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Coinbase Institutional Head of Analysis David Duong joins host Jennifer Sansie to debate macro components, why March will likely be an enormous month for crypto market actions and why ether is an important a part of a 2024 crypto portfolio allocation.
This episode was hosted by Jennifer Sanasie. “Markets Day by day” is govt produced by Jared Schwartz and produced and edited by Eleanor Pahl, alongside Senior Reserving Producer Melissa Montañez. All authentic music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and will comprise errors.
JENNIFER SANASIE:
Let’s simply get a fast response to what you heard happening within the markets this morning. What are you watching?
DAVID DUONG:
Yeah, I feel that there is a variety of technical components which can be driving efficiency for the time being. And I consider that a variety of them are beginning to really fade. So if the macro backdrop stays optimistic, which to date it has, and I feel that that is the proof we’ll get from the Fed coming this afternoon, we may really be up for a fairly constructive outlook for the following few weeks.
JENNIFER SANASIE:
There was a report that got here out just lately that mentioned that market watchers could be too optimistic about upcoming charge cuts. What are your ideas there?
DAVID DUONG:
So, I really feel very strongly that we’re in a disinflationary interval. And I feel there’s been some concern that attributable to type of like transport points, like issues within the Crimson Sea, for instance, which have type of probably put strain on inflation to the upside, I do not actually see that. I imply, primary, transport prices do not really add that a lot to the fee, remaining value of products. I imply, we’re speaking like single digit percentages. So I imply, we have type of over listed a bit bit to what occurred in the course of the pandemic. And, you recognize, a variety of that did not should do with simply the problems with provide chain, however had rather a lot to do with the really producers of these items. And in consequence, we are likely to have this factor in our minds of, properly, that implies that, you recognize, anytime there’s any points with transport, that provides to the worth of the products, and due to this fact, inflation must go greater. The fact is, that does not are likely to occur until you see one thing taking place with the producers themselves. And in that case, China was nonetheless shut down, probably not producing, they weren’t capable of get their items out anyway, they’re like, Effectively, you recognize, we’ve COVID pandemic to fret about. So I feel it is rather more necessary proper now to be wanting over overseas and seeing what’s taking place within the Chinese language financial system. And sadly, they’re, you recognize, nonetheless struggling, not capable of give sufficient stimulus to their financial system, items costs are very more likely to come down. , we’re gonna profit from that as the remainder of the world. So I feel that is one thing to type of bear in mind right here that yeah, it is, you recognize, dangerous for the Chinese language financial system, however very doubtless, it is solely going to assist the disinflationary tendencies that we’re seeing.
JENNIFER SANASIE:
Break that down much more for me, what do you count on to listen to from the assembly right now?
DAVID DUONG:
So I feel the Fed is listening to this, they perceive this core PCE got here in keeping with expectations, for instance, there’s not a lot commerce off as far as by way of exercise versus inflation. And I feel that is type of the important thing as a result of we’ve not needed to sacrifice something to get the, for essentially the most half, fairly good ranges of development that we have gotten. And that is necessary, as a result of had it been like every other scenario, and we all know why this has occurred, proper. Lots of this needed to do with procyclical spending by the U.S. authorities. Had it been every other scenario, I’d have mentioned that the Fed would say like, “Effectively, we needn’t do a lot the environments really okay,” however as a result of we all know it has been pushed extra by the fiscal facet, and we all know that that enhance is beginning to type of go to the, you recognize, transfer to the again seat. I feel the Fed’s properly conscious that, you recognize, if there is a continued disinflationary pattern development goes to begin slowing down and perhaps we’ll keep away from a recession, however development goes to begin slowing within the first half of this 12 months, they’re very doubtless going to wish to do one thing, or be behind the curve. So I feel, for me, I am anticipating the Fed to say that, you recognize, charge cuts are nonetheless going to be within the image. I do not assume they are going to utterly low cost the concept of a March charge reduce. , however very doubtless it may occur someday between March or June.
JENNIFER SANASIE:
You famous just lately that March might be a pivotal macro month for different causes aside from charge cuts. Unpack that for us.
