Coinbase Institutional, the specialized investment division of the renowned cryptocurrency exchange, has predicted a market revival as December approaches. In their latest report, they cite the U.S. Federal Reserve’s return to bond markets as a promising development for risk assets, potentially signaling an end to stringent monetary measures.
Crypto’s November Downturn: What Happened?
November was a particularly challenging month for cryptocurrencies, marking one of the sector’s weakest periods in recent years. Bitcoin’s performance, notably below its 90-day average by a substantial margin, lagged behind traditional stocks, which experienced a relatively milder downturn. Spot ETFs witnessed unprecedented outflows, and stablecoins’ 30-day supply momentum hit new lows for the year.
Can Federal Moves Drive a Crypto Rebound?
The Federal Reserve’s actions, specifically anticipated rate cuts and an increase in liquidity, could potentially channel funds back into the crypto space in December. While a complete market recovery might take some time, the groundwork for a shift is being laid.
In recent weeks, long-term crypto holders pivoted from accumulating to offloading Bitcoin, and crypto-centric treasury entities started trading below their net asset values. Despite these bearish signals, Coinbase remains optimistic about a forthcoming turnaround by year’s end.
The report also delves into the “K-shaped” economic outlook, emphasizing the dichotomy where technological advancements may elevate corporate profits while eroding individual financial security. Yet, the direct consequences of this divide on crypto markets remain ambiguous.
James Lavish, a former hedge fund manager, shares a similar perspective, stressing that diminishing dollar values due to Fed policies could benefit cryptocurrencies. The U.S. Dollar Index has already dropped by over 10% this year, with further declines expected.
The Federal Reserve’s recent liquidity injection, amounting to $13.5 billion, indicates a significant increase in monetary supply, second only to interventions during the COVID-19 crisis. This influx suggests a shift toward more accessible funding conditions.
In observing these financial dynamics and market responses, key takeaways include:
- •Record-low momentum in stablecoin supply for the year.
- •Potential Federal Reserve policy shifts in favor of easing in December.
- •Notable increase in liquidity post-COVID, second only to pandemic-era interventions.
Coinbase maintains its optimism, envisioning a crypto market rally with the onset of December, bolstered by favorable federal monetary policies and renewed investor interest.