EMC Labs October Report: Monthly increase of 10.89%, BTC may reach new highs after the chaos of the US elections
Driven by the "Trump market," it will also face the chaotic impact after the election. In November, BTC is highly likely to break the historical high and start the second half of the bull market.
Author: 0xWeilan
++The information, views, and judgments regarding markets, projects, currencies, etc., mentioned in this report are for reference only and do not constitute any investment advice.++
In 2024, global macro finance is facing a turning point amid turmoil.
Following a significant 50 basis point drop in September, the US dollar has entered a rate-cutting cycle. However, with the upcoming US presidential election and global geopolitical conflicts, the US economic employment data has begun to be "distorted," leading to increased divergence among traders regarding future market judgments. The US dollar, US stocks, and US bonds have all experienced severe fluctuations, making short-term trading increasingly difficult.
The divergence and concerns in the US stock market are reflected in the significant volatility of the three major indices without a clear direction. In contrast, BTC, which had lagged behind, caught up in October with a surge of 10.89%, achieving significant technical breakthroughs and approaching the upper edge of the "new high consolidation zone," briefly reaching $73,000.
The internal structure of BTC remains perfect, ready for a complete breakout; however, it is still constrained by the uncertainty surrounding the election in the US stock market. But the election is merely an interlude and will not change the cycle's operation. We predict that after the November election, following necessary conflicts and decisions, the US stock market will resume its upward trend, which would lead BTC to break through its historical high and initiate the second half of the crypto asset bull market.
Macroeconomic Finance: US Dollar, US Bonds, US Stocks, and Gold
In October, after three consecutive months of decline, the US dollar index "unexpectedly" rebounded sharply by 3.12%, rising from 100.7497 to 103.8990, returning to levels seen in January of last year. This rebound was triggered by the "Trump victory" expectation, as traders believe that Trump's election will exacerbate the decoupling between China and the US, driving up inflation and making rate cuts difficult to implement smoothly. We believe this rebound has already overestimated the expectation of "slowing rate cuts," making the rebound of the dollar index unsustainable.
Monthly Trend of the US Dollar Index
Expectations of "tax cuts" and "US-China decoupling" in Trump's economic policy will inevitably lead to a further increase in the scale of US bonds. As the probability of Trump's victory increases, the 2-year US bond yield surged by 14.48% after five consecutive months of decline, while the 10-year yield rose by 13.36%. The sell-off of US bonds is severe.
Currently, the US stock market is trading around two main lines: whether Trump or Harris is elected, and the potential asset trends resulting from their economic policies, as well as whether the US economy will experience a soft landing, hard landing, or no landing.
In October, the CPI remained low, and the unemployment rate also stayed low, leading people to increasingly believe in a soft landing for the economy. This allowed the US stock market to remain near historical highs, but the extremely low non-farm employment data and the uncertainty surrounding the election caused traders to lose their trading direction. The Q3 earnings reports of the "seven giants" were mixed. Against this backdrop, after reaching a new high in mid-month, the Nasdaq fell, with a monthly decline of 0.52% and the Dow Jones down 1.34%. Considering the significant rebound of the dollar index, this is a relatively good result.
Only gold received support from safe-haven funds, with London gold rising 4.15% for the month, reaching $2,789.95 per ounce. The current strength of gold is driven not only by safe-haven funds but also by the continued accumulation by multiple central banks (replacing part of their dollar holdings as a value reserve in their own currencies).
Crypto Assets: Effective Breakthrough of Two Major Technical Indicators
In October, BTC opened at $63,305.52 and closed at $70,191.83, with a monthly increase of 10.89% and a volatility of 23.32%, with trading volume moderately increasing. This marks the first time since the adjustment in March that BTC has achieved two consecutive months of gains.
BTC Daily Trend
From a technical perspective, BTC achieved several significant breakthroughs this month; it effectively broke through the 200-day moving average resistance and the descending trend line (the white line in the above image) since March. The breakthrough of these two major technical indicators signifies an improvement in the long-term trend, temporarily alleviating concerns about a "bearish turn" in the crypto market.
Currently, the market is in a pullback phase after testing the upper edge of the "new high consolidation zone." Moving forward, we will focus on two technical indicators: the upper edge of the "new high consolidation zone" ($73,000) and the ascending trend line (currently around $75,000). In previous reports, we emphasized that an effective breakout of the "new high consolidation zone" signifies the end of a long 8-month consolidation, while re-establishing the ascending trend line indicates the arrival of a new market phase (the second wave of the bull market, i.e., the main upward wave).