DAVID DUONG:
Yeah, I feel there’s rather a lot that’s going to occur beginning in March. And you recognize this for crypto, in fact, we’re going to be anticipating the bitcoin halving, which remains to be going to be a really pivotal level. And, you recognize, there’s a variety of type of unintended penalties of what we have seen rising from the spot bitcoin ETF. And a part of that has to do with what’s occurred within the miners contingent, for instance, we noticed a variety of miner promoting, which added to the strain that we have had in previous couple of weeks, for instance, I feel that that might probably be one other subject as we get nearer to the having. In all probability put up having when the extra environment friendly miners are going to be required to proceed, you recognize, both consolidate with different companies or discover a strategy to type of maintain themselves, I feel that that is going to be in all probability a key subject. And that is one thing that is in all probability going to be realized nearer to the March timeline. If the Fed cuts charges across the similar time, although, like this can present very favorable context for the remainder of the crypto ecosystem. So I feel that is gonna be necessary. That is additionally in all probability going to be proper across the time once we’ll begin listening to extra in earnest from the SEC concerning the potential for a spot ETH ETF, despite the fact that the primary deadline for that, and I feel that is for VanEck goes to be on Might 23. So I feel that there is going to be rather a lot that we’ll have to unpack once we get in direction of the March interval.
JENNIFER SANASIE:
I am glad you introduced up these ETFs we took a take a look at costs this morning. And the worth of bitcoin did not actually react to the spot bitcoin ETF the best way everybody was anticipating it to on the finish of final 12 months, what do you make of the sluggishness of bitcoin’s worth after that approval?
DAVID DUONG:
Yeah, so I feel lots of people are type of simply watching the brief time period flows. And I am not the primary particular person to say this, I feel that we’re paying a bit bit an excessive amount of consideration to the brief time period flows, and never sufficient consideration to what we’ll see as you recognize, actually transformative modifications within the subsequent, like, medium to long run. However proper now, there are a number of sorts of offsetting points which can be driving these flows beneath expectations, or perhaps if not beneath expectations, definitely, you recognize, it is it isn’t what folks wish to see by way of just like the the large numbers. Up to now the the flows themselves have been pretty respectable, really. However there’s been a variety of rebalancing, there’s been folks shifting away from much less environment friendly bitcoin holding autos to extra environment friendly ones, i.e. ETFs. There’s been a rotation away from like greater payment merchandise in some jurisdictions, to decrease payment merchandise within the U.S., as a result of you recognize, a variety of what’s popping out by way of the ETFs within the U.S. are cheaper. You additionally had, in fact, the liquidations from FTX. That was fairly vital so far as their 22 million shares in Grayscale. I feel that it was additionally necessary to notice that, you recognize, there was a variety of buildup by way of, you recognize, folks shopping for spot forward of those ETF launch, or the launches of those ETFs. And, you recognize, in all probability hedging themselves with brief CME futures. So that they have been enjoying the bases, a variety of that is now been unwound. So I feel that is why I take a look at this and say, properly, the technical setup seems to be rather a lot higher than the place it was a number of weeks in the past, as a result of the FTX liquidations, for essentially the most half appear to be performed. There are nonetheless some unknowns right here, as a result of like 3 Arrows Capital, which, you recognize, went unsolved, and naturally, they’re nonetheless coping with their liquidation proceedings. I feel that that they had at their peak, like round 38.9 million shares of Grayscale. We do not understand how that is going to go down. So there are nonetheless some issues in there that we’re not absolutely certain of the way it’s gonna work out. However for essentially the most half, I feel for this reason we have began to type of come again right here slowly, so far as bitcoin costs.
JENNIFER SANASIE:
You talked about that ETH deadline for the spot ETF, in fact, amongst all the hype for the spot bitcoin ETF, the worth of ether was pumping, as a result of folks have been wanting ahead past bitcoin. Now Customary Chartered mentioned that they count on that approval to come back by way of in Might and the worth might be as excessive as $4,000. I’ve heard another market watchers say, you recognize, it may take a bit bit longer. Let’s not get too optimistic right here. What do you assume the story is for ether main as much as Might? And do you assume that we’ll see an approval in 2024?
