19 Oct 2023
Week 42, 2023 - Weekly Market Outlook
The weekly market outlook article will provide a brief analysis of the past week's market performance and an outlook for the upcoming week.
Introduction
In this weekly market outlook, we examine the most recent updates in the crypto space. With an emphasis on Bitcoin and the recent macro environment, we analyze recent price action. We also go through the DeFi stablecoin flow and we rank the crypto market's gainers and losers. Finally, we evaluate the performance of the Flagship Portfolio Vault.
Macro
The U.S. Federal Reserve will keep its key interest rate on hold on Nov. 1 and may wait longer than previously thought before cutting it. As the central bank's higher-for-longer message gains traction, a slight majority still see a cut before the middle of 2024, a significant minority of forecasters, around 40%, now see no rate reduction until the second half of next year or later, up from 29%. In the weeks since the Fed's September meeting where it opted to pause hiking rates, inflation surprised to the upside and payrolls unexpectedly rose by the most in eight months, providing some support for the roughly one-quarter of economists polled who expect another hike.
The conflict between Israel and Hamas that broke out has the potential to disrupt the world economy — and even tip it into recession if more countries are drawn in. A sharper escalation could bring Israel into direct conflict with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group. In that scenario, oil prices could double in a matter of weeks and would cause a second run of inflation. This in turn would have led to another leg down in risk assets.
Bitcoin
On Monday, October 16th, Bitcoin's price spiked, hitting a high of $30,000. This 15% increase within mere minutes was fueled by misleading reports concerning the SEC's approval of BlackRock's iShares Bitcoin ETF. The rumor quickly spread across the world, causing a flurry of buying activity as investors sought to capitalize on what seemed like a pivotal moment for Bitcoin's mainstream acceptance.
However, the celebration was short-lived. It was soon discovered that the reports were entirely false. The supposed approval of the iShares Bitcoin ETP was still under review by the SEC, as clarified by a BlackRock spokesperson. The false information, initially shared by crypto outlet Cointelegraph among others, was promptly rectified, but not before causing a significant ripple in the market. As reality set in, Bitcoin's price retraced, wiping out about 10% of the earlier gains.
Crypto best and worst performers
Our best performers appear to be a selection of altcoins, with CryptoPawCoin leading the pack as the biggest gainer. It skyrocketed 20x overnight and has now entered the top 50 in terms of market capitalization. CryptoPawCoin was recently launched and carries the potential of being a scam. It amassed over 500 million in market cap within just 5 hours.
On the flip side, Loom has emerged as one of the biggest losers this week. This downturn is attributed to the extremely high funding rates for being long on Loom, which triggered liquidations and, consequently, a significant sell-off.
Stablecoin Flows
The total market cap of stablecoins has remained stable at $123 billion. The Total Value Locked (TVL) of stablecoins in DeFi has dropped by about $3 billion in the last 7 days. Without a sustained rise in stablecoin TVL, we won’t see a prolonged period of bullishness. Should there be an increase in stablecoin TVL, possibly due to a liquidity event like the issuance of new stimulus checks, we could potentially kickstart the bull market again.
Flagship Portfolio Vault Performance
Over the past 7 days, the share price of the Portfolio Vault went from 27.52 to 27.75, which is an 1.4% increase. Over this period, Bitcoin’s price changed +5.2%, meaning we underperformed the leading crypto by 3.8%.
Our risk profile remains unchanged; it has stayed bearish. The primary reason for maintaining a bearish stance is the draining of global liquidity, the continuous drop in stablecoin TVL, as well as the sustained strength of the Dollar Index. As long as these factors persist in this manner, we will remain bearish.
If you’d like to access Flagship’s portfolio Vault, click here.
Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.
