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Monthly Outlook
06 Nov 2024

November Outlook: Cats out the Bag – Tide Favours the Coin

Fundamentals and post-election clarity favor long and bold exposure. In this environment, traders should at least maintain full allocation to BTC.
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Apologies for the slightly delayed monthly outlook - it made little sense to assess the market for November on Tuesday in front of such a binary event. Now we’re thoroughly informed, and the red sweep undeniably strengthens underlying fundamentals. Uncertainty is cleared, favorable regulations are expected, and we might even see the biggest superpower in the world build a bitcoin stockpile. Wow!

The market is upping its leverage

It’s a decade until next Tuesday, so a timely, brief market read follows. After the Trump announcement, markets exploded. BTC was sent directly to all-time highs with surprisingly accurate pre-election implied volatility pricing, while DeFi tokens thrived. In most corners of the market, we see traders positioning for further upside as open interest increases offshore and on CME. The macro calendar cools down after today’s FOMC, and I lean toward the bullish momentum tantrum resurfacing as this press conference gets out of the way, as long as the FED delivers the market the expected 25bps cut.Amidst the rally, exposure has ballooned higher on CME, with November 6 seeing the second largest notional growth in open interest ever – and by far the largest daily increase in USD terms as north of $1.1bn worth of OI was added on November 6. Yields have also pushed significantly higher as the institutional side is entering the market long and strong. 17,000 BTC worth of OI has also been added offshore, with perp premiums to spot reappearing, albeit soft enough for funding rates to reign neutral.

We got a red sweep – what are the implications?

Nearly unanimously bullish fundamentals just got amped up another notch. Trump has promised the world to the crypto markets, and the expectations that come with this should materialize in further buoyancy.A new SEC chair and expected clearer guidelines set the stage for utility token momentum. An expected Trump overturn of Biden’s SAB 121 veto invites U.S. tier 1 investment banks to launch crypto custody services.Further, the lofty promise of a U.S. strategic bitcoin reserve is poised to be a landslide maneuver for BTC. If enacted, it’s set to cause a snowball effect of new nation-states following suit. Structurally, nation-state stockpiling leads to increased demand, supporting higher prices. More importantly, it would fundamentally establish BTC’s role as a strategic global and neutral store of value.

Our September factors stay in play

Rate cuts, monetary easing, FTX creditor repayments, ETF options launches, market seasonality, 4-year cycle patterns, and delayed halving effects are all still promising and relevant factors at play now and ahead in time. Fundamentally, all these factors support strength onwards. Sprinkle that with the Republican sweep, and the setup is picture-perfect for bullish impulses in the foreseeable future.

Playing the devil’s advocate

It should be clear by now that I am indeed bullish for the months ahead. However, there are nuances to be made and hurdles to overcome.
Bitfinex coins
The Bitfinex hackers will receive their sentencing on November 14 and November 15. Bitfinex is, for now, the sole claimant and will likely receive the stolen 94,636 BTC held by the U.S. government. We don’t know when, but we would not be surprised if we see these funds move in November. 75,000 BTC of the seized funds are expected to be sold for LEO over 18 months upon Bitfinex receiving their coins, a figure that might spook the market. Still, given the lengthy nature of selling these coins (~137 BTC sold a day), the sales pressure should not dramatically impact BTC directionally, apart from an initial knee-jerk reaction.
Where are the retail traders?
Website traffic to crypto exchanges is low, Coinbase’s reported retail volume is low, crypto trading apps are low on leaderboards, and Bitcoin googling search interest is somewhat low, albeit rising pronouncedly in recent days.Retail traders are far from present in a way similar to 2021, and it’s understandable. Many were heavily impacted by the lending collapse of 2022 and later FTX’s collapse (happy 2-year anniversary, for those who celebrate). Many are likely scared to get burnt again. Further, high interest rates, low wage growth, and high inflation were key forces behind Trump’s landslide victory. Simply put, the cost of living issue is huge and pressing. With the high cost of living comes a lower capacity to save, naturally softening retail presence in the crypto market.
Unknown unknowns
The world is tense. A yen carry trade unwind squashed markets in August. Iran-Israel escalations have seen prompt de-risking in the past, and the unpredictable nature of the war may lead to new escalations, which may lead to de-risking, dragging BTC momentum lower. Central banks globally are gauging whether Trump may have inflationary effects, which may alter interest rate expectations, increase living costs, and soften the demand for BTC. There are XYZ other unknowns that may stifle momentum, but overall, fundamentals and post-election clarity favor long and bold exposure and an environment where traders should, at the very least, maintain a full allocation to BTC. More vigilant approaches are also reasonable at current levels, such as softly leveraged (2x or lower) BTC exposure and exposure to DeFi tokens amidst a wave of regulatory clarity.
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