BTC Monthly Trend
On the monthly chart, it can be observed that since August, the low prices of BTC have been consistently rising. This turning point is based on two factors: the continuous improvement of global liquidity since the Fed, EU, and China cut interest rates, and the internal adjustment of crypto assets, specifically the "shift from short to long" in holding structures.
Long-Short Game: Enhanced Liquidity or Triggering the Second Wave of Sell-Off
Distribution of Longs, Shorts, CEX, and Miner BTC Holdings (Monthly)
In previous reports, EMC Labs pointed out that with the unfolding and adjustment of the crypto asset bull market, long holders would experience two waves of sell-offs, thus reintroducing the accumulated chips back into the market during periods of market weakness.
In this cycle, the first wave of sell-offs by long holders began in January this year and ended in May, after which they shifted to re-accumulation until October. The Fed cut rates for the first time in September, improving liquidity in the crypto market, prompting long holders to begin selling again, shifting the holding structure from "long to short." This month's sell-off volume approached 140,000 BTC.
This is a result of the Fed's rate cut and liquidity improvement, as well as a necessary phase in the cycle's operation. Of course, we need more time to confirm the sustainability of this sell-off; overall, we lean towards the view that the second wave of sell-offs has already begun. Unless there is a reversal in the Fed's rate cuts, this process will continue in the medium to long term.
Accompanying this is the continuous strengthening of market liquidity.
Strengthened Liquidity: Buying Power from BTC ETF Channels
For the crypto market, the initiation of the rate-cutting cycle is highly significant. To some extent, last year's BTC price increase was driven by expectations of rate cuts and the early pricing in of the BTC ETF channel opening. The adjustments since March can also be understood as market corrections before the initiation of rate cuts.
Monthly Statistics of Capital Inflows and Outflows in the Crypto Asset Market (Stablecoins + BTC ETF)
This judgment is based on our statistics of the inflows and outflows of funds in the BTC ETF channel. From the chart above, it can be seen that after March, there were signs of slowing inflows and even outflows in this channel. However, this downward trend improved in October. EMC Labs monitored that in October, the 11 BTC ETFs in the US recorded a total inflow of $5.394 billion, marking the second-largest inflow month on record, only behind February's $6.039 billion. This substantial inflow provides fundamental support for BTC prices to challenge previous highs.
In contrast, the stablecoin channel showed very weak performance in October, with only $0.47 million in inflows for the entire month, marking the worst single-month performance of the year.
Monthly Inflows and Outflows of Stablecoins
The weakness in stablecoin channel funds can explain why, despite BTC challenging previous highs, the performance of Altcoins has been very poor. The funds from the BTC ETF channel are unable to benefit Altcoins, which is one of the significant changes in the structure of the crypto asset market and deserves close attention.
The surge in funds from the BTC ETF channel includes elements of the "Trump trade." Due to Trump's enthusiasm for crypto, people are speculating and buying in hopes of short-term profits. This is worth noting. Following the US presidential election on November 4, there may be significant short-term market fluctuations.
Conclusion
According to the 13F reports submitted by US institutional investors, in Q1 2024, there were 1,015 institutions holding BTC ETFs, with a total holding size of $11.72 billion; in Q2, the number of institutions holding BTC ETFs exceeded 1,900, with a holding size reaching $13.3 billion, and 44% of institutions chose to increase their holdings. Currently, the BTC held by BTC ETFs has surpassed 5% of the total supply, which is a noteworthy breakthrough.
The BTC ETF channel has gained control over the medium to long-term pricing of BTC. In the long run, during the rate-cutting cycle, funds from the BTC ETF channel are expected to continue flowing in, providing material support for the long-term trend of BTC prices. However, the medium to short term remains full of uncertainties.
Considering the on-site structure and macroeconomic trends, EMC Labs maintains the previous judgment that BTC is likely to break through previous highs and initiate the second half of the bull market in Q4. In the Crypto market, the initiation of the second half of the Altcoin bull market is predicated on the recovery of inflows into the stablecoin channel.
The greatest risk comes from the results of the US election, whether the rate cuts can proceed smoothly as expected by the market, and the stability of the US financial system.
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EMC Labs was established in April 2023 by crypto asset investors and data scientists. It focuses on blockchain industry research and investments in the crypto secondary market, with industry foresight, insights, and data mining as its core competitiveness, aiming to participate in the thriving blockchain industry through research and investment, promoting the benefits of blockchain and crypto assets for humanity.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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