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Santa Rally | The Melt Up?
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Reminder | We still have our Black Friday deal online until 27th November
XRP Soars Before Plummeting Amidst Deceptive ETF Reports
The value of Ripple's native token, XRP, experienced a sudden surge of 12.3% in just 25 minutes on Monday, propelled by the announcement of a Blackrock XRP Spot ETF filing. However, the excitement quickly turned to dismay as it was revealed that the news was a hoax, leading to an immediate 14.4% crash and a $7 million loss for leveraged traders. The situation was further complicated by conflicting media reports, initially suggesting the legitimacy of the filing.
In the aftermath, XRP futures contracts incurred significant losses, totalling $7.26 million within 24 hours. Traders and investors, eager to anticipate market movements, had collectively placed approximately $5 million in trades, with 75% leaning towards long positions before the filing's authenticity was confirmed. This resulted in widespread liquidations, particularly impacting over-leveraged traders.
The incident results from a rogue trader manipulating the market by creating a fake filing, using the name of an executive to artificially boost prices. Once the truth emerged that the filing was indeed false, prices swiftly reverted to their pre-fake levels and even dropped below.
The trades, executed predominantly on platforms like Binance and Bybit, ranged from modest sums to substantial amounts exceeding $200,000. This episode underscores the importance of verifying news authenticity before engaging in leveraged trades, highlighting the risks associated with hasty decision-making in the volatile cryptocurrency market.
Securities Body Unveils Regulatory Blueprint, Paving the Way for Crypto Market Overhaul
The International Organisation of Securities Commissions (IOSCO) has unveiled a comprehensive report outlining its recommendations for the global regulation of cryptocurrencies and digital assets. Intending to establish a universal standard, the report provides a blueprint for countries worldwide to safeguard investors against potential risks associated with centralised crypto asset providers. Comprising 35 regulators and financial authority executives from across the globe, including the U.S Commodity Futures Trading Commission, the U.S Securities and Exchange Commission, and the UK’s Financial Conduct Authority, IOSCO aims to streamline regulatory efforts on a global scale.
In response to recent stringent measures by the UK's Financial Conduct Authority, leading to the discontinuation of business by exchanges like Bybit and restrictions on new customers by Binance, these recommendations from IOSCO offer a cohesive framework. The report facilitates regulatory commissions in adopting a unified approach to cryptocurrency oversight. IOSCO advocates for tailored measures, suggesting adjustments to existing rules or the introduction of new ones based on the jurisdiction. The focal points encompass conflicts of interest between exchanges and investors, insider trading, market manipulation, fraud, custody, client asset protection, cross-border risks, regulatory cooperation, operational and technological risks, and retail distribution. These critical considerations address long-standing issues within the cryptocurrency space. IOSCO has previously published reports on stablecoins, decentralised finance, and influencer-related matters in the crypto industry.
Unprecedented Lobbying Could Hit Record High in Face of Intensifying Regulatory Scrutiny
A recent report disclosed by Coingecko indicates that the United States cryptocurrency sector may witness an unprecedented surge in lobbying expenditures, surpassing any previous year. Cryptocurrency lobbying involves financial contributions from entities within the crypto sphere to engage with policymakers and governmental bodies, aiming to advocate for favourable regulations and address legal uncertainties. Although lobbying is a common business practice, its significance has heightened amidst the ongoing conflicts between financial institutions and crypto/blockchain enterprises.
As of November 14th, 2023, the cumulative lobbying spending for this year has already reached $20.19 million. The final tally will only be available at the year-end when the fourth-quarter data is released. In contrast to the previous year's record of $22.2 million, the current year's total is anticipated to surpass this figure significantly. In 2019 and 2020, the combined expenditure was estimated at $3 million.
Illustrating the scale of corporate contributions, a noteworthy shift is evident on Wall Street. Cryptocurrency lobbying accounts for 19.7% of the total lobbying spending this year, a substantial increase from the previous 2019-2020 data of less than 3%. Coinbase leads in crypto lobbying, allocating a substantial $7.5 million. Interestingly, despite a comparable number of participating companies (56 this year compared to 57 last year), this marks a notable increase from the 2021 figure of 37 companies engaged in lobbying.
The Blockchain Association follows closely as the second-largest spender with $5.23 million. In comparison, Ripple allocates $3.46 million, coinciding with an ongoing legal battle against the Securities Exchange Commission (SEC) under the leadership of Gary Gensler.
In Other News
Javier Milei's Presidential Victory Sends Bitcoin Up with a 3% Surge
Yearn Finance Plunges 45% Amidst Exit Scam Allegations, $250 Million Vanishes
Bitcoin's recent price behaviour, as observed in last week's analysis, has been marked by extreme volatility. Taking a closer look at the 4-hour chart displayed on the right-hand side below, the price appears almost unchanged compared to the same time last week. A quick glance at this chart reveals an ongoing tug-of-war between bullish and bearish forces.
