02 Nov 2023
Week 44, 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
On November 1st, the U.S. Treasury Department announced its decision to decelerate the rate of increase in its longer-dated debt auctions for the November 2023 to January 2024 quarter. The department anticipates requiring an additional quarter of increases to fulfill its financing needs. Following this news, Treasury yields experienced a drop, providing relief to investors who had braced themselves for potentially larger increases. This development comes on the heels of the U.S. government’s recent reduction of its borrowing estimate for the quarter to $776 billion, marking a $76 billion decrease from its July forecast.
Back in July, the government had projected borrowing needs of $1.007 trillion for the July-September quarter, which was $274 billion more than its May prediction, leading to a significant bond sell-off. In its latest announcement, the Treasury outlined its plans to augment the sizes of its two-year and five-year note auctions by $3 billion per month. Additionally, the sizes of its 3-year and 7-year note auctions will see increases of $2 billion and $1 billion per month, respectively. The 10-year new issue and reopenings will experience a $2 billion increase, a decrease from the previous $3 billion, while the $30-year bond new issue and reopenings will go up by $1 billion, down from the prior $2 billion increase. The 20-year bond auction sizes will remain constant.
For risk assets and crypto, these developments suggest a potentially stabilizing environment. The slower pace of increase in longer-dated debt auctions and the reduction in borrowing estimates will alleviate some pressure on risk assets, providing a more favorable backdrop for investment.
Bitcoin
Following the excitement surrounding the ETF, Bitcoin has been trading within a narrow range between $34,000 and $35,000. Currently, there is keen anticipation in the market, with Bitcoin poised to break out of this established range. Simultaneously, the CME Open Interest, a platform popular among traditional finance (TradFi) circles for trading Bitcoin, has witnessed a significant uptick, with open interest now standing at $3.6 billion. This remarkable growth underscores the increasing interest from the traditional finance sector in Bitcoin. However, this trend raises a pertinent question: Is Bitcoin on the verge of re-correlating with traditional American equity markets?
Crypto best and worst performers
This week's top performers in the cryptocurrency market appear to be a diverse mix of coins, indicative of a risk-on sentiment. Notable winners include Gas, Ark, and Status, which showcase a rising interest in riskier assets.
Conversely, Powr 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 Powr. The high funding rates have 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. The Total Value Locked (TVL) of stablecoins in DeFi has been steadily climbing, growing by about $4 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 30.08 to 30.87, which is a 1.61% increase.
Our risk profile has shifted to bullish, primarily due to the slower pace of increase in longer-dated bonds. This, combined with the growth of stablecoin Total Value Locked (TVL) and Bitcoin's sustained strength relative to traditional markets, informs our change in strategy.
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.
