Von Kenny Hearn, Chief Investment Officer SwissOne Capital
As the Digital Asset market closes off the year in style, we thought it prudent to study one of our favourite charts in our final Boost of the year. As we have shown in the past, Stablecoins as a percentage of Total Crypto Market cap is a strong indicator of (1) where the market is in its cycle, (2) how much upside/downside potential there is, and (3) what is required to get there. We find a clear inverse relationship between the Stablecoin market cap size relative to the Total Crypto Market Cap size, detail we have discussed in previous Boosts.
The current Stablecoin percentage of Total Market Cap stands at 8.5% and the last time it reached this level was approximately 20 months ago.
There are two elements to recognise when figuring what could drive the market from this point forward:
1) How much cash is in the system already that could drive the Total Market Cap higher (taking into account the potential use of leverage)?
2) How much «new» of «fresh» cash from outside the ecosystem coming into the ecosystem could drive the Total Market Cap higher?
Clearly this is not an exact science given all the moving parts, however, we found that the Stablecoin market cap has in fact increased by +4% ($123bn to $128bn) since October 2023 (around the time the market broke out higher). Therefore, the recent market moves have not necessarily been driven yet by a move from Stablecoins into the market. By all accounts, we also find that leverage ratios across the board remain relatively unchanged since the recent market moves.
The conclusion we therefore draw is that the recent market moves have been driven by «fresh» cash making its way into the crypto ecosystem.
What then are the possibilities as to where this ratio could end up and what impact would that have for the UPSIDE from where the market currently stands assuming the Stablecoin market cap remains relatively flat. We see the next levels being the first standard deviation currently at 6.8%, then 5% level (last reached in Nov 21), and finally the second standard deviation at around 3.0% for our «golden» ratio.
These percentage levels translate into the following UPSIDE for the entire market:
6.8% – Total Market Cap +25% (BTC: $53k)
5.0% – Total Market Cap +70% (BTC: $71k / ATH)
3.0% – Total Market Cap +183% (BTC: $120k)
We suspect that the first standard deviation could quite easily be reached in the short term on the current move higher purely driven by the current momentum of new cash flowing into the ecosystem, in other words, potentially $53k in the next month or so.
A significant catalyst (i.e. positive news on the US Bitcoin ETF) would be needed to get to the 5.0% levels in the first 6 months of 2024.
Finally, to reach the 3.0% level, strong demand from both existing cash flows into the ecosystem coupled with significant new cash flows entering the system (driven by ETF flows) in conjunction with high leverage would be needed post the Bitcoin halving event.
Certainly, one should not rule out the potential and probable likelihood of a move back towards the average (11.2%) after touching the first standard deviation, thereafter, the latter requirements would kick in to move the market further in a positive direction.
Our 2024 predictions will follow in the next couple weeks via our social media channels – follow us for more insights.
Wishing everyone a prosperous 2024 and further gains!
Bitcoin Technical Outlook: Literally the day after posting our last outlook pertaining to the fact that BTC had tested $38k in a short space of time and that we expected a break through this level to be inevitable – it happened. As suggested, due to minimal levels of resistance to the $42k level, we expected a swift move to that level which has occurred. The market is now at a level where many late arrivals to the market in the previous cycle are now back in the black. That means a natural pause should ensue as these late arrivals ponder their next move. Some may sell and breath a sigh of relief while others may just hold and wait. Time will tell. Support levels at $38k and $35.5k are strong while $48k and $52k levels are the next resistance levels. We suspect at this point, moves higher to those levels before a retesting of these lower strong support levels to be more likely. (SwissOne Capital/mc/ps)
Why SwissOne Capital?
SwissOne offers seamless access in to the Crypto Asset ecosystem via traditional market channels. Offering the Top 50 Crypto Assets momentum-weighted as well as Smart Metaverse strategies, SwissOne brings you direct and sensible exposure to this uncorrelated and high growth asset class. Operating with institutional-grade European financial service providers, there is a safe and secure passage from traditional markets into Crypto Assets.