As seen in February, when bond yields are rising due to positive factors (strong economic growth rather than Fed rate hikes), stocks can do well in this environment. Despite rising interest rates, the S&P and Nasdaq rose about 5% last month, and global stock markets also hit record highs, with many major global stock indexes hitting record highs, including Germany, France, and Japan. Chip stocks rose sharply, with NVIDIA rising another 30%, AMD rising 20%, Broadcom and TSMC rising 17%. The logic of chip stocks is that the closer they are to the upstream of the AI industry chain, the more they will rise. As for downstream software companies, especially big technology, their performance is average. For example, Google fell by 4% in the past month, Apple fell by 2.4%, Microsoft rose by 3%, and Meta rose by 500 Billions of repurchases rose 27%. Crude oil prices edged higher with WTI approaching $80. The U.S. dollar index rose first and then fell, basically flat. Bitcoin and Ethereum are up nearly 50%.
Unlike several periods last year when rising yields triggered corrections in stocks and cryptocurrencies, global equities were able to hold up and rise amid a renewed rise in short- and long-term interest rates for three main reasons: 1) strong fourth-quarter corporate earnings results; 2) NVIDIA's prospects fuel new enthusiasm for artificial intelligence; 3) strong economic growth.
Weak U.S. economic data released on Friday and speeches by Federal Reserve Board members increased the market's expectations for monetary easing, and U.S. bond yields plunged significantly. The U.S. ISM manufacturing index unexpectedly fell to a seven-month low of 47.8 in February, contracting for 16 consecutive months, with both new orders and employment shrinking.
Fed Governor Waller (a popular candidate to be the next Fed chairman) hinted that it will implement a reverse "Operation Twist" (QT), that is, the Fed should "buy short and sell long" on the balance sheet. He also hopes to see the Fed's holdings of agency MBS be reduced to zero and the proportion of short-term debt on the balance sheet increase. Waller's speech hinted that the Fed hopes to lower short-term bond yields, which means that interest rates closer to the money market will be lowered. This is a dovish signal and can also alleviate the inversion of the yield curve to a certain extent.
Before the global financial crisis, about a third of the Fed's portfolio was in short-term Treasury bills. Today, short-term Treasury bonds account for less than 5% of Treasury holdings.
At an event on the same day, Dallas Fed President Lori Logan once again emphasized that as bank reserves fall, the Fed may begin to slow down the pace of its balance sheet reduction. U.S. bonds and gold surged, and the U.S. stock index hit a record high.
As for whether the recent rally is overheated, history suggests the market still hasn't entered an overheated state, but gains may slow and volatility may increase.
The first 16 months of the current bull market (42%) were below average (50%) compared to the past 12 bull markets. (This kind of statistics is not applicable in the crypto)
If the Federal Reserve gradually loosens monetary policy in the future, it will be conducive to economic expansion and promote further rises in risk assets. "The Fed's rate cuts are stirring up 'animal spirits' and driving risk assets," Bank of America wrote in a commentary last week.
However, the stock market won't rise forever. When investor sentiment becomes too optimistic, markets tend to become more volatile. Although investor sentiment has turned optimistic, it has not yet reached extreme levels. Investors should maintain reasonable expectations for returns and volatility, as historically there have been an average of three 5% corrections and one 10% correction per year.
All About Bitcoin
Ten spot Bitcoin ETFs are arguably among the most successful financial products in history, with trading volumes and inflows hitting new highs last week. Total net inflows reached $7.35 billion. BlackRock's IBIT hit the $10 billion asset mark in just seven weeks, the fastest an ETF has ever reached that figure and surpassing the largest silver ETF in size.
Friday saw the first net outflow in seven trading days, mainly due to the massive outflow of nearly $1.1 billion in GBTC for two consecutive days. The market speculated that the main reason behind the sell-off may be the repayment of the lender Genesis. Genesis received bankruptcy court approval on February 14 to sell 35 million GBTC shares (worth $1.3 billion then, about $1.9 billion now), but outflows from GBTC had been modest over the past two weeks until a spike on Thursday, However, most of this selling pressure seems to have been digested now.
