Author: Biteye Core Contributor Viee
Editor: Biteye Core Contributor Crush
Today, the market opened lower and closed down 6 points, cooling down the recent market heat.
How crazy is the stock market? I believe everyone has witnessed it.
The Shanghai Composite Index experienced a "miracle" rally of over 600 points in 9 trading days before the holiday.
After the holiday, the three major indices collectively opened higher, with gains all exceeding 10%.
Trading volume surpassed 3.45 trillion yuan, setting a new historical high.
Foreign capital rushed in to join the "sweeping up" of stocks.
The Hang Seng Index has risen 35.5% so far this year, leading the global major stock markets.
The highest single-stock gain in the Hong Kong stock market once reached 730%, comparable to the on-chain meme coins in the crypto market!
The crypto market has also ridden on this wave of enthusiasm:
USDT, the largest stablecoin in the crypto market, has been sold off to the point of trading at a discount.
It seems to have become a "hot potato" that investors are eager to exchange back into fiat currency.
Unexpectedly, the headline linking the A-share market and the crypto market is - the A-share market sucking blood from the crypto market.
01 Current State of the A-share Market: Surging Enthusiasm
On the first trading day after the holiday, the A-share market was exceptionally hot, with the three major indices collectively rising. In just 20 minutes after the opening, trading volume had already exceeded 1 trillion yuan, breaking the 10% gain limit at the open, with over 5,000 stocks rising, including nearly 1,000 hitting the daily limit, and brokerage stocks soaring across the board...
This grand and magnificent market trend not only made investors' hearts race, but also sparked heated discussions in various circles about the future market trend. How did the A-share market, which had repeatedly defended the 3,000-point level, suddenly become so prosperous?
At one point, weak economic data and lack of market confidence had plunged the A-share market into a slump, but with the strong policy support and the recovery of market sentiment, the market has made a strong comeback.
So, what signals in this rally indicate the arrival of a bull market in the A-share market?
Unprecedented policy strength: On September 24, the central bank and regulators jointly issued a package of easing policies, showing a strong intention to support the market. Governor Pan Gongsheng's statement of "another 500 billion after the first 500 billion" injected a strong tonic into the market.
Trading volume hitting a new high: The trading volume on October 8 reached 3.45 trillion yuan, not only refreshing the historical record, but also indicating a significant increase in market activity. High trading volume is usually an important signal of the arrival of a bull market, reflecting investors' optimistic expectations for the market outlook.
Inflow of foreign capital: Since the policy announcement, Chinese concept stocks have generally risen, and many foreign institutions have voiced their optimism about the Chinese stock market. This influx of capital has injected new momentum into the market.
Overall valuation still at a low level: The current overall valuation of the A-share market is still relatively low, with the ChiNext Index valuation percentile below 8%, providing opportunities for medium and long-term layout.
Brokerages working overtime to attract clients: The number of new accounts opened by investors is also surging. Data shows that on September 27, the net value of investor bank-securities transfers reached 7.04, a three-and-a-half-year high. Brokerages even temporarily opened services during the National Day holiday to meet the needs of investors.
02 Current State of the Crypto Market: Undercurrents Brewing
While the A-share market is hot, the crypto market seems a bit sluggish. BTC, after climbing to a 2-month high of $66,500 on September 27, has been fluctuating downward and was around $60,000 in early October.
Is the crypto market brewing new opportunities? When will the bull market start? We can pay attention to the following signals:
Macroeconomic and Policy Changes
Recently, the Federal Reserve announced a sharp 50-basis-point rate cut, and the influx of additional liquidity has driven an overall rise in the crypto market. Loose monetary policy is generally considered beneficial for speculative assets like cryptocurrencies, so the market is optimistic about future performance. Furthermore, as the US employment data improves, the market generally expects this to further stimulate the rise in BTC prices.
Continuous Inflow of Incremental Capital
The inflow of incremental capital is one of the important indicators for judging the crypto bull market.
ETFs
The net inflow of BTC spot ETFs has a very significant impact on the price. Sustained net inflows indicate that market demand for BTC is increasing, and this positive sentiment is often reflected in the price, causing it to remain stable or rise.
Conversely, if there is a large net outflow, it may put downward pressure on the BTC price. Capital outflows usually mean a lack of investor confidence, which may lead to price declines. Therefore, the capital flow of spot ETFs is an important indicator for investors to judge market trends.
