Hello everyone,
The purpose of this letter is to inform you about the current situation of the crypto-asset market, as well as recent news in this field. This letter is not investment advice, but merely a sharing of my personal point of view.
News
Bruno Le Maire wants France to become «the European crypto-asset hub». Interviewed by BFM, Bruno Le Maire clarified the government's expectations regarding cryptocurrencies. With a rather ambitious roadmap :
«We want to make the European Union the world's leading economic zone for the structuring and organization of the crypto-asset market. And we want that within it, France is the European hub of the crypto-asset ecosystem. »
Bruno Le Maire, however, does not consider that there is a need to have « fear of innovation », and that one must not« suffocate the crypto ecosystem». A particularly notable change in language, as the minister has stood out in recent years for clear hostility toward the ecosystem.
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South Korea has chosen to offer its identity cards on the blockchain. South Korea is renowned for being one of the most «blockchain-friendly» countries in the world. In 2024, the country's citizens will be able to use digital identity cards available on the blockchain. The launch of this new technology is planned for 2024. The government expects that 45 million citizens of South Korea will adopt these digital identity cards within the two years that follow. According to a World Bank report, a government could save 50 billion dollars simply by implementing these new documents.
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Cryptocurrency Survey: 13 % of Canadians Report Owning Bitcoin (BTC). In a study published this week, the Bank of Canada shows the behavior of Canadian investors toward Bitcoin (BTC). Thus, 89 % of the country's citizens have reportedly already heard of it, while 13 % would have them in their portfolio.
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Bank of America: «Cryptocurrencies are the future of investment.». In a new study published this week, Bank of America (BoA) reveals that 75% of the young people surveyed believe that investing in traditional finance is no longer attractive and prefer alternative assets such as cryptocurrencies in their portfolios. By 2045, it is estimated that $84 trillion should gradually transition from the baby boomers to Millennials and Generation X. Thus, Bank of America predicts that the generational shift in interest will significantly and lastingly impact the future of financial markets.
At present, the stock market is overwhelmingly dominating discussions. While its global capitalization is around the 100 trillion dollars, that of the cryptocurrency market is stagnating around Just 1 trillion dollars. According to Bank of America, generational shifts in mindset are very likely to bring about a rebalancing So who would benefit from cryptocurrencies.
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Fundamental Analysis
Source : https://www.coingecko.com/fr
At the time of writing, the price of Bitcoin is 19,600 $ (on 10/18/22)
The crypto-asset market has remained remarkably stable in recent weeks, unlike the equity and currency markets. Bitcoin is gaining ground on many traditional assets in terms of relative value.
The strength of the US dollar, following the rate hikes by the Fed, continues to wreak havoc on other assets, particularly currencies and bonds. In this difficult context, the crypto asset market has been relatively resilient. The price of Bitcoin has been fluctuating in a price range between 17,600 $ and 25,000 $ for more than 120 days now.
We believe investors are trying to establish a floor for this bear market. We believe the current market structure resembles the troughs of previous cycles.
We notice on the graph of accumulation trend score (below) that a series of consecutive events occurred similar to the 2018-2019 bear market. The light yellow color indicates the periods of token distribution from large entities to smaller ones, and the dark color indicates the Bitcoin token accumulation periods.
Glassnode
Next, the profitability of long-term holders continues to stagnate at historically low levels, with this cohort of long-term investors recording average losses of about -48 %. These main long-term holders are those from the 2021-22 cycle who are capitulating at a loss.
These periods of extreme stress on the profitability of long-term holders from the previous cycle typically occur near the depths of the bear market. Long-term holders have experienced unrealized losses greater than today only 3.3 % of the time, which means we are in the extremes of the current bear market.
You can see these periods when unrealized losses were worse than today in purple on the chart below. These periods were generally followed by a strong rebound.
Glassnode
It is very rare for the Bitcoin market to reach such low periods of volatility. Almost all of these periods have preceded a highly volatile movement. On-chain spending behavior is compressing into a decision point.
Examples of previous bear cycles with such low volatility have resulted in subsequent price action in both directions, either upward or downward. There remains little perceptible directional bias in the futures markets, despite open interest increasing even further.
A period of volatility is likely approaching; Bitcoin prices are not known to stay still for very long. It is difficult to predict whether this period of volatility will end in an increase or a decrease. On the one hand, on-chain data points to a very advanced bear market; on the other hand, the macroeconomic environment is not in a good state, and the Bitcoin market will struggle to navigate against the current on its own despite its current resilience.
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US inflation is slightly down. Everywhere else in the world, inflation is rising. The eurozone has steadily increasing inflation, at 10 % in September. The rush for the dollar continues and risks creating major macroeconomic damage for many countries and businesses.
The interest rate market is constantly rising, the largest increase in over 50 years. This is going to cause a sharp drop in U.S. real estate prices (U.S. real estate is on adjustable rates).
Bond market yields are rising across the board, and many countries will struggle to cope with this interest rate hike. The massive bond bubble created by central banks and interest rates artificially held at zero is currently deflating.
The ECB is not raising its key interest rates fast enough. They might reach 2 % by the end of October. This is not enough to defeat inflation at 10 %. To maintain economic stability in Europe and avoid overly large interest rate differentials between countries within Europe, the ECB cannot afford to raise its rates very high. Inflation will likely be here for the long term.
The markets are gradually realizing this: the United States and Europe are in a recession, the latter being more severe for Europe due to energy problems caused by its own sanctions decisions against Russia.
Corporate earnings in the US and Europe are still good, probably not for much longer, as households are currently living largely off their savings accumulated during the COVID periods and excess liquidity. The household savings rate is at a historical low. This should be felt through a drop in corporate profits early next year, when households significantly reduce their spending and prioritize the most important items. Thus, the equity markets still have a further downside potential of around 15 to 30 % if corporate earnings decline.
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— Warning —
This is not investment advice, no one can predict the future.
You are solely responsible for your investment decisions.
We are not responsible for any losses resulting from a decision made based on the information in this letter.
