sentiment, capital flow, business conditions, fiscal capital flow and monetary policy, our team is bullish in the short and medium term. In the short term, the cryptocurrency market may be affected by the volatility of the US stock market or the financial report of Nvidia. It will have an impact, but it will not change the overall trading logic of the market.
The specific performance of the market next year will depend on changes in political arena, monetary policy, fiscal policy and inflation data.
PART II Crypto on-chain data
Prices are usually driven by the interaction of multiple forces. Some forces may not show their effects immediately, but may take a long time to show their results. We have also proposed our own framework for on-chain analysis, covering liquidity, holding period, etc. and average cost.
1. Liquidity
1.1 On-chain stablecoin value
The issuance of on-chain stablecoins is highly correlated with the market. The supply of stablecoins has increased significantly in the past few years, especially from 2020 to 2021. The rapid growth of stablecoins during this period Closely related to the boom in the global cryptocurrency market.
After entering 2024, although the issuance of stablecoins has slowed down, it still maintains an overall growth trend. As can be seen from the chart, compared with the rapid expansion in previous years, the supply growth of stablecoins in 2024 is The speed has slowed down significantly and the curve has become flatter. This shows that although the market demand for stablecoins still exists, compared with the explosive growth in previous years, the market is gradually entering a more mature and stable stage.
The recent slowdown in the supply of stablecoins has re-entered the issuance phase, setting a new high in this round of rising cycles. Overall, the stablecoin market in 2024 is still on the rise, and the sluggish market should also be boosted accordingly. effect.
1.2 ETF Data
From the beginning of the year to the beginning of March, the cumulative net inflow rose rapidly, indicating that the market demand for Bitcoin spot ETFs was strong. However, as time went on, especially after May, the funds flowing into the market decreased, and the cumulative net inflow began to stabilize. , remained at around US$20 billion, failing to reproduce the previous growth momentum. We can see that although there are occasional large-scale inflows, the overall net inflow has decreased since May, accompanied by Some net outflows. This further proves the change in market sentiment, from active buying to more wait-and-see and cautious, and the effect of "spot ETF" in bringing in new funds has also weakened.
2.HOLD Wave
2.1 BTC: Realized Cap HODL Waves
Bitcoin’s Realized Cap HODL Waves, used to analyze holding time and maturity in the market.
The solid part of the graph below represents the percentage of coins held for more than 6 months. As of August 20, the total percentage of coins held for more than 6 months is 47.097%, which means that nearly half of the Bitcoin in the market is in the long term. In the first two bull markets, the top range of the rise was below 20%.
This means that the current on-chain situation is that the proportion of long-term holders is still high, which shows that despite price fluctuations, many investors choose to continue holding Bitcoin rather than selling.
2.2 Trend Accumulation Score
Swinging between selling and holding, the current status is returning to the HOLD cycle.
This chart shows the change of the "Trend Accumulation Score" of Bitcoin holding groups of different sizes over time. The bluer the color, the more likely the on-chain holders are to hold or buy, and the redder the color, the more likely the holders are to hold or buy. Investors are more inclined to sell.
After the selling pressure some time ago, both large and small holders tend to hold their coins.
2.3 Bitcoin: Long/Short-Term Holder Supply Ratio
This chart shows how the supply ratio of Bitcoin to long-term holders (LTH) and short-term holders (STH) changes over time.
It should be noted that the holding period for long-term and short-term holders is 155 days, with a 10-day buffer period.
The current LTH/STH supply ratio is 4.8604, and there is a clear upward signal, up 13% from the 30-day average (visible in the green bar chart).
3. Holding costs
3.1 Bitcoin: Realized Price-to-Liveliness Ratio
Blue line: Realized Price. The blue line represents the “realized price”, which is the average holding price of all bitcoins on the chain (based on BTC transfer data).
Orange line: Realized Price-to-Liveliness Ratio (RPLR), the orange line represents the "Realized Price-to-Liveliness Ratio", which is an indicator that combines the realized price and Bitcoin holding behavior It estimates the “holding cost of active addresses” of Bitcoin by adjusting the realized price by comparing Bitcoin’s “activity” (i.e., how long Bitcoin has been held or spent).
The current value is: As of August 11, the on-chain coin holding cost is \(31.3k; the on-chain active address coin holding cost is \)51.3k.
Current market prices are above these cost prices.
3.2 Bitcoin: Pi Cycle Top Indicator
This indicator is composed of 350DMA*2 and 111DMA. 350MA refers to the 350-day moving average, which is used to calculate the average closing price in the past 350 days.
In history, every bull market will see the 111DMA cross the 350DMA*2, that is, the short-term moving average crosses the 2x long-term moving average, and the intersection of the two moving averages is often the top range. At present, there is still a gap between the two moving averages. Currently:
- 350DMAX2: $102,579
- 111DMA: $63,742
3.3 Market Cap BTC Dominance
This round of BTC.D index is continuing to rise, and there is usually BTC liquidity overflow in the middle and late stages of each bull market. However, judging from BTC.D, there is currently no BTC capital inflow into Altcoins.
Altcoin may explode at:
4. Summary
Amid a challenging and volatile market environment, long-term Bitcoin holders remain steadfast, with evidence that they are increasing their accumulation behavior. Compared to the peak of the previous cycle, this group of investors holds 2.5% of Bitcoin. The higher percentage of Bitcoin network wealth shows investors’ patience, waiting for prices to rise. Furthermore, despite the largest price contraction in the cycle, these investors did not panic sell, highlighting the resilience of their overall conviction.
At the same time, the stablecoin supply chain is still sufficient. Although the inflow of external funds has slowed down, the current price is still higher than the average holding cost on the chain, and the holding structure is also very healthy. At this stage, BTC's liquidity has the momentum to overflow, and Altcoin season is not here yet.
Overall, we remain positive and bullish on the market outlook.