On the 4-hour chart, I've maintained the 0.382 Fibonacci level at $35,926, derived from the all-time high of $69,000 to the monthly swing low of $15,476. This illustrates that the price is holding above this level, and notably, the 50% level is not yet visible on the chart. Moving to the daily chart, a bearish oscillator divergence is evident at the bottom, characterised by rising prices coupled with a downward-sloping RSI and Stochastic RSI over the past month. Despite the significant movements from the previous week, the price is staying above the 10-day EMA, currently at $34,689, signalling a bullish stance.
Analysing the current situation, if we exclude the two extreme up and down days and treat them as anomalies, it becomes apparent that the price is attempting to recover and retest the previous highs, albeit with relatively small price movements. It's worth noting that it's currently the weekend which may possibly cause lower volume and smaller price action, but the daily chart continues to show higher highs. All factors considered, the path of least resistance seems to be upward.
In the previous week, we discussed the importance of identifying topping patterns on the chart. Aside from a minor double top and the persisting bearish divergence, there are no significant indicators suggesting an imminent breakdown. However, a crucial level to monitor is the first swing low on the daily chart, marked by the horizontal black line at $34,800. A breach of this level would prompt a reassessment, potentially signaling the beginning of a retracement and further fib downward targets would have to be taken if this level is breached.
Presently, Bitcoin appears to be gradually grinding upward, making it more likely that new monthly highs will be reached. The emergence of a small topping pattern underscores the importance of closely monitoring Bitcoin in the short term, especially for any signs of a break of the swing low.
TOTAL3 (Excluding Bitcoin & Ethereum)
Since our last examination of the total altcoin market capitalisation (referred to as "total 3," encompassing all altcoins except Bitcoin and Ethereum), there has been a definitive initiation of the next upward price trajectory. This progression is notably evident on the weekly chart, displaying a decisive break above the trendline channel three weeks ago, accompanied by robust trading volume. The strength of these candles provides a robust indication of the potential commencement of an altcoin bull market. The weekly chart also highlights a discernible double-bottom pattern, denoted by the black arrows, marking a pivotal early signal that altcoins might have reached their bottom.
A key milestone lies ahead as we approach the resistance level at approximately $453 billion. Once breached, the path to the next significant hurdle at the swing low around $584 billion opens up. It is imperative to acknowledge the overbought condition of the Relative Strength Index (RSI) on the weekly chart. However, it is crucial to recognise that an overbought RSI does not preclude further upward movement, and the potential for continued ascent remains.
Shifting focus to the daily chart, the price trend diligently adheres to the 10-period exponential moving average (EMA). Notably, since the secondary low on August 14, 2023, there has been a lack of substantial retracement. Although a retracement could be imminent, it is essential to heed the bearish RSI divergence on the daily chart, signalling a potential deceleration in price momentum. This divergence serves as an early indicator of a possible slowdown, yet the upward trend persists until a noteworthy swing low disruption occurs.
As we navigate this upward trajectory, consideration will be given to incorporating Fibonacci retracement levels to understand better potential resistance and support zones in the evolving market conditions.
I wanted to make a brief analysis of Near Protocol due to its notable strength in recent weeks. Examining the daily chart reveals prominent green candles accompanied by robust volume, and the price consistently follows the 10-period EMA, signalling a bullish trend. While the RSI indicates overbought conditions with hints of bearish divergence, the enduring strength in recent price days, coupled with a mid-ranging Stochastic RSI, suggests the potential for continued upward momentum. Shifting to the weekly chart, a potential resistance level lies around $2.32 which we need to be aware of, as we gradually get closer to this, marked by a black horizontal line. Further beyond this, at approximately $3, additional resistance is indicated by a green rectangular shading tool, coinciding with the 0.382 Fibonacci level from the August 2022 swing high to the recent October 2023 low at $2.94. The weekly RSI has not yet reached overbought levels, indicating potential room for growth towards the aforementioned resistance. Regular monitoring of this chart on a weekly basis will be essential.
Macro News & Analysis
Global Liquidity on the Rise
Over the last 3 weeks we’ve seen incredible moves in US equity indices, as a combination of data, Fed pause and less hawkish Fed speak put a peak in for Treasury yields and stoked a risk on the environment. Much of the move, at least initially, was down to short covering from extreme oversold conditions but for the rally to continue as it has shows a sentiment change as well, although the number of gaps (shown below in yellow) signal emotion has also played a large part:
Mike Howell from CrossBorder Capital tracks liquidity across 80 countries and their Global Liquidity Indicator shows central banks are increasing liquidity and have been since late 2022:
As discussed in last week’s newsletter, US Treasury issuance schedule also played its part in boosting risk appetite as the ratio of short term (up to 12 months – bills) to longer term (2-10 years – notes and over 10 years – bonds) debt was skewed much more than expected towards short term paper, which is interpreted as increasing liquidity.
Whether liquidity actually changes or not has been debated on X by market veterans, with Andy Constan arguing in a new “101” thread this isn’t a change in liquidity at all. Andy has a valid point, in that no new money has been created – it’s just moved from one part of the financial system to the Treasury, to purchase the newly issued Treasurys. In the case of bill issuance, there’s always high demand for these cash-like instruments, not least from money market funds (MMFs). Higher rates mean more people are parking their money in MMFs as they offer far higher yield than commercial banks offer on deposits.
