Author: 0xWeilan
The market, project, cryptocurrency and other information, opinions and judgments mentioned in this report are for reference only and do not constitute any investment advice.
The global macroeconomic finance will reach a turning point in the midst of turmoil in 2024.
With the 50 basis point cut in September, the US dollar has entered a rate cut cycle, but with the US presidential election and global geopolitical conflicts, the US economic and employment data has begun to be "distorted", leading to greater divergence in traders' judgments on the future market. The US dollar, US stocks, and US bonds have all experienced violent fluctuations, making short-term trading increasingly difficult.
The divergence and concerns are reflected in the violent fluctuations of the three major US stock indices without direction. In contrast, the relatively lagging BTC caught up in October, surging 10.89%, and achieved a major technical breakthrough, taking over multiple important technical indicators and approaching the upper end of the "new high consolidation zone" again, once reaching $73,000.
The internal structure of BTC remains perfect and is well prepared for a thorough breakthrough, but the external is still constrained by the "suppression" of the US stocks uncertain about the election outlook. However, the election is just an episode and will not change the cyclical operation. We judge that after the November election, after necessary conflicts and choices, US stocks will resume their upward trend, and if so, BTC will break through the historical high and start the second half of the crypto asset bull market.
Macroeconomic Finance: US Dollar, US Stocks, US Bonds and Gold
In October, after falling for 3 consecutive months, the US dollar index "unexpectedly" rebounded sharply by 3.12%, from 100.7497 to 103.8990, returning to the level of last January. The reason behind this rebound is the "Trump's victory", as traders believe that Trump's election will exacerbate the decoupling between China and the US, pushing up inflation and making rate cuts difficult to proceed smoothly. We believe that this rebound has already priced in the expectation of "slower rate cuts" beyond expectations, so the rebound of the US dollar index is unlikely to continue.
Monthly trend of the US dollar index
The expectations of "tax cuts" and "China-US decoupling" in Trump's economic policy will inevitably lead to a further rise in the scale of US bonds. As the probability of Trump's victory increases, the yield of 2-year US bonds has surged 14.48% after a 5-month decline, and the 10-year bonds have surged 13.36%. The sell-off of US bonds is very severe.
Currently, the US stock market is trading around two main lines: whether Trump or Harris is elected, the asset trends that may be triggered by their economic policies, and whether the US economy will have a soft landing, hard landing or no landing.
The October economic data showed that CPI remained low and the unemployment rate also remained low, making people increasingly believe that the economy is heading towards a soft landing, which has allowed the US stocks to remain near historical highs. However, the extremely low non-farm employment data and the lack of trading direction due to the completion of pre-pricing and the undecided election have caused traders to lose their trading direction. The Q3 financial reports of the "7 giants" have been mixed in performance. In this context, the Nasdaq created a new high in the middle of the month but then fell, down 0.52% for the month, and the Dow Jones fell 1.34% for the month. Considering the sharp rebound in the US dollar index, this is a good result.
Only gold has received the support of safe-haven funds, with London gold rising 4.15% month-on-month to $2,789.95 per ounce. The current strength of gold is not only due to safe-haven funds, but also due to the continuous increase in holdings by central banks in many countries (replacing part of their US dollar holdings as value reserves for their own currencies).
Crypto Assets: Effective Breakthrough of Two Major Technical Indicators
In October, BTC opened at $63,305.52 and closed at $70,191.83, up 10.89% for the month, with a volatility of 23.32% and moderate volume expansion. This is the first time it has achieved two consecutive months of gains since the March adjustment.
BTC daily trend
In terms of technical indicators, BTC has achieved multiple major breakthroughs this month; it has effectively broken through the resistance of the 200-day moving average, and has effectively broken through the downward trend line (white line in the chart above) since March. The breakthrough of these two major technical indicators means that the long-term trend has improved, and the doubts about the crypto market "turning bearish" can be temporarily eliminated.
Currently, the market is in the stage of retesting the upper end of the "new high consolidation zone" after the breakthrough. Next, we will focus on two technical indicators, one is the upper end of the "new high consolidation zone" ($73,000) and the rising trend line (currently around $75,000). In our previous report, we emphasized that the effective breakthrough of the "new high consolidation zone" means the end of the long 8-month consolidation, and the return to the rising trend line means the arrival of a new trend (the second wave of the bull market).
