The Bull Market is Back!

The Bull Market is Back! Key developments contributing to the recent crypto rally.

Welcome to the CryptoKey newsletter! Unlocking key analysis of the crypto space. All signal, no noise. Let's dive in!

The crypto markets have been taking off lately. Bitcoin, Ethereum, Solana and other major coins have made sharp moves higher over the past month, indicating we are in the early innings of a new bull market cycle. 

Bitcoin is up 120% year-to-date, showing the increasing demand and resilience of crypto assets, almost exactly one year after the fallout from FTX. The tailwinds and bullish developments around the crypto space continue to gain momentum.

Lets dive into some key developments that are contributing to this current rally.

Key Topics:

• Inflation is finally cooling down. October CPI inflation read came in slightly below estimates at 3.2%, taking pressure off of the Fed to continue keeping interest rates higher for longer. The money printer may go ‘brrr’ once again and sooner than expected.

• BlackRock has officially filed for a spot Ethereum $ETH ETF. A spot Bitcoin ETF approval now has a 90% chance of approval by January, according to Bloomberg ETF analysts.

• The Bitcoin ‘Halving’ is slated for April 2024, a network event that will reduce the supply of new $BTC hitting the market.

• Wall Street is ramping up on crypto allocation, as CME futures passes Binance for the first time.

Inflation is finally cooling off

The rate of inflation is cooling. US CPI, one of the key metrics the Fed uses to measure inflation, came in at 3.2% this month, down from its peak of 9.1% in June 2022. Cooling inflation will lead to a higher likelihood that the Fed cuts interest rates sooner to ward off a looming recession. 

CPI prints for October hit the market and the "official" inflation numbers came in below expectations. This caused markets to rally across the board as the low print was taken as a signal that the Fed is properly taming inflation, which means that the likelihood of a reverse in interest rate policy has increased. A reverse in interest rate policy means that "money printer go brrrr" is back on the table. "Money printer go brrrr" means that there is more liquidity to flow into financial assets and today's stock market moves can be seen as a type of front running based on these assumptions. (TFTC Newsletter)

Multiple rate cuts are now being priced in for next year as the Fed moves closer to their inflation target. Unsustainable government debt levels also pressure the need for rate cuts.

Crypto and other risk assets perform exceptionally well during periods of increasing liquidity. As the money supply goes up, so does the price of crypto. It’s that simple.

ETF mania is just getting started. The institutions are coming for crypto

To recap, the crypto markets have been waiting for a US-based spot Bitcoin ETF for the past decade, dating back to the Winklevoss twin’s first application back in 2013. A Bitcoin spot ETF would provide more traditional investors with a safe and regulated investment vehicle that would unlock massive amounts of capital from outside the crypto-native and retail cohort that makes up most of the current crypto market. Morgan Creek Capital founder Mark Yusko says he believes $300 billion worth of capital could flow into Bitcoin once a spot-based ETF is approved. This would dramatically impact on the price of Bitcoin as it opens up unprecedented demand for the scarce asset.

BlackRock, the largest asset manager in the world, filed an application for a Bitcoin Spot ETF this past summer. Additional submissions from Fidelity, VanEck, Invesco, and several other legacy financial powerhouses followed shortly after. BlackRock CEO Larry Fink, who previously dismissed Bitcoin as an “index of money laundering” just a few years ago, officially put the signal out that Wall Street is coming for magic internet money.

According to Bloomberg ETF analysts @JSeyff & @EricBalchunas, there is a 90% chance of a spot Bitcoin ETF approval by January.

The plot thickened dramatically as BlackRock officially filed for a spot Ethereum ETF with the SEC. (The Block) In addition, Nasdaq filed a proposal to list and trade the Ethereum trust. This provides a stamp of institutional legitimacy for the second largest crypto asset by market and if approved, will enable investors from around the world to get access to Ethereum exposure in their portfolio in a traditional brokerage account. (Reflexivity) 

This is another significant milestone as it opens the door for additional crypto assets to be offered as ETF products in the near future.

The boomers have all the money; these are the necessary steps needed to unlock it and let it flow into the crypto markets.

The Bitcoin Halving

Likely the most anticipated catalyst from within the crypto space is the Bitcoin halving, slated to occur in April 2024. 

Roughly every four years, the Bitcoin block reward paid out to the miners who secure the network & validate transactions, gets cut in half. The halving was programmed into the original Bitcoin code in order to increase the scarcity of new Bitcoins that are released over time, thus making the existing supply of Bitcoins more valuable.

Inflation occurs when governments print too much new money as it reduces scarcity and devalues our money. The Halving is intentionally used as a tool to achieve the reverse affect. 

Historically, halvings have been major catalysts for significant price movements in Bitcoin's value. They underscore the supply and demand dynamics at play.

Taking a look back at previous cycles, you can see the impact the halving has on the price of Bitcoin over time. Below are good visuals to make sense of Bitcoin’s volatility and long-term upside potential.

Bitcoin Rainbow Chart

Bitcoin Stock to Flow Model

CME Futures - Wall Street money is getting ready

CME flips Binance as the largest futures venue by percentage of open interest. CME is primarily used by larger institutions, indicating that Wall Street has significantly ramped up their crypto exposure and trading activity.

This week marked a major milestone in the Bitcoin derivatives market, with the CME not only breaching 100,000 BTC in open interest but flipping Binance for the largest share of Bitcoin futures open interest. This suggests a regime shift in the dominant cohort of market participants in the Bitcoin market, with more sophisticated US-based firms trading on the CME as opposed to crypto native venues. (Reflexivity)

Wall Street wants in and is flipping bullish.

The bull market is here, time to pay attention!

-Tommy Sullivan