SwissBorg MacroScope - December 18th

Everything is aligned for crypto in 2024

What were our top readings in the past 2 weeks?

• VanEck’s 15 Crypto Predictions for 2024
• BlackRock Dedicates $100K Seed Funding for Spot Bitcoin ETF by CoinDesk
• Certainty in Markets Ushers In New All Time Highs by Anthony Pompliano
• Our view on the recent CPI and FOMC meeting

Our In-House View

LONG TERM VIEW: Where are we in the cycle?

• We expect to see BTC > $100k, ETH > $10k and SOL > $500 as new ATH in the next leg of the bull cycle.
• A dovish stance is starting to appear on central banks sides and global liquidity is starting to be in positive territory. This sets the stage for a bull market.
• The magnitude of price action will be influenced by additional positive news flow, such as the green light for an ETF. Nevertheless, the sequence of events is key and monetary policies (MP) are one of the most important factors to monitor.
• The long term trends that influence crypto adoption are increasingly positive: First, crypto is part of a technological secular trend that is accelerating with AI’s these last months. Adding to this the monetary debasement that will continue in the future due to structural imbalances.
• We believe in ETH as the superior asset to Bitcoin for the next decade. Further, our view is that SOL has the biggest potential for consumer app adoption in the next decade.
• Our favourite altcoins thematics for the next upleg are Socialfi, Gamefi, AIfi & Infrastructure for scalability.

SHORT TERM VIEW: What might happen in the next 2 weeks?

• The direction of the market has been unclear in the past weeks. After a few months of up only, it seems that the general crypto market (as seen with the Bitcoin price) is finally forming a consolidation. We expect this phase to last a bit longer.
• Nonetheless,  the longer-term picture is still bullish and our view is that ultimately, this range will break to the upside with another strong movement for crypto.

Content Analysis

VanEck’s 15 Crypto Predictions for 2024

The end of the year is the time for predictions. Here’s a couple of one that we love from VanEck:

• Bitcoin will make an all time high in Q4: The combination of the US presidential election, a shift in central banks monetary stance, and rising optimism that the SEC will finally approve a spot ETF reinforce the strong position of Bitcoin for 2024.

• ETH L2s will capture the majority of EVM-compatible TVL and volume post EIP-4844:
  Ethereum will implement EIP-4844 (proto-danksharding), which will reduce transaction fees and improve scalability for layer 2 chains such as Polygon, Arbitrum, Optimism, and others. VanEck predicted that within 1 year of the upgrade, Ethereum L2s will consolidate down to 2-3 dominant players. Collectively, these chains may accumulate 2x the DEX volume of Ethereum (currently 0.8x) by Q4 of 2024 and 10x the number of transactions.

• Solana will continue to outperform ETH as DeFi TVL returns: VanEck expect Solana to become a top 3 blockchain by market cap, total value locked (TVL), and total users. This could mean that Solana will join the spot ETF wars and in 2024 we will witness the first big asset managers submit their fillings.

• DEX market share of spot trading will reach new all time highs: DEX share will hit new all time highs as the user experience of on-chain trading improves with chains like Solana. This is a net positive for the industry as it will be closer to the true ethos of crypto and will push users on-chain and into self-custody solutions.

BlackRock Dedicates $100K Seed Funding for Spot Bitcoin ETF by CoinDesk

With each passing day, the inevitability of a Bitcoin Spot ETF draws nearer. At this point, it seems that it is not a question of “if” but “when” in our opinion. Recently, BlackRock revealed that it received $100,000 as “seed capital” for its proposed Bitcoin ETF.

Currently, Bloomberg analysts put the probability of an approval in January at 90% whereas the prediction market prices a 80% chance of an approval by January 15.

Earlier this year, we estimated the potential impact of an ETF approval on Bitcoin price. We highly recommend you to check it out here . Nonetheless, here’s a recap:

• Currently there is $ 40,000 billion in Asset Under Management (AUM) who showed strong interest in Bitcoin and understands the merit of a small allocation into this asset to increase the robustness and diversification of their portfolios. 

