Crypto update - Sept 10, 2024 (Patreon)

Crypto price action has been quiet and just chopping sideways. BTC is at about the same level as this time last month. Price did recover from the violent Yen unwind from early Aug and reached 65k by end Aug, but price action failed to carry through and has resumed the downward trajectory that started in March.

Fundamental factors like macro interest rates and institutional adoption are continuing so longer-term trajectory of BTC and crypto continues to be positive. However, there is an emerging risk of uncertainty for the rest of the year from the outcome of the US elections at this point.

This uncertainty began when Biden decided to quit the US presidential race at the end of July and passed the buck to Kamala Harris, throwing a certain Trump win out the window. The uncertainty increased significantly in time as Harris’s popularity grew and she has continued to stay silent on the issue of crypto.

As we alluded to earlier, this cycle of crypto adoption is heavily dependent on institutional adoption based on the ETF bridge, which has been build, but also on more sensible regulatory frameworks supported by a multi-year interest rate cut cycle.

Everything was in place, especially with an expected Trump win. But now the tight presidential race is creating a potential risk that a Harris presidency would not be regulatorily friendly to crypto, slowing down institutional adoption. In fact, major ETFs have all seen large outflows ever since Harris stepped on stage. At this point, we don't know for sure if Harris is pro, anti, or neutral-crypto. Therefore the uncertainty.

Trump-Harris is neck and neck

Now the race is almost 50/50 but what’s significant is to see Harris’s probability of winning has increased significantly over the course of July and August.

July and August is of course the start of the downward chopping price action for BTC but also importantly, this is also the period where we actually have now net outflows of capital from BTC ETFs. At the very least, institutions are taking a wait and see attitude before investing additional capital into the ETFs.

In terms of the elections, there’s really nothing markets can do besides continued monitoring. An important debate is happening now (Tuesday night US Time) but US elections are usually never decided until last minute, so expect a lot of sideways chop and volatility until November, less than two month away.

Meanwhile, we can be comforted by the fact that we will finally enter into long awaited interest rate cut cycle starting this month that should continue for 2 years. In the absence of some kind of shock event (e.g. recession). This should be positive for risky assets such as crypto

Market expects rate to begin to drop in Sept 2024 and finish by Jan 2026

Institutions continues to be the key incremental flow that we are monitoring. With the interest rate cut cycle and increasing political certainty towards 4Q, institutional flows should resume its original trend. This is likely a pre-requisite for any increase in retail flow. Retail most likely needs to see BTC break all times highs because they start to chase into the sector. Indeed, when we track Coinbase MAUs (monthly active users) to proxy retail participation, the trend has been declining since 2021 and has never recovered. Combined with ever increasing token launches, the fragmentation of retail liquidity has led to poor alt coin performances, which can only be saved if there’s renewed increase in retail participants

In summary

Retail participation is low currently due to lack of momentum. Institutional interest is on hold due to uncertainty with upcoming election, but that can change over the course of next two months (or even after tonight's debate).

On technical, I'm still watching this multi-year cup-and-handle pattern. Looks like it'll take a while longer to play out.

On long term, I'm comfortable with my thesis and am happy to allocate part of my capital to BTC as I expect institutional money (doesn't have to be now, it could be later) to come in over time, driving this asset higher.

Disclaimer: The content of this post is solely for entertainment and not investment advice. Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions