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- [00:00]
A
Ultimately I do think that the this cycle top is in probably for for crypto. I do not see us getting back to you know, 120, 125 anytime soon. I think you know, 100K is probably very good resistance for the time being.
- [00:22]
B
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- [01:20]
C
Hello and welcome to Markets Outlook from Coindesk. I'm Andy Baer from Coindesk Indices. I'm delighted to be joined by Bimnet Abibi from Galaxy on this Monday where things seem to be stabilizing a little bit. But you know, we've, we've been tricked by last leg false floors before so it's great to get an update on where the markets are. It's good to see you Bimnet.
- [01:43]
A
Thanks for having me.
- [01:44]
C
We were talking a little bit in the, in the pre show about how, you know, with, with some degree of humility, market observers are trying to diagnose what's going on here. I think you came back with a lot of very seriously considered and thoughtful ideas. You know, for folks who are wondering why there's such a big hole in their crypto portfolios now, what are your top three kind of macro reasons?
- [02:08]
A
First and foremost, I think there's a tremendous amount of profit taking that's taken place in crypto. In bitcoin in particular, it's an asset that's gone from 20,000 a couple years ago to a high of 120,000. And so we've seen a lot of profit taking from the whale community. You can see that on chain. And you know, internally here at Galaxy, you know, we've definitely seen some, some whale selling. So I think profit taking is, is one, two, you know, I think that there's a technical breakdown that that's occurred where you know, you're below a lot of key supports and so folks are, are latching on to that. And then three, you know, I, I, I, I think you know, the, the main concept that, that I think, you know, folks need to really consider is like where, where is value in crypto? It doesn't just necess. And so you know, I think folks have genuinely reassessed where they think like good value is in crypto, whether that's in, you know, alt tokens or it's in Bitcoin. I think, you know, the kind of value area for, for a lot of, you know, marginal capital that, that's going to get deployed in the space is a bit lower. The fourth thing I would just add is just general fatigue. You know, the, the DAP frenzy that you had over the past couple of months, you know, was a frenzy and then it led to significant capital losses for a lot. You know, I think most DATs are now trading, you know, close to M NAV, if not lower. And that's with prices lower from, from where These, you know, DATs recently purchased the underlying crypto assets. And so there's a lot of investors that, that are hurting and then you know, to go along with this, you know, kind of value and where losses are. I think just naturally folks are more averse to losses than they are to, to to wins and just, you know, dealing with the human value function like, you know, a dollar loss feels a lot worse than, than a dol. So when you've had these DAPP positions lose and when you've had these alt tokens lose, it really makes folks uncomfortable and it really kind of begs the question like is this L1 token worth $10 billion? Is there real value accrual? Is there a real long run thesis? And the question is how much of that has already been baked into the current price. And I think the crypto is an asset that since the election has had a lot of optimism baked in with new ETF that are allowed to launch, the DATs that are being approved left and right and generally the regulatory scale back that you've had in crypto, a lot of that optimism got baked in. And so the question is, is there real reason to chase further upside when all that optimism had gotten baked in?
- [04:51]
C
Yeah, no, it's helpful and There's a lot of solid points there. I want to drill down on the value question a little bit because especially when you think about bitcoin and then you think about layer one, smart contract blockchains, very different idea of how to construct value. Are you thinking about value on a price where these things were accumulated basis or how are you thinking about value? Is it key points where Michael Saylor might have bought or what's your sort of, I guess top down construction of value or when does the value investor step back in?
