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SwissBorg MacroScope - November 6th

SwissBorg MacroScope - November 20th

Surfing the Early Stage of a Bull Market

Surfing the Early Stage of a Bull Market
Surfing the Early Stage of a Bull Market

What were our top readings in the past 2 weeks?

  • The GMI Top 5 Weekly Charts That Make You Go Hmmm… by Raoul Pal
  • The Bitcoin Monthly by ARK Invest
  • The Tightening of Supply by Glassnode
  • Weekly Update #13 by Reflexivity Research
  • Macro Outlook 2024: The Hard Part is Over by Goldman Sachs

Our View

LONG TERM HOUSE VIEW (As a function of cycle)

Our View of where we are 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: bull market
  • For the bull market to happen Central Banks, in particular the FED, must invert the trend to a more dovish stance.
  • The magnitude of the bull market will be influenced by additional positive news flow, such as the green light for an ETF. Nevertheless, the sequence of events is key and interest rate policy is the key factor to transition from ranging to bull market according to our view.
  • 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.
  • We Believe 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 market, and especially altcoins, has been rallying strongly in the past weeks confirming the shift in market psychology from investors.
  • Solana has been the leader of this last move and we expect it to play the same roles in the following moves.
  • However, our view is that the market is a bit overextended and a correction is likely in the short term on altcoins.
  • Bitcoin and Ethereum on the other hand didn’t rally as aggressively and are still in healthy territories. We think that they will further range around those levels.
  • This phase of consolidation would be important before a proper catalyst arises that would signal the start of a bull market.

Content Analysis

The GMI Top 5 Weekly Charts That Make You Go Hmmm… by Raoul Pal

Major Takeaways

  • Solana is up 475% YTD and has just broken out of a 1 year + consolidation phase in the form of an Head and Shoulders pattern: 
Head and Shoulders pattern
Solana is up 475% YTD
  • On a shorter time frame, Solana is overbought with a RSI (Relative Strength Index) of 89. This could increase selling pressure and cause a price correction that would be healthy and awaited by many market participants in the short term.
Solana is overbought with a RSI (Relative Strength Index) of 89
Solana is overbought with a RSI (Relative Strength Index) of 89
  • However the big picture view still holds. Solana is really early in its cycle and has room to go much higher as we shift from crypto spring to crypto summer.
Solana is really early in its cycle and has room to go much higher as we shift from crypto spring to crypto summer.
Source: https://raoulpal.substack.com/p/the-gmi-top-5-weekly-charts-that-7d4?r=to761&utm_campaign=post&utm_medium=web

The Bitcoin Monthly by ARK Invest

Major takeaways

  • According to ARK, Bitcoin seems to be in the early stage of a new bull market and has cleared important resistance levels in October.
  • Long Term Holders in profits suggest that Bitcoin has just entered a risk on environment:
BTC long term holders
BTC long term holders
  • The current cycle seem to follow the path of the previous cycle and seems to be only in its beginning:
BTC market cycles
BTC market cycles
  • ARK also put forward that commodities are in a deflationary trend since 2008. Despite a rally in 2020, prices seem to restart their down trend. This goes against the view of “higher for longer inflation” and suggests that deflation could be the biggest risk heading forward. This would make the FED cut rate faster than anticipated.
Source: https://ark-invest.com/crypto-reports/the-bitcoin-monthly-october-2023-report/
Source: https://ark-invest.com/crypto-reports/the-bitcoin-monthly-october-2023-report/

The Tightening of Supply by Glassnode

Major takeaways

  • There is a convergence of elements pointing towards the start of a new bull market: the halving is estimated to happen next april; a spot ETF approval in the US is starting to look increasingly likely; and investors' perception has shifted. 
  • Furthermore Bitcoin supply is historically tight. The illiquid supply of Bitcoin has reached an all time high and is still increasing: an uptrend:
BTC illiquid supply
BTC illiquid supply
  • Further, there is a large divergence between LTH and STH. This is something typical of the early stage of a bull market.
BTC long/short-term holders
BTC long/short-term holders
  • Long term sell-side risk ratio is extremely low in historical context and follows the same structure as the last bull market.
BTC Long-term holder
BTC Long-term holder sell-side risk ratio
  • This suggests that the tight available supply could cause strong reflexivity and momentum in price as a proper catalyst arises.

Source: https://insights.glassnode.com/the-week-onchain-week-45-2023/

Market Update #13 by Reflexivity Research

  • Nearly 70% of Bitcoin’s supply has remained untouched in at least a year and the percentage held by long term holders continues to increase:
Bitcoin HODL Waves
Bitcoin HODL Waves
  • When we look at the cumulative return of Bitcoin by trading session, we see that the majority of the upward price movement comes from the US and Asia.
BTC cumulative returns
BTC cumulative returns
  • The percentage of crypto futures open interest made up by altcoins relative to BTC and ETH has recently set new 2023 highs. This revival of speculation in the altcoin market signals that risk appetite is increasing and traders are shifting in the risk curve.
  • This is bullish for altcoins in the short term.
Dominance by open interest
Source: https://reflexivityresearch.substack.com/p/weekly-update-13

Macro Outlook 2024: The Hard Part is Over by Goldman Sachs

Major takeaways

  • While core inflation is down from 6% in 2022 to 3% sequentially across economies that saw a post-covid price surge, Goldman believes that disinflation is still in store over the next year and core inflation should fall back to 2-2½% by end-2024.
Goods disinflation
Goods disinflation
  • Shelter inflation has also considerably further room to fall in most DM economies:
Shelter cost inflation
Shelter cost inflation
  • According to Goldman, most major DM central banks are likely finished hiking. However, they have little incentive to begin lowering rates because unemployment rates are expected to remain below their long-run levels, and GDP to grow at a roughly trend pace in 2024. 
  • Goldman expects the first rate cuts to arrive in 2024H2.
  • Further, rates are expected to remain above the long-run sustainable levels they currently project. Goldman forecast a long term policy rate of 3.75% in the US and a 2.5% rate in the Euro area:
Cuts are coming sooner
Cuts are coming sooner (in EM) or later (in DM)
  • This view is justified first by the fact that government deficits are likely to stay elevated. Second, Goldman believes that the productivity gain created by generative AI tool boost GDP growth potential and will offset the need for further rate cuts
Elevated deficits
Elevated deficits
  • In 2024, Goldman sees other asset classes outperforming modestly cash with a greater role for duration in portfolios.
Higher returns
Higher returns
  • While our core macro thesis diverges from Goldman’s view, we both agree that further tightening is unlikely and that the next step for central banks is to ease the economy. This will increase liquidity and be bullish for risk on assets like crypto.

Source: https://www.goldmansachs.com/intelligence/pages/macro-outlook-2024-the-hard-part-is-over.html

Chart of the week

EM Bonds erase risk Premium
Chart of the week
  • Something unique is happening: for the first time in records, emerging market bond yield in local currency has fallen below the US Treasuries.
  • If investors are always taking the safest route and optimising their risk to return, then why do emerging market bonds (supposedly riskier bonds) offer a lower yield than the US which is the risk free rate of reference?
  • Could this suggest that the risk from holding US Treasury is increasing as the market foresees trouble ahead, and as a corollary, requires a greater compensation?

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