Abstraction Capital’s Market Updates provide insights into the crypto market and strategy performance. Please enjoy Market Update #10.
Liquidity Impulse Heading into the Election
Global Liquidity cycles have generally coincided with US Presidential election cycles. If Bitcoin runs here it is likely signaling that we are entering into the final stages of the liquidity cycle that began in late 2022.
Summary:
The past week saw significant movements across cryptocurrency, macroeconomic, and traditional financial markets. Bitcoin surged past $66,000, approaching its all-time high, while Ethereum also made gains. This rally was fueled by several factors, including positive sentiment around the upcoming US election, continued inflows into Bitcoin ETFs, and growing institutional interest. Meanwhile, macroeconomic data painted a picture of resilient economic growth alongside moderating inflation, supporting the narrative of a potential "soft landing" for the US economy.
Geopolitical tensions remained high, with ongoing conflicts in Ukraine and the Middle East influencing market sentiment and commodity prices. In the traditional financial markets, earnings season kicked off with mixed results, while debates around fiscal policy and national debt levels intensified. The intersection of artificial intelligence and blockchain technology emerged as a key theme, with several major players announcing initiatives in this space. Overall, the week's developments point to a complex, interconnected global financial landscape where crypto assets are playing an increasingly prominent role.
High-Level Analysis:
Crypto Market Insights:
Bitcoin broke through $66,000, its highest level since March, with strong momentum suggesting a potential test of all-time highs.
Ethereum surpassed $2,600, showing strength across the broader crypto market.
US spot Bitcoin ETFs continue to see significant inflows, with $349 million added in the past week alone.
Solana (SOL) celebrated one year of its bull run, with prices up over 600% from October 2023.
The intersection of AI and crypto is gaining traction, with VanEck launching a $30 million venture fund focused on this area.
Macroeconomic Trends:
US CPI data showed inflation at 2.4% year-over-year, slightly above expectations but still on a downward trend.
Retail sales data and manufacturing surveys due next week will provide insights into economic growth momentum.
China announced plans to increase debt issuance to stimulate economic activity, potentially boosting risk assets globally.
The US national debt and potential for a fiscal crisis remain concerns, with non-partisan groups warning of heightened risks.
Global PMI data showed mixed results, with some countries seeing manufacturing growth while others continue to contract.
Stock Market Highlights:
Q3 earnings season began, with major banks and tech companies set to report in the coming weeks.
The S&P 500 showed resilience, posting gains despite geopolitical tensions and mixed economic data.
BlackRock CEO Larry Fink expressed bullish sentiment on digital assets, boosting confidence in the crypto sector.
Tesla shares tumbled on investor disappointment regarding robotaxi plans.
Volkswagen issued its second profit warning in three months, citing intense competition in China.
General Trends:
Crypto-Traditional Finance Convergence: The lines between cryptocurrency and traditional finance continue to blur, with increased institutional participation and the success of crypto ETFs.
AI-Blockchain Synergy: Growing interest in combining AI and blockchain technologies, as evidenced by new venture funds and development initiatives.
Election Impact on Crypto: The upcoming US presidential election is increasingly seen as a potential catalyst for crypto markets, with candidates' stances on digital assets gaining importance.
Global Liquidity and Asset Valuations: Expansionary fiscal policies, particularly in China, are expected to boost liquidity and potentially drive up asset prices across various markets.
Regulatory Evolution: Ongoing developments in crypto regulation worldwide, with a mix of supportive and restrictive measures being considered or implemented.
Economic Resilience vs. Inflation Concerns: Markets are grappling with data suggesting continued economic strength while remaining vigilant about inflationary pressures.
Geopolitical Risk: Ongoing conflicts and tensions continue to influence market sentiment and commodity prices, adding an element of uncertainty to global markets.
Technological Innovation in Finance: Advancements in areas like tokenization and decentralized finance are reshaping traditional financial services and creating new investment opportunities.
Cross-Asset Investment Strategy
| Strategy | Bitcoin |
Performance since Market Report #1 | -17.6% | -1.94% |