This column was co-written by The Block’s Special Projects Director Frank Chaparro and MNNC Group’s Laura Vidiella. The views expressed in this column are our own and do not reflect the opinions of our employers.
Immediately after the Tuesday Uptober newsletter.The market slumped despite a 1% decline. BTC
+0.043%
Price – Funny how quickly things can change.
Overall, it was a mild week, much like the past three months. The exception was the brief relief we saw in September, when most directional funds recorded gains of 10-15%. This was a positive sign, especially considering the challenges directional funds have faced throughout 2024. But sentiment from fund managers and subscribers suggests change could be imminent. As always, we prefer to remain optimistic and zoom out for the bigger picture.
In 2017, Preqin identified 55 cryptocurrency funds, but by 2024, that number has ballooned to nearly 1,200, a 21-fold increase. This is one of approximately 30,000 funds in Preqin’s database that focuses purely on digital assets. Additionally, 400 traditional or non-crypto funds currently have exposure to digital assets.
As October began, most managers took strong long positions, following the general “Uptober” trend. But many have already been fully allocated, so the problem remains. Who will put in the additional capital needed to push the market higher by the end of the month? As of now, the answer is unclear.
Crypto Insights Group’s monthly report, which surveys dozens of liquid cryptocurrency funds, shows the highest conviction levels this year across various time periods, reflecting the sentiment of fund managers and allocators alike.
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None of this is surprising. As we have previously highlighted, 2024 feels like a year of transition. Institutions are becoming increasingly familiar with Bitcoin spot ETFs. This not only broadens accessibility, but also strengthens regulatory acceptance of the industry and will soon allow options to be traded. Attention now turns to what crypto-based companies have been quietly building and how non-crypto companies are integrating web3 technology into their technology stacks. It is clear that not all innovations require tokens. This is a reality that both cryptocurrency startups and VCs are starting to accept. October brings more pressure than many people realize. From “Uptober” to managers strategizing ahead of the US election, these are the key topics in this year’s newsletter. This sentiment is reflected in the chart below, which shows that while about 55% of fund managers are not particularly concerned about the election, 45% are watching the results closely before adjusting their allocations.
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That means only about 15% of managers believe a Democratic victory would be a disaster. This is a minority who may not share this newsletter’s eternal optimism.
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It seems more likely that a Democratic victory would slow regulatory progress during the next presidential term, giving other regions an advantage to gain a stronger foothold in the cryptocurrency space while the United States lags behind.
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Let’s find out more about the market story! Non-farm payrolls results were released this morning, sending Bitcoin higher. “The strong NFP report has shifted traders’ confidence to a 95% chance of a 25bp rate cut in November,” said Josh Lim, co-founder of Arbelos. Volatility is possible ahead of the weekend. As Josh points out, “Deribit’s one-day options indicate concerns about potential retaliatory action from Israel. Options on Saturday reflect implied volume of 44 compared to 37 on Sunday and Monday.” For those new to options, implied volatility is a measure of expected price movement. Higher volatility means greater price fluctuations in the future.
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In addition to cryptocurrency-related concerns, traders are also paying attention to broader macroeconomic indicators.
“VIX front-month futures stayed above 20 volumes all week, especially with Chinese stock markets closed for Golden Week,” Josh said. For reference, VIX futures tend to average around 20, so a rise above that level signals increased market caution.
The combination of these factors suggests we could see increased market activity over the weekend.
The Block’s Frank Chaparro provides the latest headlines, charts, trends, and views on cryptocurrency and DeFi across The Block, Twitter, and The Scoop pod. Subscribe to The Scoop newsletter delivered to your inbox on Tuesday and Friday mornings.
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