SignalPlus Macro Analysis Special Edition: Is it going to drop to zero?

Over the past week, Crypto Assets prices have fallen again, with BTC retreating after reaching $94,000 on Monday due to lighter selling pressure. Major Crypto Assets dropped 10–20% week-on-week, and market sentiment has become unprecedentedly pessimistic, even surpassing previous Bear Markets. While macro headwinds can explain part of the dumping reasons, the performance of Crypto Assets has indeed lagged behind most other asset classes, including the leveraged tech stocks that have the strongest correlation with them.

In addition, following the market crash in October, ongoing rumors about market makers suffering significant losses led to a notable decrease in order book liquidity, exacerbating market volatility, particularly on the downside.

It is not surprising that we have seen rapid deleveraging and actual capital outflow across the entire Crypto Assets sector. After large-scale liquidations of futures on centralized exchanges, ETF capital outflows and DAT sales also hit new highs for the year, with BlackRock's IBIT recording a single-day historical outflow of -$463 million, and DAT also experiencing its first weekly net outflow since its launch.

Continuous selling has caused the DAT premium to crash into negative territory, triggering market concerns about the company selling assets to support the declining stock market value, leading to worries about treasury sales. MSTR is clearly the elephant in the room, and although Saylor quickly publicly denied any selling tricks, the final conclusion may still be pending observation.

After a long period of silence, as the price fell below the bull market cycle range, both realized volatility and implied volatility have rebounded. In particular, there is still demand for put option skew, especially for ETH, whose actual funding support is not as strong as BTC, raising concerns about a more severe fall.

In a climate of pessimism and gloom, is there any good news in this field recently? Aside from Square's recent announcement that its merchants have begun accepting Bitcoin payments, the latest 13F filings also show that Harvard University's endowment fund (managing $57 billion) now holds a $443 million position in IBIT, which is the largest single stock position in its portfolio. However, before everyone gets too excited, it remains unclear whether this position is purely a long position or a spread/arbitrage trade targeting DAT or other crypto assets. We tend to lean towards the latter, but even if it’s not a purely long exposure, it is still a good thing to see that actual funds from traditional finance accounts are at least becoming more active participants in this field.

Returning to the macro aspect, despite the Korean Composite Index falling by 3.8% and the Nasdaq index plummeting by 2% in the early session, the U.S. stock market shook off a tumultuous start, closing up and maintaining support at the 55-day moving average. The fixed income market is also under pressure, with Japanese, Korean, and UK bonds weighed down by brewing fiscal/political concerns, and U.S. Treasuries facing similar headwinds, with yields reversing higher.

In the United States, the probability of a rate cut in December has dropped to around 40%, as Federal Reserve officials have been stepping up to downplay expectations of easing. Despite some concerns in the labor market, the U.S. economy remains generally stable. The biggest concern continues to be inflation, with former Treasury Secretary and Federal Reserve Chair Yellen declaring that the U.S. is “facing the danger of becoming a banana republic,” while President Trump has recently suffered significant setbacks in polls due to high inflation and rising living costs. Federal Reserve officials have made it clear that they want to manage and reduce expectations for easing. Former Chair Yellen stated that the U.S. faces the danger of becoming a “banana republic.” “Currently, it seems that monetary policy should clearly not do more,” — Cleveland Fed President Harker “Regarding the December meeting, I think it will be difficult to support another rate cut unless we can get convincing evidence that inflation is decreasing faster than I expect, or we see a more severe situation in the labor market than the gradual cooling we are currently seeing.” — Dallas Fed President Logan “I believe that further interest rate cuts will not help to bridge any cracks in the labor market — these pressures are likely stemming from structural changes in technology and immigration policy,” — Kansas City Fed President Esther George.

Looking ahead, we will closely monitor the following matters:

1. The government has resumed the centralized release of accumulated materials after the restart. We expect fluctuations in interest rate cut expectations in the coming weeks as analysts begin to sift through the backlog of economic data.

2. Macroeconomic factors return to drive short-term asset trends, as asset volatility has increased. As investors refocus on economic growth, initial signs of a slowdown in the labor market, and persistent inflation, cross-asset volatility has risen.

3. The US stock market is currently in a range-bound fluctuation, but if SPX continues to break above 7000 or falls below 6500, an accelerated trend may occur, as the Gamma distribution turns negative.

4. We remain cautiously optimistic about the US stock market, as earnings growth continues to rise and retail demand is strong. Despite expensive valuations, U.S. corporate profit growth remains at one of the highest levels in recent years.

The retail buying in the US stock market shows no signs of weakening and should be taken seriously before a trend change.

5. The technical outlook for Crypto Assets is not very optimistic, but it may provide good long-term entry points. We continue to expect that the aftermath of the crash in October will persist, as more victims come to light, more protocols will shut down, and more native participants will exit due to shattered illusions. The sale of DAT is a real risk and will pose significant pressure on market sentiment until further notice. Given the ongoing and accelerating adoption of BTC within the U.S. financial system, further dumping will present attractive long-term entry points.