During the National Day holiday, the White House said Iran was preparing to attack Israel; the United States was actively supporting Israel in its defense preparations to deal with the attack. The news caused a sharp increase in volatility and a sharp drop in the market.
This reminds everyone of Iran's retaliatory attack on Israel in mid-April, which drove Bitcoin to over $50,000 that weekend.
Recently, the trends of Bitcoin and U.S. stocks have diverged from liquidity. Risk appetite has surged but liquidity has declined. Institutional portfolio adjustments at the end of the quarter are also an important influencing factor, which will bring fluctuations to the market.
The short-term trend is ahead of liquidity, but it cannot always diverge from it. Liquidity must also be able to keep up. Therefore, it depends on whether the liquidity situation improves after entering October. In addition, the US stock market has entered the earnings season in October, and this fundamental-driven logic will prevail in the short term.
Under ideal circumstances, this would be the best scenario, so we'll have to wait and see.
The Fed’s interest rate cut can also make everyone feel at ease. The market will not continue to fall. Friends who have spot goods and are stuck, don’t be anxious, keep a steady mind and wait for the market to improve.
From a broader perspective, as long as the war does not escalate, the cryptocurrency market should return to its previous upward momentum.
If the war does not escalate, the market is expected to rebound soon. At this time, everyone can adjust their positions, pay more attention to what the official says, and know the latest situation. Although the war may make the market a little chaotic in the short term, in the long run, the bull market momentum should not change. Generally speaking, as long as the war does not spread and the market recovers, the bulls will still have the final say.
Most of the altcoins are similar. If Bitcoin falls by 10%, the altcoins will fall by 30%. Only a very small number of them can follow independent trends, such as SUI. Its recent performance is really eye-catching. The unlocking of large amounts of tokens has not been able to pull it down, and the trend is getting stronger and stronger. In the long run, it will break new highs soon. You can continue to pay attention to it.
Meme may be the one that fell the hardest, and it may also rebound the fastest. As I said before, every pullback of meme is an opportunity for us to get on board. As long as you dare, meme will definitely bring you surprises in this bull market. It is a must for everyone to have one or two. FLOKI, PEPE, BOME, and WIF are preferred, and the shit combination depends on the situation.
There is nothing much to say about BNB. When viewed as a stablecoin, everywhere is the cost point.
SOL is also following the trend of the market. It has been a long time since there has been any good news. Just buy the bottom on the left side at a low level.
For other sectors, AI, Inscriptions, and then Chain Games are the second choices. As I said before, look at the leaders. It is recommended to wait and see at present. The correction has not stabilized yet. For short-term trading, enter the first position. After 10% and 15%, reduce your position depending on the situation.
Recent events that require attention:
1. October 4, US non-farm data and unemployment rate.
2. On October 7, FTX voted on repayment of $16 billion.
3. October 10, US CPI data.
4. October 22, FTX repayment hearing.
The US election and global liquidity may become key positives!
As Election Day approaches, this election cycle has many “firsts” for the cryptocurrency industry. First, the crypto industry has become a major topic in political discussions and campaign financing.
The following chart shows the relationship between the changes in the Republican victory probability on Polymarket and the change in the price of Bitcoin (as a proxy for the overall crypto market performance) over a three-day period. Different election stages are marked with different colors: gray represents the initial stage (before June 26), red represents the Republican momentum stage (late June to late July), blue represents the Democratic momentum stage (late July to mid-August), and black represents the final stage (since mid-August).
If the market were pegging cryptocurrency prices directly to the Republican odds of winning, the points in the graph should form a 45-degree line that slopes upward. Similarly, if they were pegged to the Democratic odds of winning, the points should form a similar but downward-sloping line. However, the graph shows a scattered cluster of points, indicating that so far, no clear, consistent trend has emerged between election results and cryptocurrency prices.
This dynamic is reflected in the different colored phases in the figure. Although the relationship is stronger during the Republican momentum phase, it still only explains less than 20% of Bitcoin's price fluctuations. This does not mean that elections are not important for cryptocurrency price movements. On the contrary, this relationship is likely to become more pronounced as election day approaches. However, this inconsistent relationship also shows that other key factors still dominate the price movements of the crypto market.
Interest rate outlook hints at new pattern for cryptocurrency prices
The recent global liquidity shift has boosted global markets, including cryptocurrencies. The strong start to the Fed’s new rate-cutting cycle, coupled with China’s unexpected market-boosting measures, are likely the main drivers of the recent cryptocurrency price gains.
Unlike stocks, cryptocurrencies lack rich historical data to measure return performance in different interest rate environments. However, analyzing the relationship between cryptocurrency prices and interest rate environments is still instructive. The figure below shows the effective federal funds rate and the fixed-term yields of Treasury bonds from 1 year to 30 years. To provide context, the chart below shows the US dollar price of Bitcoin on a logarithmic scale and annotates market cycles with different colors: green represents the bull markets of 2016-2017 and 2020-2021, and red represents the bear markets of 2018 and 2022.
This chart suggests that the current combination of a widely expected “soft landing” and lower interest rates will create an unprecedented macro environment for cryptocurrencies. This scenario is different from the industry-led cycle of 2016-2017 and the COVID-era 2020-2021 rate-cut-driven surge.
As such, macroeconomic factors are expected to have a significant impact on cryptocurrency prices in the near term, as indicated by the growing correlation between cryptocurrencies and broader risk assets.
While factors such as geopolitical tensions and supply-demand imbalances may still affect the market, the main drivers most likely to determine the direction of the market over the next two to three months will continue to be the upcoming elections and global liquidity conditions. How these trends will develop will be apparent in the next critical period.
