Market Update October 2024: Bitcoin as unique Diversifier

Since January 1st, the aggregate supply of stablecoins has surged by an impressive 30%. This substantial increase clearly demonstrates investors' strong preference for stability in volatile markets. Stablecoins have reached a record all-time high of $160 billion, unmistakably signalling the industry's robust and growing demand. The rapid development of Decentralised Finance (DeFi) is undoubtedly one of the key drivers of stablecoin adoption. Despite regulatory challenges and occasional market fluctuations, investor sentiment towards stablecoins remains unwaveringly strong.

Bernstein's compelling report reveals that a significant 20% of individuals aged 18-24 in developing countries confidently hold 50% of their portfolios in this innovative type of cryptocurrency, underscoring its widespread appeal and potential for future growth.

📈 Market Update

A brief analysis on Bitcoin, Ethereum and Blockrise Fundamentals:

Bitcoin Analysis

Last month began with a price drop due to lower-than-expected U.S. job reports. The disappointing job reports were one of the drivers that prompted a 50 basis point interest rate cut. After a significant correction exceeding 9%, the market rebounded, surging 18% and closing September with an 8,7% gain. Currently, we're observing a decrease in long-term holder supply, suggesting some are selling their positions. A similar pattern emerged in February, positively impacting the market as long-term holders sold their Bitcoin to new investors.

Ethereum Analysis

After three consecutive months of decline, Ethereum saw a 4,2% increase last month. While this is a positive step, Ethereum still has considerable ground to make up. Bitcoin's dominance reached an all-time high in September, signaling outsized demand for Bitcoin compared to Ethereum and other cryptocurrencies. As noted previously, it's typical for capital to initially concentrate on Bitcoin. Despite facing challenging months, Ethereum remains fundamentally crucial to the crypto market. Compared to other market movers, Ethereum has potential for upside in the coming months. However, it's important to remember that nothing is certain in this volatile market.

Fundamentals

Blockrise offers comprehensive care with its asset management strategy called "Fundamentals." This strategy involves managing assets in Bitcoin and Ethereum versus a euro position, reassessing and adjusting these positions monthly.

The portfolio strategy Fundamentals ended the month with a 6,3% gain. Blockrise has primarily been accumulating Bitcoin over the last few months, reducing the effect of downside market corrections. In combination with the market conditions and interest rate cuts there is an increased probability of a green October. Based on historical performance October has been a positive month 8 out 9 times and is also better known as “Uptober”. Historical performance is no guarantee for the future, nevertheless it is a fun fact.

During the monthly rebalance, we decided to increase our Bitcoin position again from 75% to 77,5%, maintain our Ethereum position at 15%, and reduce our Euro position from 10% to 7,5%, in response to the volatility and current market conditions.

🗞 Crypto Highlights

An overview of the most notable events in crypto:

Bitcoin as unique diversifier

On September 17th, BlackRock published a compelling report titled "Bitcoin: The Unique Diversifier." The report posits that Bitcoin is a distinct asset class due to its unique risk and return drivers, fundamentally uncorrelated with traditional asset classes in the long term. BlackRock noted the increased interest in Bitcoin stems from its scarce, non-sovereign, and decentralized nature.

Bitcoin has gained widespread adoption because it carries no traditional counterparty risk, operates independently of any centralised system, and isn't tied to the faith of any single country. According to Blackrock, these characteristics make it largely detached from critical macro risk factors, leading some investors to view it as a "flight to safety" asset. A prime example is the U.S.-Iran escalation, where the U.S. government's action against an Iranian commander led to a 7% drop in the S&P 500, while Bitcoin rose 20% over sixty days. Notably, Bitcoin has outperformed all other asset classes in seven out of the past ten years, while being the worst performing asset in the other three years.

While Bitcoin has shown short-term correlation with equities and other risky assets, its fundamental drivers differ significantly over the longer term. Given rising geopolitical tensions and concerns over U.S. debt and deficits, Bitcoin is increasingly viewed as a unique diversifier against these macroeconomic risk factors.

The fact that the world's largest asset manager has produced such an extensive report on Bitcoin marks a significant step forward. It signals Bitcoin's gradual but certain evolution into a mature asset class for investment.

SEC approves option trading on Blackrock’s spot ETF IBIT

Following the ETF approvals in January, asset managers swiftly moved to secure option trading on their spot ETFs. The SEC has confidently stated that these listings will adhere to the same robust rules governing options on other ETFs, including stringent position limits and margin requirements. Notably, these will be American-style options, offering investors the flexibility to exercise at any time during the contract's life.

The approval of option trading on the IBIT ETF from Blackrock, marks a significant milestone in Bitcoin's evolution. This development brings numerous advantages to the table. Firstly, the vast size of the option market will undoubtedly drive increased demand and enhance liquidity through option traders. Secondly, options provide investors with powerful tools to implement sophisticated hedging strategies, effectively managing downside risk. Ultimately, the introduction of option trading on Bitcoin ETFs represents a major leap forward, firmly positioning Bitcoin for seamless integration into the global financial system.

🏦 Macro Economy

An overview of relevant global economic events:

Fed’s strategic move

The Federal Reserve cut interest rates by 0.5% for the first time in four years, following the central bank's most aggressive interest rate hike cycle. Jerome Powell noted that inflation is moving towards the 2% target and indicated that employment and inflation are roughly in balance. The Fed chairman stated, "The U.S. economy is in a good place and our decision today is designed to keep it there," while cautioning investors not to consider this as the new pace.

Events like this are all about expectation management. Bloomberg reported that 66% of analysts expected a 50 basis point cut, while 33% anticipated 25 basis points. Opinions varied among experienced investors, with Ray Dalio suggesting that 50 basis points would be too aggressive, while others argued the opposite. Anticipating such events is extremely challenging, as a 25 basis point cut could potentially have triggered a short-term "sell the news" event. However, an interest rate cut is generally positive for the market in the medium and long term.

China Unleashes Powerful Stimulus Packages to Boost Economy

China's central bank has decisively implemented a comprehensive set of monetary stimulus measures, demonstrating its unwavering commitment to reinvigorating the world's second-largest economy. This bold move clearly reflects the government's proactive approach to addressing slowing growth and bolstering investor confidence.

In a decisive action, the central bank has slashed interest rates by 25 basis points and announced a strategic reduction in bank reserve requirements. This targeted approach will significantly enhance banks' lending capacity, injecting vital liquidity into the economy. Furthermore, China has rolled out a robust stimulus package specifically designed to revitalise the real estate sector, featuring substantial reductions in mortgage borrowing costs and strategic easing of restrictions on second-home purchases.

The Asian equity market has responded with enthusiasm to these powerful stimulus measures, as evidenced by the impressive 3.2% surge in the Hong Kong Hang Seng index. Notably, the crypto market's muted reaction to this development reinforces its strong correlation with U.S. stock markets.

The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.