• Assuming a target allocation of 2.5%, here’s the potential USD inflow into Bitcoin in the first year post-approval:

• Comparing it to the launch of the first spot Gold ETF, we derived the potential impact that this inflow could have on Bitcoin price:

Certainty in Markets Ushers In New All-Time Highs by Anthony Pompliano

Market price future expectations, and when clarity increases, the market tends to react aggressively. This is especially true for crypto as it is a nascent market prone to regulatory crackdown and with unestablished institutionals.

To illustrate this, let’s look at the past price action after major events with cryptocurrency CEOs:

In this chart, we see that when a major CEO left its role and unclear issues got resolved, markets reacted positively. This is because future expectations got clearer and as markets are forward looking, price readjusted to the change in expectation and investors waiting on the sideline started to deploy their capital back into the market.

Our take:

We believe that the recent issue around Binance is likely to act similarly. Let’s think about that for a second: during the last years, Binance was the most hated exchange and there was always a big cloud of doubt around it. Will the SEC try to shut it down? What’s the future of Crypto in the US? Etc.

Now, with CZ out of the game, fines paid, and major issues resolved, the future of Binance (and US crypto regulation going forward) got clearer: the SEC will not try to kill the exchange, nor crypto. This is a strong signal for investors as we have eliminated a substantial black swan and it can trigger major capital inflow as the market has now more clarity.

Clarity + Catalysts = Strong bullish bias for crypto

Source: Certainty In Markets Ushers In New All-Time Highs (substack.com)

Our View on the Most Important Macro Events of the Past Weeks:

If you’ve been following markets and macro events, you most likely know that the last weeks have been filled with two important events that investors care a lot about: CPI release and FOMC meeting.

CPI Release: 

As per our train of thought, the CPI release came without surprise and is confirming the view that we held for the past months: the worst of inflation is behind us.

FOMC Meeting

The Federal Open Market Committee (FOMC) is a key component of the Fed. It is responsible for making decisions regarding monetary policy, specifically with regard to short term interest rates and the money supply so that the Fed's dual mandate of price stability (inflation at 2%) and economic growth is respected.

The last meeting, which took place on the 13th December, marked a key inflection point. Even though the Fed fund rate stayed in the 5.25-5.50% range, it is the first time since the beginning of the tightening policy (QT) that Jerome Powell, the Fed chairman, adopted a real dovish stance. He talked about inflation being under control and indicated that borrowing costs would likely reduce in 2024.

As quoted by Powell: “We added the word ‘any’ as an acknowledgment that we are likely at or near the peak rate for this cycle,” 

The signal is clear: another wave of liquidity is coming and the market is now pricing a 25 bps rate cut by July:

Stocks reacted strongly and the Nasdaq played with its all time highs (ATHs), up 43% year to date.

Makes sense right? If the Fed fund rate decreases, this means more liquidity and this is good for the market, right?

Well, if you’ve been following our work for some time, you’ll understand that fed fund rates are only part of the liquidity picture. In fact liquidity has been injected into the market for over a year now in less common forms: like the RRP balance for instance (more info on that here ). Now, the state taken by the Fed is just the cherry on top as the shift in liquidity is directly supported by the Fed and their direct actions.

Now the question is: What’s next for markets?

If we compare this situation with the Volcker fight against inflation, we see that the day he declared victory started a long term secular bull market on US equities.

Will this situation repeat in 2024? Only time will tell, but we think that the state of the Fed signals further monetary expansion in 2024. Given the sensitivity of crypto to liquidity, this should be bullish for this asset class.

This is one chart from Raoul Pal's “Everything Code” thesis that illustrates this view. First, we see a strong relationship between liquidity and Bitcoin. Second, we note that a 20% YoY increase in liquidity could imply a Bitcoin at $218,000 in 2024. While this number might be a bit overstated, it seems that the direction of the market is clear.

Charts of the week

Crypto is a game of attention and one of the best indicators to gauge retail sentiment is Google search interest over time. This is what this chart looks like for the last five years:

What we see is clear: Bitcoin is up +150% year-to-date and has been trading consistently around the $40-43k levels over the past 2 weeks; yet, google search trend of “cryptocurrency” is still really low

The corollary is that the interest from retail is low at the moment. This is bullish as retail investors are the low end of the smart money curve. Usually, when they begin to show attention to crypto, it means that we are near a cycle top.

TL;DR: Low retail interest to crypto tells us that we are still early in the cycle.

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