- [05:27]
A
I started my career in technical analysis and so I'm a big fan of technicals. And one of the things in Bitcoin is the 200 week moving average. Basically anytime you've ever bought a dip to the 200 week moving average, you made money. You might have had to hold for a couple of months, but it has a very high hit rate of working. And traditionally in markets that trend higher over time, buying at the 200 week or 200 day moving average has historically been, you know, a very profitable strategy. Whether it's the S and P or, or gold or, or other kind of, you know, financial assets. And so there's definitely value. The question is, will we get there? And then in terms of, you know, kind, kind of the alts and, and generally like a lot of the other assets in this space, technicals aside, I think value is when you know, there's mass capitulation, when there's a ton of selling flow and max, you know, kind of pessimism. It's kind of where you really, you know, unlock that, that long term value. Otherwise you know, you're kind of playing the game with everybody else. But when you have great entry and when you're one of the last buyers to step into a market, your expected value tends to be pretty good. And so, you know, that's kind of what I'm waiting on in terms of like what the value area is. And, and crypto is kind of when you see those mass capitulation events. And you know, one of the things I didn't touch on earlier that I think is super relevant to now is you did have October 10th liquidations happen. And what that did was basically liquidate a bunch of levered long traders in crypto. Market makers were severely damaged as well. And so the liquidity profile in the market has totally kind of changed. And since then you've kind of had the fallout and you had things like Adam trading at zero and that was very technical. But what you kind of want to see is like a very Fundamental oriented, like flush out, right where you know, folks are capitulating because they've kind of thrown in the towel on their kind of long run thesis. And that's kind of where I think you'll get to in the next, you know, call it six to nine months.
- [07:39]
C
You bring up the 200 week moving average and looking at the sell off, looking at the drawdown both in Bitcoin and In indices like CoinDesk 20, it really did accelerate in a way which looked trendy. In fact, trend signals on the downside worked extremely well. Almost as if you were just drawing numbers to demonstrate a successful trend strategy. Do you think that that acceleration, especially motivated by October 10th, was reflexive? In other words, were people trading the trend and therefore they were kind of manifesting a trend outcome by trading trend or was it really kind of emotional capitulation, which is more of a symptom than, than a strategy?
- [08:23]
A
Yeah, no, I, I completely think that there was some, some reflexivity to, to this market. I think there's a lot of folks that know that, you know, when you get a technical breach, there's a lot of folks that are forced to unwind the risk. And if you go lower, you know, there's certain liquidation levels that, that, that, that are visible and then you know, you've got, you know, margin calls and you know, the loans on top of, of the exchange liquidations that, that can take place. And then in theory as well, like the lower you go and the less liquid and the higher the volume, you know, structurally you have to have like a smaller position if you're running like a formal risk book. You touch on the DAX as well where you know, if their M navs dip below parity, that in theory they should be net sellers or at least not net buyers. And so you did have like this, this kind of like reflexivity to the market and it totally makes sense because you had that same reflexivity on the way up. And so I think it's a combination of folks, you know, understanding that there's reflexivity to the downside and piling onto the trade and that kind of causes that, that emotional capitulation as well. So it's bit of both.
- [09:59]
B
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- [11:13]
C
Today we kind of got to the peak of maybe having a dozen different ways to trade bitcoin right between DATs and ETFs and options. And we have many different options markets now, many different spot markets. One would hope that you would have enough different types of users and a number of different types of motivations and risk profiles and access points that you would have had some diversification of risk. As you just said and as where I think we're agreeing that it didn't matter, everything just kind of became highly correlated. So looking ahead, you guys have a huge trading desk, you have a big options desk. It certainly felt like Bitcoin's option activity felt more equity like than Bitcoin like this time around. What can people expect going into the next year where none of these ways of accessing bitcoin and digital assets is going to disappear? Probably will proliferate. Can we expect better liquidity or more diversified use cases or book positions to help smooth the ride a little bit? Or are we still going to have these kind of flush moments where everybody sort of backs off at the same time?