DAVID DUONG:
So I feel the chances of an approval are very excessive to see at the very least one if not many, spot ETH ETFs. Nevertheless it’s not going to look precisely just like the spot bitcoin ETF approval, and there is a few issues that type of go into that. Primary, I feel we’ve to bear in mind that lots of people are wanting ahead to identify ETH ETFs to really embody some type of staking, which very doubtless they will not. A minimum of within the first occasion. And there are just a few problems to that extra on the authorized facet than there are on the procedural facet, as a result of we all know that there are Trade Traded merchandise, at the very least in Europe that do embody staking of their their ETH product. However, you recognize, there that does not say that there is not challenges to the custody, to the tax implications of this that also have not been thought by way of. So I feel that that type of provides to it. But when you do not have staking in that product, it is very onerous to distinguish the ETH spot product from the bitcoin spot product. And I feel that type of goes into the minds of institutional traders as properly, who I feel they perceive bitcoin as a macro asset fairly simply. However while you go into ETH, then you definitely’re speaking about one thing utterly totally different, as a result of then it’s important to actually perceive the Web3 ecosystem. What does that characterize? And there is rivals on the market that already pre constructed like, we’ve to cope with the entire like Internet 2 ecosystem to love compete with. So for proper now, I feel individuals are nonetheless type of taking a look at one thing like Ethereum. And this is not simply Ethereum, this sort of entire, like layer 1 slash layer 2 type of platform performs anyway. However they’re taking a look at that extra as rivals, to love upstarts, to the present type of paradigm we’ve with tech. So I feel that is what sort of makes it onerous for the case for Ethereum, which is not to say, I do not assume there’s gonna be enclosed, I feel there will likely be, I simply do not assume that they are going to in all probability be on the similar order of magnitude as bitcoin, for instance. So I am very optimistic, I feel that that is going to be an necessary a part of it. However I additionally do not assume that is solely why folks want to ETH proper now on. ETH has been, for essentially the most half, not properly beloved, I feel for the higher a part of like, the second half of final 12 months, and even even, I may say, a bit bit into January. And partially, you recognize, that is as a result of a variety of crypto native gamers have been in all probability not absolutely benchmarked to, or relatively did not have like the total complement of holdings within the bitcoin. So the to seize alpha, they moved additional out the chance curve went into the altcoin house. In the meantime, heavier establishments who have been anchoring on bitcoin. So Ether, type of like existed in this sort of, you recognize, like black gap a bit bit. Now, I feel that we’ve a proper asset class due to the spot bitcoin ETFs. In consequence, I feel if you do not have ETH, as a result of there’s two key belongings within the asset class, whether or not you prefer it or not, it is bitcoin in it is ETH. Like it’s important to have some ETH your portfolio as a result of if you happen to do not, that represents actual profession threat. Like if you do not have Solana, if you do not have AVAX, if you do not have all of the L1s that they carry out, yeah, that is efficiency threat in your portfolio. If you do not have ETH, then your boss will ask you, Hey, why do you not have ETH in your portfolio? And I feel that’s going to be a much bigger drawback.
JENNIFER SANASIE:
All proper, David, we do should wrap however I’ve to ask you in a short time, what you assume the largest false impression is about crypto markets proper now.
DAVID DUONG:
So I feel that lots of people consider that we’re type of over listed on bitcoin proper now. And I do not consider that is true. I feel that the following wave of like, you recognize, there’s gonna be necessary, like idiosyncratic catalysts. And I am pondering not simply the halving, however I feel the context across the halving itself are going to assist like this, this ecosystem extra, I feel that there is really much more upside for bitcoin, as a result of we’re beginning to hit that provide wall. So if something, I feel that it is nonetheless necessary to type of hold bitcoin within your portfolio. And I do not assume we’re performed with the upside transfer simply but. However that mentioned, Yeah, you recognize, like, somebody requested me simply yesterday, like, hey, what else ought to I be taking a look at, for the time being? Ought to I be like, which altcoins are necessary? Like, ought to I be listening to the launch of Jupiter, for instance, and like, airdrops are coming? Like, are we nonetheless in airdrop season? I feel that we are going to see that within the post- spot bitcoin ETF surroundings, it may be an enormous deal. As a result of primary, the seek for yield goes to be much more, it may in all probability anchor much more on DeFi. That is gonna be vastly necessary as a result of, frankly, you will not have the identical type of like straightforward trades, just like the money and carry commerce that folks would play by way of like, going lengthy bitcoin, spot promoting the CME futures, for instance, like, that is not in all probability going to come back again in the identical method, you recognize, like, it is already we’re already seeing type of extra depressed ranges there, and you are not going to see the identical spike-ups there anymore. So you are going to have to do one thing else. And if the Fed’s chopping charges, and to illustrate we’re down like 4% by the top of the 12 months, for instance, you are going to want to seek out different methods to type of seize that. So I feel like borrowing lending and DeFi these issues are gonna develop into much more engaging. ETH’s gonna be like a, I feel, a winner in my e book for the primary half of the 12 months. And I additionally assume that in all probability we’re gonna see much more folks rotate in two apps away from type of simply pure platform performs. And that could be expressed by way of locations that you could type of seize that as a result of you are going to attempt to seize sectors, I do not assume you are going to you are going to attempt to seize the last word winner as a result of I feel that is nonetheless robust. What I imply by that’s you are going to attempt to discover a strategy to play the gaming proxy, relatively than attempting to love decide the triple A recreation that is going to finally win right here as a result of we do not know. However I feel that is what is going on to be necessary for 2024.
JENNIFER SANASIE:
David, thanks a lot for becoming a member of the present this morning. That was Coinbase institutional Head of Analysis David Duong. That is it for right now’s present.