Market Commentary - November 2nd

Crypto Market


At the time of writing, Bitcoin is trading at $35,000 while ETH is at $1,830. After a prolonged period of subdued market activity, the market has found a new sense of optimism. Since we wrote last, Bitcoin and ETH have both seen impressive gains of ~23% and ~15%, respectively.


The catalyst could be attributed to the listing of BlackRock and ARK ETFs on the NASDAQ’s DTCC, which indicates that regulatory approvals may be on the horizon.  It’s worth noting that the short-term perspective carries significant weight here. The key date to focus on in this context is January 10th, so the market may have to wait until the new year for any validation on an ETF.


The approval of a spot ETF introduces an interesting theory regarding the supply of Bitcoin, especially with the impending halving event. It’s worth highlighting that miners represent a significant portion of the liquid supply. This situation could lead to supply-side liquidity issues, as there may not be enough Bitcoin available in the market to create units of the ETF.


In the days ahead, our focus will remain on the GBTC vs. SEC lawsuit. Last week, the judge presiding over the case recently ruled that the SEC must review the application of the ETF again. The decision now rests with the SEC, and we will wait for their decision. If the conversion to an ETF happens, it’s likely to streamline the approval process for other applications.


Finally, we’ve observed a shift in our trading flows from smaller market-cap assets, with a noticeable bias toward selling for Bitcoin. (As a side note, our trading team on the wealth desk has the capability to trade asset-to-asset (SOL-BTC) without requiring a double leg, enhancing the efficiency and cost-effectiveness of the trade while streamlining the process for you). Typically, these smaller cap assets tend to exhibit higher beta when the overall crypto market is on an upward trajectory. However, in the broader context, discussions surrounding the approval of a Bitcoin ETF and the upcoming halving event are altering the dynamics of these beta-driven strategies. This underscores the significance of strategic positioning. Hence, it is critical to continually reassess these relationships. If your investment thesis is based on the expectation that a BTC spot market development will channel capital into BTC, sticking exclusively to assets outside of BTC with higher betas may inadvertently result in missing out on significant price movements. Although there are some exceptions to this dynamic.



On the broader economic front, there continue to be a lot of variables, leading to uncertainty for investors. Last Thursday, the US posted robust quarterly GDP growth, exceeding expectations with a 4.9% annual growth rate. It’s important to note that GDP is comprised of consumption, investment, net exports, and most importantly, government spending. Government spending stands out as it remains historically high as a percentage of GDP, with deficits reaching all-time highs. Therefore, if the government decides to continue to increase spending more than the decrease in the other components, it could stave off a recession until spending remains stagnant or decreases.


However, a steepening of the yield curve raises concerns and hints at a potential cooling of the economy in 2024. The yield curve has been inverted since July of 2022, which usually signals an impeding recession is near. It’s worth emphasizing that a recession typically doesn’t materialize when the yield curve is inverted, but rather when it reverts to its typical shape, which is when the market stress tends to surface. Some of this steepening, particularly the rise in long-term yields, can be attributed to Japan’s efforts to defend the USDJPY exchange rate at 150, a level considered significant by the BoJ. To maintain this rate, the BoJ must sell long-term US debt and buy Yen in the open market.


Equities, Fixed Income, FX and Commodities

Earnings season is in full swing. Last week saw major players like Microsoft, Alphabet, and Amazon, as well as companies outside the tech sector, such as General Motors, Boeing, Mastercard, Exxon, Mobil, and Chevron, release their financial results. While none of these earnings reports were particularly disappointing, they did not provide the market with the boost it was hoping for. The Nasdaq saw a decline of more than 2% last week, the S&P saw declines in 6 out of the last 8 weeks. This had left both indexes at their lowest levels since May. This week however has been more positive, both the Nasdaq and the S&P have clawed back last week's losses.

Yesterday, the Federal Reserve held interest rates steady for the second time in a row. In the press conference that followed, Jerome Powell did not give any clues about when they might ease the pace of this aggressive tightening cycle. He mentioned they would continue to allow the balance sheet to run off. Jerome Powell also emphasized a slowdown in economic and a weakening labour market would be necessary before inflation subsides.


The US dollar caught a bid against most major trading pairs last week and early into this week, including the Canadian Dollar. USD had been gaining strength against CAD over the past weeks, yesterday, however, that trajectory began to shift back in favour of the Canadian dollar. The daily USD/CAD rate at the time of writing is hovering around 1.378 down over 0.5% on the day. Meanwhile, crude oil prices have been on the decline since mid-October and have realized an over ~10% decline on the 30-day chart. After an early October decline, precious metals have recovered. Gold is currently trading just above $1,985 having seen an over 7% gain on the month.


News We’ve been reading


Canada's economy flatlined in August, likely slipped into recession in Q3
"The Canadian economy is already skirting a recession, with preliminary industry data for Q3 suggesting the possibility of a further slight contraction in activity to follow Q2's surprise decline,"
- link - @Reuters


Markets are on board with the Fed’s ‘higher for longer’ policy, CNBC survey shows
“The consumer price index, currently running at 3.7% year over year, is seen declining to 2.9% next year and around 2.6% in 2025, which is to say the Fed will not hits its 2% target for several years, even accounting for the CPI running above the Fed’s preferred personal consumption expenditures price index inflation indicator.”
- link - @CNBC


Crypto Asset Funds See Biggest Weekly Inflows Since Last July
The funds raked in about $326 million with expectations rising that the US Securities and Exchange Commission is poised to approve a spot-based Bitcoin ETF, according to a report by crypto asset manager CoinShares on Monday.”
- link - @BNN


Bitcoin momentum could fuel further short squeeze, says Galaxy exec
" Should the asset’s price reach the $35,750-$36,000 range, Thorn suggests options dealers would need to purchase an additional $20 million in spot bitcoin for every 1% upward move.”
- link - @Blockworks

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