BTC monthly trend
In the monthly trend chart, it can be found that since August, the lowest price of BTC has been continuously rising. This turning point is based on two points: the continuous improvement of global liquidity since the rate cuts by the Federal Reserve, the EU and China, and the adjustment within the crypto assets, i.e. the "from short to long" holding structure.
Long-Short Game: Liquidity Enhancement May Trigger the Launch of the Second Wave of Sell-off
Distribution of BTC holdings by long, short, CEX and Miner (monthly)
In the previous report, EMC Labs pointed out that with the unfolding and adjustment of the crypto asset bull market, the long-term holders will experience two waves of sell-offs, thereby returning the hoarded chips to the market during the market downturn period.
In this cycle, the first wave of sell-off by the long-term holders started from January this year and ended in May, after which they turned to re-accumulation until October. After the Federal Reserve's rate cut in September, the liquidity in the crypto market improved, and the long-term holders began to sell again, driving the holding structure to "from long to short". The scale of sell-off this month is close to 140,000 BTC.
This is the result of the Federal Reserve's rate cut and liquidity improvement, and also an inevitable stage of the cycle operation. Of course, we need more time to confirm the sustainability of this sell-off, and overall we tend to believe that the second wave of sell-off has already begun. Unless the Federal Reserve's rate cuts reverse, this process will continue in the medium and long term.
Accompanying this is the continuous strengthening of market liquidity.
Liquidity Enhancement: Buying Power from BTC ETF Channel
For the crypto market, the start of the rate cut cycle is of great significance. To some extent, the upward momentum of BTC last year was due to the pre-pricing of the rate cut expectation and the opening of the BTC ETF channel. And the adjustment since March can also be understood as a market correction before the start of the rate cut.
Monthly statistics of capital inflows and outflows in the crypto asset market (Stablecoins+BTC ETF)
This judgment is based on our statistics on the inflows and outflows of capital through the BTC ETF channel. From the chart above, we can see that after March, the capital flow in this channel has shown signs of slowing down or even outflows. This downward trend was improved in October.
EMC Labs monitored that in October, a total of 11 BTC ETFs in the US recorded $5.394 billion in capital inflows, the second largest inflow month on record, second only to $6.039 billion in February this year. This large inflow provides the fundamental momentum for BTC to challenge the previous high.
However, the capital flow through the stablecoin channel performed very weakly in October, with only $47 million in inflows, the worst monthly performance so far this year.
Monthly inflow and outflow statistics of Stablecoins
The weak stablecoin channel capital can be used to explain why, although BTC is challenging the previous high, the performance of Altcoins is very poor. The capital inflow through the BTC ETF channel cannot benefit Altcoins, which is one of the major changes in the structure of the crypto asset market that is worth close attention.
The surge in BTC ETF channel capital includes an element of the "Trump trade". Because of Trump's enthusiasm for Crypto, people are speculating to buy in hopes of short-term profits. This is worth noting. Around November 4th, the US presidential election, the market may experience violent fluctuations in the short term.
Conclusion
According to the 13F reports submitted by US institutional investors, in Q1 2024, there were 1,015 institutions holding BTC ETFs, with a total holding of $11.72 billion; in Q2, the number of institutions holding BTC ETFs exceeded 1,900, with a total holding of $13.3 billion, and 44% of the institutions chose to increase their holdings. Currently, the BTC managed by BTC ETFs has exceeded 5% of the total supply, which is a noteworthy breakthrough.
The BTC ETF channel has taken control of the medium and long-term pricing power of BTC. In the long run, during the interest rate cut cycle, the capital inflow to the BTC ETF channel is expected to continue, providing material support for the long-term trend of BTC prices. However, the short and medium-term still face many uncertainties.
Combining the on-chain structure and macroeconomic financial trends, EMC Labs maintains its previous judgment that BTC has a high probability of starting the second half of the bull market in Q4, breaking through the previous high. Within the Crypto market, the start of the second half of the Altcoin bull market is based on the recovery of capital inflow through the stablecoin channel.
The biggest risk comes from the results of the US election, whether the interest rate cut can meet the expectations of various parties and proceed smoothly, and the stability of the US financial system.
EMC Labs (Emerging Catalyst Labs) was founded in April 2023 by crypto asset investors and data scientists. It focuses on blockchain industry research and Crypto secondary market investment, with industry foresight, insight and data mining as its core competitiveness, committed to participating in the thriving blockchain industry through research and investment, and promoting blockchain and crypto assets to bring welfare to humanity.
For more information, please visit: https://www.emc.fund