This gets back to Andy’s point, in that issuance itself isn’t what drives capital flows into equities, it’s the sentiment of capital holders that moves equity prices. If investors believe they will get higher return on capital from MMFs, they’ll keep their money there. If however, investors believe their money will be better treated in the stock market, then flows to equities will increase and MMF balances will reduce. It’s all about sentiment, or put another way, fear and greed.
Is This Rally Sustainable? Cem Karsan and Tony Greer say Yes
Performance chasing, career risk, trend following algorithms, short covering, passive flows… there are so many factors that drive prices. When price turns as it did at the start of the month, particularly from such oversold conditions, buyers start turning up from different places and for different reasons.
Initially, as stop loss levels hit, short covering can create a violent counter trend move. This has a domino effect on other stop levels, creating a rush to buy as short positions are closed. Speculators (including retail) see the change in character and start to buy. This is known as fast money.
As a trend gains momentum, slow money starts to pay attention and algorithmic trend following computers start taking part, adding to the momentum. Other trend following participants join as moving averages are broken and prices break out from different support and resistance levels.
Then there’s seasonal factors such as portfolio managers (PMs) whose performance hasn’t kept up with the benchmark equity and bond indexes. This means some (many?) PMs haven’t met their targets and need to make up for their lacklustre results, before end of year reporting. This is known as career risk and is real, as poor results lead customers to move their money elsewhere and can mean PMs lose their job. Along with more retail, this is where performance chasing enters.
October also sees statutory mutual fund redemptions which is followed by portfolio re-balance purchases in the following weeks into year end, and companies can buy back their shares following earnings releases, which is happening right now.
Cem Karsan, founder at Kai Volatility and 24y Quant/Vol/Flow PM, sees this rally continuing into early January, provided the November gains aren’t given back by the end of the month. Cem has discussed how structural flows and the options market in an interview on Schwab Network.
In the latest Complete Intelligence Week Ahead podcast, Tony Greer discusses this month’s mammoth move across asset classes. According to Tony, on any given day you’d typically see 2 or 3 individual stocks with 2 sigma moves but this time he’s seen 2 sigma moves in 17 sectors he tracks. This is highly unusual and Greer has dubbed this “an everything rally”.
Jason Shapiro, sentiment trader and founder of Crowded Market Report, also sees this rally continuing.
Economic Data Showing Weakness
With all that positivity, it wouldn’t be me not to include some caveats! Both official and anecdotal data show growing weakness in the US and global economies. US unemployment and continuing claims numbers have been rising continually although still remain low compared to pre-2020. There are definitely more bankruptcy, delinquency and default stories appearing and the US consumer may finally be showing signs of cooling off.
Having said that, two things to keep in mind: first, there is still plenty of cash in the economy and whilst some individual sectors have been though – or are going through – recession like periods, aggregate data shows a slowing but stubbornly resilient US economy. Secondly, the economy and the stock market are certainly related, but are by no means the same. Equities can and do behave on a different timeline to the economy and at times can exhibit uncorrelated behaviour.
Xi and Biden Meet
This year’s Asia Pacific Economic Cooperation (APEC) meeting was hosted in San Francisco last week, where Asia-Pacific leaders meet to “leverage the growing interdependence” of the regions. US-China relations have been strained for some time and both economies are facing their own problems. With Xi’s post covid policy errors, the US fighting two wars and growing global geopolitical unease, for Xi to travel and meet Biden in person is significant. It signals Xi’s realisation his policy choices have done more harm than good to the Chinese economy, and growing hostility between the two countries isn’t solving either of their problems.
Whilst the event was largely a photo-op and tensions will continue behind the scenes, it symbolises Xi’s need to stay on good terms with the US takes priority over other less US-friendly nations. The rhetoric from both sides marks at least a surface level turning point. Biden said "I believe these are some of the most constructive and productive discussions we've had" and "[w]e've made some important progress."
President Xi acknowledged US-China relations have "never been smooth sailing" and after the meeting he added that the “door of China-US relations cannot be closed again now that's open”.
A lot has happened so far this month, and in a change to recent history much of it has been positive. The global economic and geopolitical situation is unstable but now is showing signs of improving. Next year is US presidential election year and neither Democrats or Republicans want to be blamed for any negative issues during campaign season.
Whilst it’s unlikely much new policy will get bipartisan support with a split Congress, neither side wants a recession. Any Democrat stimulus policy, should it be denied by the Republican House of Representatives, can be used against them in campaigns. And even if such policy is denied, there are other levers Biden can pull to ease economic and market conditions, should things get hairy.
There’s still much that could go wrong, but the united US-China talk is in my view a very good sign, even if it is largely political positioning on both sides. Combine this with the US election, market veterans’ bullish views discussed earlier, and unease around weakening economic data, could just be the setup we need for a “face ripping” melt-up rally in equities and crypto into year end and through 2024!
Let’s see what we get :-)