- [12:17]
A
I think high level, the liquidity profile in Bitcoin option space is only going to improve over time. The IBIT market has already shown significant kind of improvement on open interest, you know, bid offer spreads, et cetera. And so you know that's going to be a pretty important tool going forward. And I believe the OCC limits were also moved higher for the IBIT contracts. And so I do think that that's going to be a trend that continues. And the other thing to add on to that, I do think that Coinbase's purchase of Deribit and really kind of institutionalizing Deribit in a way that hadn't been before will also kind of help enhance the kind of liquidity profile in the marketplace. But nonetheless, like, part of the issue outstanding is that you don't really have a diversified marketplace for alt tokens, Right? So you do have an options market for Bitcoin that's robust ETH to a lesser extent. But as you go further down the risk spectrum, like there's a very limited set of liquidity for the other positions and markets. And so if you're a diversified crypto hedge fund that has a 30% allocation to ALTS, or you're a crypto venture shop and, you know, you're very allocated to alts, you don't necessarily have those clean and convenient ways to hedge. You can buy ETH puts to hedge your venture portfolio, but you can't guarantee that they're very correlated. And so token generation event that you thought, you know, was going to launch at, at 5 billion might now launch it at 1, and that's a huge reduction in price. But if I bought ETH puts, there's no saying that I might have made money on that or I might not have. But, but it's not a clean hedge. So it doesn't allow you to, to kind of move as, as nimbly as, as one might like. But I do think, yes, like the, the fact that there is liquidity and they're huge liquidity providers in the Bitcoin option space should allow portfolios to be managed in a more easier and cohesive way. But Bitcoin's not the only part of the crypto story.
- [14:19]
C
Yeah, I couldn't agree more. I don't want to force you to declare whether you think the fever has broken and a floor is put in, but is it interest rates and Fed that's really going to try to break the fever? Or what other kind of catalyst could there possibly be to, I think, settle the market down and allow people to start building positions back up?
- [14:40]
A
You know, I think there's a huge fallacy around interest rate expectations. You know what I mean by that is the interest rate curve. Like it's a curve, right? So there's always expectations built into. You know, even if you don't go in December, like the January odds are baked into the market and, you know, so is kind of what's expected for for terminal rates. And so one meeting can kind of like dictate tone. But over the long run a lot of like rate cutting is already baked into the market. And so I don't really think that a slightly hawkish FOMC with a cut or you know, no cut, like it really should move that, that markets that that much. What I do think is important though is, is kind of the underlying trends in the data and what's informing the Fed. And if you look under the hood of the, of the last non farm payrolls like there's some very concerning things. Obviously the unemployment rate, you know, ticked up to 4, 4 which is elevated. But the other thing is a lot of the job additions came from second jobs, right. And from sectors that aren't, you know, high paying white collar, that type of stuff. And then when you look at like things like you know, youth unemployment or fresh college grad unemployment, like I think the youth unemployment rate's above a 10 handle now, right. If you're 20 to 24, I think it's a 10, 10 and a half percent unemployment rate. And then you know, if you look at like other things like job postings and if you look at you know, the, the amount of layoffs that have been announced for the month of October, I think the October lay layoff figure was 152,000 jobs that were publicly announced. And so when you really dissect the labor market, I think it's telling you some very concerning things. And so I do see the Fed kind of pivoting to a more dovish stance. Now the question is will that kind of help the market on go forward? I think that's less relevant. What's more relevant in my head is kind of the structural flows in equities. You had a bout of de risking in the last week, but I do think you're kind of to quote you Scott Rubner, who's like the main clothes expert on the street at Citadel, I think you're, you're kind of in the 8th to 9th inning of that, that momentum unwind and we do know that November is a seasonally very strong month for equities. In addition, you know, you do still have massive stock buybacks by a lot of the tech names and retail has continued to buy the dip very aggressively. So I do think you have a setup for risk like broader equity markets rallying into year end that's more structural in nature rather than fundamental and that should generally be helpful for bitcoin. But ultimately I do think that this cycle top is in probably for crypto. I do not see us getting back to 120,125 anytime soon. I think 100k is probably very good resistance for the time being.
- [17:35]
C
Excellent. We'll have to leave it there, but great to see you. Bim that and hope to talk to you again soon. You've been listening to market's outlook on CoinDesk.