Not a lot for Crypto to be Thankful For This Year…
Crypto showed tentative signs of stabilization following past week’s dramatic sell off. Prices have bounced off the low 80k to trade close to 88k in early Monday, as the market heads into the Thanksgiving holiday week with some cautious optimism as Fed President Williams revived expectations for a December rate cut. A strong equity rally (SPX +1.5%, Nasdaq +2.7%) ahead of the early month-end rebalancing flows also helped to bolster risk sentiment
Dec Rate Cut Odds Increased from ~25% to >60% as Fed President Williams Urged for Further Easing in the December Meeting
Source: Bloomberg
Risk sentiment improved broadly, with open interest in BTC options turning slightly positive with a put-call ratio of ~0.67 for EoM expiry. Large put strikes are seen at around 80k as put skews remain aggressively bid with upside calls heavily for sale. Markets certainly feel better hedged against further downsides at this juncture, allowing markets to enjoy a reprieve bounce against the 82k support level.
Traders have Been Heavily Bidding Up Downside Protection, and Should Limit Further Downside Gaps for Now
Source: Bloomberg, SignalPlus
With BTC and ETH underperforming gold and equities by anywhere between 30-60% YTD, ETF flows have turned negative with November registering the worst MTD outflows at ~5bln between BTC and ETH. Contrast that against equities, which saw over $96bln of ETF inflows MTD, and it’s interesting to see that retail investors are starting to differentiate between crypto & equity risks, with a selling of the former converting into buying of the latter.
BTC/ETH are Sitting at Heavy Losses YTD, with Short-Term Holders Suffering Substantial Losses Recently
Source: Messari, Bloomberg
Retail Investors have Been Selling Crypto ETFs to Buy (Levered) Equity ETFs as We are Starting to Observe Risk Differentiation
Source: JPM
To make matters worse, there has been increasing chatter that Bitcoin mining has turned unprofitable at the current level, with existing miners turning into more aggressive sellers and pivoting some of their capacity into AI (like everyone else). That has added to concerns that there are committed sellers coming from miners, OG whales, underwater market makers, protocol over-valuation, etc., making the current FUD sentiment as negative as it’s ever been.
Have Miners Also Abandoned BTC? Collapsing Hashprice Suggests BTC Mining is Turning Less Profitable as
Source: Tom’s Hardware, Bloomberg
The Latest Bear Market FUD Has Spread to Protocol Valuation Concerns Now…
Source: Retrospectively Obvious
With that being said, markets are currently so oversold from both sentiment and technical perspectives (eg. Bollinger bands), and prices are likely to have seen local lows for now absent any new exogenous factors (eg. DAT forced selling), and we expect prices to range between 82-92k from here. Next significant price support comes at around the 78k area, and a sustained break below would open up further significant downside, but is not the base case scenario for now.
Crypto Markets are Dramatically Oversold in the Near-Term, and Likely to Remain in the 82-92k Range for Now
Source: Coinmarketcap, Trading View
Looking ahead, we’ll have a very busy week of data, but they are unlikely to change the near-term risk sentiment materially with the Fed having telegraphed their easing intentions already. US equities remain in an upward train, with positive seasonality working to its benefit into year-end.
Crypto markets have hopefully seen its local lows for now, but we’ll need a firm break of the 92k to repair some of the recent technical damages and signal a further rebound higher.
Good luck & good trading.
Despite the Recent Sell-off, US Equities Remain in a Positive Up-Trend Into Year-End
Source: JPM, Citi