26 Oct 2023
Week 43, 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 Bank of Japan is slated to terminate its negative interest rate policy next year, a move that entails a challenging endeavor to prevent sharp and disruptive swings in the financial markets. If the yields on Japanese treasuries become more enticing locally, it is expected that Japanese investors would begin redirecting their funds back to their homeland. Such a shift could affect the inflow of capital to other treasuries worldwide, including those in the US, Australia, and Europe, which is noteworthy given that Japanese investors are the largest foreign holders of US government bonds.
The US Treasury market has already experienced a bout of volatility due to increased government spending, higher debt levels, and rising interest rates. These dynamics have prompted the Treasury Department to issue more treasuries, bonds, and notes, adding to market volatility. The actions of the Bank of Japan (BOJ) in the coming year could further accentuate these effects on treasury markets globally, making it a significant development to monitor.
Bitcoin
A week following the rumor-fueled price spike on October 16th, Bitcoin experienced one of its most significant days in recent times. Bitcoin shot up by 10%, breaking out of its year-long range. The BlackRock ETF remained in the spotlight, and its potential approval continued to be a topic of interest. Concurrently, the CME Open Interest, a platform where traditional finance (TradFi) trades Bitcoin, saw a notable increase, reaching nearly the same levels as Binance at $3.4 billion, showcasing a growing interest from traditional finance sectors towards Bitcoin.
Adding to the drama, the ticker for BlackRock’s spot Bitcoin exchange-traded fund (ETF), known as IBTC, made a surprise reappearance on the Depository Trust and Clearing Corporation’s (DTCC) website on October 23. Now, with Bitcoin's price settling at $34,742, the community remains on edge, closely monitoring any news that could potentially set off another rally.
Crypto best and worst performers
This week's top performers in the cryptocurrency market seem to be a mix of memecoins, indicative of a risk-on sentiment. Notable winners include HarryPotterObamaSonicInu, Pepe, and Floki, showcasing a rising interest in risk. However, these winners do not take into account on-onchain memecoins. Other memecoins like Joe, SPX6900, and Real Smurf Cat also exhibited strong performance, although they carry higher risk due to their market caps being below $15 million.
Conversely, Blox has faced a downturn, emerging as one of the significant losers this week. This decline is largely attributed to the exorbitant funding rates for holding long positions on Blox. The high funding rates led to liquidations, which in turn triggered a substantial sell-off, adversely impacting its market position.
Stablecoin Flows
The total market capitalization of stablecoins has maintained its level at $124 billion. However, for the first time in a while, the Total Value Locked (TVL) of stablecoins in DeFi has seen a significant increase, growing by about $10 billion over the last 7 days. This growth has been the primary catalyst for the recent market pump, indicating that further expansion in the stablecoin TVL could potentially lead to higher gains in the market.
Flagship Portfolio Vault Performance
Over the past 7 days, the share price of the Portfolio Vault went from 27.75 to 30.50, which is a 9.9% increase. Over this period, Bitcoin’s price changed +22.4%, meaning we underperformed the leading crypto by 12.5%.
Our risk profile has shifted to Neutral due to Bitcoin's reaction to the false ETF announcement. The announcement propelled Bitcoin by 15%, which then retraced by 10% upon the discovery of its falsehood. This indicated that the market was not primed for an ETF. We believe that this announcement, coupled with under-allocation and crypto's relative strength compared to equities, is prompting the market to reprice itself higher for the eventual ETF.
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.