For now we can expect large institutions to “capitulate” one after another.
Bitwise chief investment officer Matt Hougan said current demand is mainly coming from retail investors, hedge funds and independent financial advisors. He expects demand for spot Bitcoin ETFs to increase further as larger U.S. brokerages begin to participate. Some of the largest banks in the United States include Bank of America, Wells Fargo, Goldman Sachs, and JPMorgan Chase, but these banks have yet to offer BTC ETFs to their customers.
It’s unclear whether the excitement surrounding Bitcoin is sucking money away from gold, but there does appear to be some disconnect between gold’s price action and investment levels that have persisted for over a year. Historically, gold prices and gold-backed ETF holdings have traded in tandem, but starting in 2023, the two began to decouple, as shown below. This can be caused by a variety of factors, including changes in investor sentiment, monetary policy, portfolio balance, currency fluctuations, etc.
Bitcoin is the best choice for investors with long investment horizons or greater risk appetite, with its volatility roughly eight times that of its gold counterpart. The precious metal’s 10-day standard deviation is ±3%, while Bitcoin’s 10-day standard deviation is ±25%.
The drivers of gold prices appear to have changed in recent months. For decades, gold had an inverse relationship with real interest rates — rising as yields fell and vice versa — but since the onset of the pandemic in 2020, that pattern has been broken. In the 20 years before Covid, gold and real interest rates had a highly negative correlation coefficient. Since then, however, the correlation has turned positive, and the two assets now regularly move in the same direction.
Central bank buying is now widely seen as a new driver for gold. Since 2010, financial institutions, primarily in emerging economies, have been net buyers of metals to support their currencies and de-dollarize.
Edward Snowden last week shared his prediction for 2024 that national governments will be caught secretly buying Bitcoin, which he called the “modern alternative to gold.”
At present, only the government of El Salvador has taken the initiative to purchase national Bitcoins. It currently holds 2,381 Bitcoins in its treasury, and may currently have a profit of 40% compared to the purchase cost.
According to intotheblock statistics, more than 97% of Bitcoin addresses are currently profitable, setting the highest profit level since November 2021.
The last time we observed such a large proportion of profitable addresses, Bitcoin was trading at around $69,000, near its all-time high.
But it is obviously meaningless to look at it this way. At the end of each bull market, because the price is often far higher than the peak of the previous round, the profit ratio must be high. We should pay more attention to the changes in the profit ratio at the beginning of each bull market.
In January 2013, the BTC price was 14, and the previous high was 23. The profit ratio returned to more than 90% for the first time in 17 months, and it increased 40 times by the next high.
In June 2016, the BTC price was 716, with the previous high of 1100. The profit ratio returned to more than 90% for the first time in 31 months, and it increased 28 times by the next high.
In August 2020, the BTC price was 11,500, with the previous high of 19,500. The profit ratio returned to more than 90% for the first time in 32 months, and the increase was 4.5 times at the next high.
In February 2023, the BTC price was 51,000, with the previous high of 69,000. The profit ratio returned to more than 90% for the first time in 27 months. Will it increase to the next high? times
It can be seen that when the BTC price reaches about 60 to 70% of the previous high, the profit ratio will rise to more than 90%. At this time, the selling pressure of users trying to recover their losses will no longer have a significant impact. Theoretically, the bull market will follow. Smoother.
And judging from the history of the past three times, after hitting the 90 profit threshold for the first time, it will touch this area multiple times as the price continues to rise.
However, the price increases after the past three hits have been tapering, which is normal as the market matures.
According to the fitting of the exponential decay model, the maximum increase after hitting 90% this round was 390%, and the high price was around 250,000 with 51,000 as the benchmark.
Pay attention to the April callback
JP Morgan analysts released a report last week predicting that the Bitcoin halving in April may lead to a decrease in miner profitability, which, coupled with an increase in production costs, may put downward pressure on Bitcoin prices.
