CoinShares (OTCQX: CNSRF) noted in an analysis this past week that Bitcoin prices have now returned to levels last seen in June of this year, after what they view as a somewhat puzzling correction. CoinShares also mentioned that from the recent peak, prices have dropped about 16%, while similar risk assets, like the Nasdaq index, are down merely 2% during the same period. The European asset manager now believes that the latest correction, and the subsequent liquidity cascades seen earlier this month, are still reverberating through the industry, “prompting some crypto-natives to further liquidate.”
In CoinShares’ view, there is now a “substantive and growing disconnect between prices and fundamentals.” The backdrop for Bitcoin in particular remains “remarkably” constructive. This, as economic weakness continues to show via the seemingly narrow lens of Fed surveys, particularly the Philadelphia and New York Fed surveys, both of which significantly “missed expectations to the downside, pointing to much weaker business sentiment.”
CoinShares further noted in its analysis, released on October 17, that broader economic data remain obscured by the ongoing US government shutdown, which has “delayed numerous data releases.” Investors in the US and abroad actually rely heavily on these critical data points to make more well-informed decisions, but they have been forced to work without them for now.
Polymarket data highlight rising skepticism over the shutdown “being resolved anytime soon, with the probability of it lasting over 30 days now at 82%.” This is quite concerning as it may have major negative impacts on not just the US economy but the broader global economic outlook as well.
According to the analysis, this would potentially “break the record for the longest shutdown and underscores the degree of government dysfunction.”
Meanwhile, regional bank stocks in the United States have sold off over the past few days, “echoing the turmoil seen during the regional bank collapses of March 2023.”
Together, CoinShares said that these developments have considerably heightened concerns about the economy, “with futures markets now aligning with their expectations for two additional interest rate cuts this year, one on 29 October and another in December.”
CoinShares also stated that fund flows have been remarkably resilient, with week-to-date “inflows of US$40M.” But this figure masks $588M in outflows from Bitcoin ETPs, “relatively modest compared to prior corrections of similar magnitude (for example, the late-February price decline, where we saw US$2.9B in outflows).”
This suggests that selling pressure is likely “coming from crypto-native investors rather than ETP holders.”
Regarding the trigger of the correction, namely the US/China trade tariff announcements, poses “a greater long-term risk to equities than to digital assets, given the potential for earnings compression among traditional corporates.” However, this is also debatable considering that Bitcoin and crypto seem to trade more like tech stocks and risk assets instead of perceived safe havens like gold.
Bitcoin, by contrast to Altcoins mostly, remains “relatively insulated.”
Moreover, the renewed stress in US regional banking institutions could once again “provide support for Bitcoin, as investors look to diversify away from the traditional financial system, just as they did in March 2023.” But investor behavior and trading activity remain unpredictable and excessive leverage has proven to be a major destabilizing factor.
Overall, sentiment remains bearish across digital assets for now at least, though CoinShares said that they believe this stems “largely from extraneous factors.”
The fundamental support for Bitcoin and the broader asset class, such “as the government shutdown, weakness in regional banks, and the prospect of looser monetary policy, remain firmly intact.”
It’s worthwhile to note that BTC has already surged past $111,000 at the time of writing. As a new week begins, there could potentially be more rate cuts to be announced by the Fed. Additionally, there could be more updates about China and tariffs, which could send markets surging or dropping again. Overall, the macroeconomic situation remains fairly uncertain.
