FLASH REPORT
The past few months have been an adventure for many, including the crypto industry. From the shockingly flash crush in August to Bitcoin reaching all time highs in early Q4s, the bullish sentiment is back and investors are betting on crypto’s strong comeback after a year of uncertainty.
Our recent successful event with OKX was received with excellent fanfare and illustrates the potential of Ce-DeFi or Trad-DeFi partnerships down the line, offering an expanding suite of structured income solutions into the crypto world. In this Q4 report, we highlight our recent insights and media highlights to reflect on the journey and provide key insights on key trends to watch out for in the next quarter.
BE LIKE MIKE
Microstrategy successfully completed its successful transformation from a
dotcom-era software company into a levered Bitcoin treasury company for
Main Street, when NASDAQ announced MSTR’s inclusion into the
bellwhether tech index as of December 23rd. Crypto prices jumped,
naturally led by BTC as prices jumped to a high of $106K and easily
surpassed the ATHs as investors FOMO bought the MSTR news over the
weekend. MSTR stock jumped as high as 8% in the aftermarket, with the
moment of truth to be determined at today’s NY session.
Big Take: As Fed officials have remained in communications blackout, the
key focus for this meeting will be on Powell’s Q&A to see where identifies
the economic balance and where the risks lie in this 50/50 call. Any focus
on the ‘dot-plot’ being moved higher will likely be seen as a hawkish-nod
and risk negative, while any emphasis on ‘committee confidence’ and
other ‘trust me’ comments will be seen as a risk-on greenlight as it’s
party-on until further notice.
DECEMBER GOLDILOCKS
As is the case for most of the year, TradFi inflow remain the dominant
factor behind spot performance, with ~$12B of cumulative buying since
the election. All lights are flashing green with BTC closing in at $100k once
again and ETH looking to crack $4k. ETF flows were massive with $2.7B
and $0.8B of BTC and ETH new buying, respectively, and good for a 10th
consecutive day of positive inflows.
Big Take: A somewhat lukewarm NFP kept December rate cuts alive, with
headlings slightly beating estimates, but last month’s poor figure (12k) saw
little upward revisions, pointing to some factual weakness in the job
market. However, a slightly high unemployment rate suggests that the
labour market is cooling gradually without significant deterioration,
offering cover for the Fed to cut rates once again in December against a
positive risk backdrop.
FOX GUARDING THE HEN HOUSE
It’s going to be extremely choppy markets for crypto in the near-future
with BTC technicals flashing extremely overbought levels, against an
‘animal spirit’ charged public that’s developing a FOMO appetite for the
asset class. We can see a further squeeze on BTC prices to the 120k to
130k area if markets manage to break the 100k-wall, but are less
sanguine on a smooth ride up with asset markets being overbought across
the board.
Big Take: In TradFi, things are back to ‘steady-as-she goes’ as equity
markets are making a strong rebound off an earlier retrace, with Nvidia
earnings beating expectations on Wednesday (albeit against high
receiveables) and high consumer baskets breaking to new all time highs,
reflecting a strong (high-income) US consumer base.
80K
Crypto made headlines as BTC charged above 80k before some US
counties managed to finalize counting their ballots, with Blackrock’s BTC
ETF (IBIT) seeing a record $1.1bln on Thursday, and even Ethereum
recording the 3rd single highest single-day inflow in its short-history.
Big Take: US equities have brushed off the disappointment in Chinese
stimulus, and continue to make new highs while fixed income has settled
down thanks to a dovish FOMC last Thursday. Furthermore, macro cross
asset volatility has collapsed as markets have been given the risk-on
greenlight into year-end.
FINAL ELECTION PREVIEW
BTC returned to early after coming in within a stone’s throw away from
ATHs, before falling back to sub-70k on the latest fall in Trump’s election
odds. Coinglass reported over 500M in long BTC futures liquidation as we
fell back against ATHs.
Big Take: More than most election results in recent memory, market
reactions are likely to be extremely binary with a Trump win likely
continuing the move in higher yields / stronger USD / higher crypto, and a
Kamala-win to lead to the opposite. However, we also believe that
markets are likely to over-price the short-term impact of either victory,
and expect lots of re-calibration and revisiting of more structural themes
once the dust has been cleared.
RECORD #45
US markets saw relatively firmer data last week with both CPI and PPI
coming in on the stronger side. Markets were initially confused by the data
impact, but ultimately decided that the ‘core’ inflation trend remained
intact and the curve steepening move continued on. US equities made new
all time highs, with high beta names and FX breaking out further, as
markets continue to expect a ~85%+ chance of a 25bp cut in December.
Big Take: US equities are doing its best to pull crypto prices higher, but we
continue to think that the path to higher prices will be long as we wait for
a more endaring narrative. Traders remain biased towards selling volatility
as well as income generation while we are stuck in this year-long range.
SOFA SPOTLIGHT
WHAT’S NEXT?
BTC should enjoy a good start to 2025 thanks to the confluence of positive tailwinds coming from dovish Fed policies, a still robust US economy and strong equity sentiment, a sea-change in US crypto regulations and narrative, ongoing TradFi inflows, and continued tariff and FX pressures on EM currencies.
The continued gain in BTC dominance concerns development for the health of crypto as a whole, as a lack of rebound in on-chain activity, and the belegaured performance of ETH as the on-chain flag bearer reflects more noise than bark in terms of actual mainstream adoption of blockchain tech itself.
Unexpected disappointments in policy measures (both US and China) and hiccups with MSTR’s high-stakes bets could lead to significant liquidation pressures in Q1, and selling pressures from large token unlocks could remind us of shortcomings in current tokenomics design.
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