Historically, Bitcoin’s production cost has been a key determinant of its price floor. The average production cost of Bitcoin is currently US$26,500 per coin, and will double to US$53,000 immediately after the halving. However, the network computing power may drop by 20% after the halving, so the estimated production cost and price may be reduced to $42,000. This price is also the lowest point at which JPM predicts a possible correction for BTC.
Miners with higher production costs, in particular, are facing significant pressure due to an expected decline in profitability. The closer we get to the halving, the more gains in miner stocks may be restrained.
Meme Coin Riots and Copycat Season
Bitcoin has led the way for cryptocurrencies this year, but Altcoin may soon start outperforming.
Dog-themed tokens DOGE and Shiba Inu (SHIB) increased by 50% to 100% last week, while the prices of new MEMEs such as PEPE, BONK, and Dogwifhat (WIF) increased by 100% to 200% during this period.
Last week’s “huge” MEME coin rally could be an “early sign” of the upcoming altseason. However, what is different in this round from the previous round is that the funds are mainly driven by institutions, and there is no guarantee that the funds flowing into Bitcoin will eventually flow into smaller assets. However, as the price of mainstream currencies rises, it may drive the risk preference of existing funds. This part of the money will most likely flow to assets with higher risks. This is due to human nature.
Some analysts pointed out that to confirm altseason, the key signal to look for is ETH breaking through the $3,500 price threshold.
Will VC return to cryptocurrencies?
Venture capital investment in crypto startups increased for the first time since March 2022, reaching $1.9 billion in the fourth quarter of 2023. That's a 2.5% increase from the third quarter, according to a recent PitchBook report.
A number of start-up projects have announced financing in the past month, including Lava Protocol, Analog, Helika, Truflation and Omega. A16z announced an investment of US$100 million in EigenLayer, Ethereum’s restaking protocol. Binance Labs announced a total investment of $3.2 million in a seed round in January.
Avail announced a $27 million seed round led by Founders Fund and Dragonfly. Venture capital firm Hack VC raised $150 million to invest in early-stage cryptocurrency and AI startups.
AltLayer, a re-pledge rollups project, received US$14.4 million in strategic financing, co-led by Polychain Capital and Hack VC.
Digital asset trading platform Ouinex has raised over $4 million from the community through seed and private placement rounds.
Artificial Intelligence (AI)-powered prediction market PredX raises $500,000 in pre-seed funding
Capital flows
Equity funds saw strong inflows ($10 billion) for the sixth consecutive week, and total inflows ($84 billion) were the highest in two years. Among them, US stock funds (US$11.3 billion) were the main source of inflows. Technology fund inflows (US$4.7 billion) also rose to the highest level in six months. Bonds ($13.8 billion) and money market funds ($38.7 billion) also recorded strong inflows. Inflows into technology stocks including major companies such as Apple and Nvidia hit $4.7 billion, the highest level since August and were on track to set an annual record of $98.8 billion.
Repurchases increased from $150 billion per quarter to $225 billion
LD Capital
As a global blockchain investment firm, we have built a portfolio of over 250 investments since 2016, spanning across various sectors, including infrastructure, DeFi, GameFi, AI, and the Ethereum ecosystem. We focus on investing in projects with disruptive innovations, actively taking on the role of primary investors, and providing comprehensive post-investment services to these projects. We employ a combination of direct investment from our own funds and a distributed fund model to cover all-stages of investment.
Trend Research
Trend Research division specializes in crypto hedge funds focusing on secondary areas within the crypto market. Our team members come from top platforms and institutions like Binance and CITIC. We excel in macroeconomics, industry trends, and project data analysis, with trend, hedge, and liquidity funds.
Cycle Trading
We specialize in Web3 project investment and service, with a strong emphasis on Infra, applications, and AI. We have a team of nearly 20 senior engineers and dozens of crypto experts as advisors, assisting projects in strategic design, capital platform relations, and liquidity enhancement.
website: ldcap.com
twitter: twitter.com/ld_capital
mail: BP@ldcap.com
medium:ld-capital.medium.com