Over the past month, BTC spot ETFs have had net outflows on only 6 days, and the magnitude has been smaller than before. Currently, after a period of price fluctuations and declines, off-chain capital confidence is gradually recovering.
Data source: Coinglass
Stablecoins
The market capitalization of stablecoins to some extent reflects the inflow of incremental capital. In the crypto market, when users buy stablecoins with fiat currency, these funds will flow into the market, driving the market capitalization of stablecoins to rise. Observing the changes in stablecoin market capitalization can help judge the capital flow in the market.
As shown in the figure below, the total market capitalization of stablecoins surged to $168 billion in August, surpassing the $167 billion record in March 2022, setting a new high. Currently, the total market capitalization of stablecoins is still continuously breaking new highs, reaching $171.3 billion as of October 8.
Data source: defillama
The total market capitalization of fiat-backed stablecoins has also reached a new high and is still growing. This data only includes fiat-backed stablecoins and does not involve those dependent on complex algorithms.
Data source: CoinMarketCap
It is worth mentioning that currently, Tether (USDT) ranks first with a market capitalization of about $119.6 billion, accounting for nearly 70% of the total stablecoin market capitalization. USD Coin (USDC) is closely behind, also steadily growing, with a market capitalization of about $35.3 billion. As market confidence recovers, the continued demand for these two stablecoins will also increase. The chart below shows the changes in USDT market capitalization.
Data source: CoinMarketCap
The Merrill Lynch Clock Cycle
The Merrill Lynch Clock is an important tool for evaluating the relationship between the economic cycle and asset performance, dividing the economic cycle into four stages: recession, recovery, overheating, and stagflation.
- Recession:
Characteristics: Slow or stagnant economic growth, low inflation rate.
Investment strategy: Bonds perform best at this time, as interest rates fall and fixed income becomes attractive to investors.
- Recovery:
Characteristics: The economy begins to recover, growth accelerates, and inflation remains at a relatively low level.
Investment strategy: Stocks become the best investment choice, as corporate earnings improve and market confidence strengthens.
- Overheating:
Characteristics: The economy continues to grow strongly, but inflation rises.
Investment strategy: Stocks still have relatively strong allocation value, commodities perform outstandingly, and investors may face the risk of rate hikes.
- Stagflation period:
As a risky asset, capital usually flows into the crypto market during the recovery and overheating periods of the Merrill Lynch clock. The reason is that during the recovery period, market confidence gradually recovers, and capital inflows increase, and cryptocurrencies as high-risk assets are favored, and prices often rise. Although the economy is growing strongly during the overheating period, inflation is rising, and investors' demand for cryptocurrencies like BTC increases, which may lead to a rapid rise in prices.
Therefore, when the market is in these two stages, the possibility of a BTC bull market is relatively high. On September 18, the Federal Reserve announced a sharp 0.5% rate cut. The US has entered a rate cut cycle. From the Merrill Lynch clock, the current situation is probably in the transition stage from recession to recovery, and the bull market may be just around the corner.
In addition, according to Bloomberg data, the correlation coefficient between cryptocurrencies and the MSCI World Stock Index is close to 0.6, which is one of the highest levels in the past two years. This indicates that the trends of the two markets are becoming increasingly close, and when the stock market performs well, the crypto market may also rise accordingly.
On-chain data indicators
Bitcoin Rainbow Price Chart The Rainbow Chart is a long-term valuation tool for Bitcoin, using a logarithmic growth curve to predict the potential future price direction of Bitcoin. The warmer colors at the top indicate when the market may be overheated, which is a relatively good time to sell; the cooler colors indicate that the overall market sentiment is usually gloomy, which is a relatively good time to buy. By using the Rainbow Chart, you can use it to help judge the arrival of bull market signals. Taking October 8th as an example, BTC is currently in the green "buy" zone of the chart, and the market heat is general. If one day BTC price is in the yellow, orange, or red zones of the Rainbow Chart, it means that the market is gradually heating up, and the bull market signal is becoming more and more obvious.
For more analysis on on-chain data indicators, you can refer to the recent article of Biteye: 《Will the market reverse? Summarizing 7 Bitcoin bottom-fishing indicators》
