The tides are turning

We believe crypto markets are poised to move higher from here. There are several factors playing out at the same time, that in aggregate, are supportive for crypto assets going forward. Therefore, we strongly feel that it is time for allocators to leg into  positions and take advantage of current market conditions.

Flows are moving in the right direction:

After several months of outflows in Bitcoin ETFs, coinciding with the market’s drawdown, flows are reversing lately. ETFs are now among the largest holders of Bitcoin, and net flows therefore are a significant driver or price action. We expect the positive trend to continue under current conditions.

Our proprietary, adaptive-learning models have flipped positive:

These models follow various markets, prices, trading volumes, and other data as they learn over time to filter out the most predictive indicators for future price action. The models aren’t perfect, but they tend to work very well over time. Our backtests indicate significant Sharpe ratios and market performance vs traditional CTAs. And now the signals are aligning and pointing to more upside.

But what about all the geopolitical risks on the horizon?

Well, it turns out Bitcoin has outperformed most assets including “diversifiers” during the latest Iran conflict. Whilst stocks, gold, and treasuries underperformed during the onset of the conflict, Bitcoin held up well. In general, we see decreasing sensitivity to macro drivers in digital assets, which means increased diversification benefit for the rest of investors’ portfolios.

Inflation is expected to increase again, as can be observed in market pricing of US breakeven rates. Despite the widely spread narratives of the late 2021-episode that Bitcoin failed its objective, it has outperformed inflation materially in the past when measured accurately. But it was historically important to time the trade because digital assets lead other markets by at 4-8 months! In the 2021/2022 episode, many pundits measured bitcoins performance during the rate reset, rather than measuring it from when actual crypto investors were banging the table about inflation. The latter is the true test.