The week started with a liquidation bloodbath with over USD 1.5 billion wiped out in a massive shakeout as the BTC price dropped below USD 97,000, marking a critical support for overleveraged longs. This comes on the heels of last week’s liquidation cascade after leverage unwinding and some profit-taking after BTC surpassed the USD 100,000 milestone to test highs of around USD 104,000.
This week’s move may not come as a surprise as we highlighted in our market deep dive last week. Funding rates continue to stay hot, heightening the risk of a leverage flush if prices drop. Despite the rout, BTC and the rest of crypto have showed resilience with the market making a decisive comeback with BTC once again consolidating around USD100,000 at the time of writing.
While the price moves this week can be seen as a healthy pullback and funding rates have somewhat compressed compared to last week’s levels, I think that it is fair to say that there is caution in the air amid the continued overleveraged positioning and dwindling liquidity as we head into the holiday season. That being said, the fundamentals continue to point to further gains in BTC, inflows continue to remain very strong, and the macro environment continues to be increasingly favourable with rates trending lower with global rate cutting cycle truly underway. The Fed will also be on tap next week, and this week’s CPI alongside last week’s NFP has reinforced market pricing with 25 bps almost fully baked in.
The bottom line is that the top in BTC is far from being in sight, and we may have some wood to chop to get us to last week’s highs. Elsewhere, it has been a good week for the likes of AAVE (testing highs of USD 390.92 yesterday) and LINK (highs of USD 30.9 overnight) after Trump’s crypto bet fuelled a rally with the announcement that his World Liberty Financial invested millions in ETH, AAVE, and LINK, further signalling adoption in this space.
On the macro side, we have had a synchronised wave of cuts from major central banks this week, with BoC kicking off with a 50 bps cut followed by a shock and awe jumbo 50 bps cut from SNB to bring the policy rate to 0.5%, the fourth cut in this cycle which sent the CHF to a two-week low vs. the EUR (around 0.9344), where we are consolidating at the time of writing. ECB then wrapped up the day with an expected dovish 25 bp cut with the ultimate FX reaction remaining relatively tame. I continue to expect good support in CHF vs. EUR (around 0.94) as SNB is running out of room for cuts unless they are prepared to enter a NIRP era once again, while political turmoil continues to be front and centre in the Euro area.
The central bank decision this week underscores the continuation of accommodative policies, and when you add China’s fiscal stimulus, as well the prospect of a more favourable regulatory environment with the nomination of crypto advocate Paul Atkins to Chair of the SEC and David Sacks as crypto and AI czar, the stage is set for a a better environment for crypto. In addition to this, the resilience seen in BTC and the wider crypto space over the past week further support this narrative. In the meantime, I expect BTC to continue to be well supported around USD 95,000.
With the holiday season upon us, who knows! We might just get a Santa rally in crypto to cap off the year – a little gift for those who have been riding the volatility all year long.
Sometimes, even on Friday the 13th, the plot favours the bulls.
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