The Breakdown - Is Uptober On the Menu for Bitcoin?

Episode Date: October 2, 2024

October is historically Bitcoin's best month. After coming off a stronger-than-usual September, however, and facing down macro and geopolitical uncertainty, will the Uptober trend appear once again? Unlocking Bitcoin DeFi with ExSat The exSat Network aims to unlock and scale the Bitcoin ecosystem without compromising Bitcoins Ideology. The network has partnered with the largest mining pools in the world, major custodians and exchanges, Cefu, Cubolt, Matrixport, Copper, OKX and aims to have over $200M TVL at mainnet launch on the 23rd of October.  Follow exSat’s Twitter to stay up to date @exsatnetwork or visit the testnet exsat.network Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Tuesday, October 1st, and that means, you know, we are talking about October. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to Bit. Y slash breakdown pod. All right, friends, well, it is officially the start of the best month of the year for crypto markets, historically speaking at least, which is October. Over the years, October has been the best month of the year for Bitcoin with an average price gain of 22.9%. There have in fact

been only two red octobers coming in 2014 and 2018 during bitter crypto winters. Since 2020 in the beginning of the mainstream Bitcoin era, October has been even hotter. Bitcoin rose by 25% on average across those four years. Seasonality might be a meme, but it is an extremely popular one. Jeff Park, the head of Alpha Strategies at Bitwise, tweeted, now that September has officially ended, it is time to prepare for October. Sorry, bears, I don't make the rules. It's just rock-hard science. What's interesting, however, about this year's seasonality is that September weakness never really materialized. The month began with a steep drawdown that tapped range lows, but Bitcoin spent the rest of the month in a strong uptrend. The monthly candle closed up 7.3% according to Bitstamp data.

For any other month, a 7% bump would be nothing to write home about. For example, it was only the fourth best month so far this year and well below the average monthly price gain. But for September, this is staggeringly good. This was the best September on record and one of only four that ended in the green. The last three times, 2016, 2017, and last year, positive September did lead into a strong Q4. But what have we seen so far? Well, we can't really talk about Bitcoin price action without digging into the Monday wobble. Rather than closing the month strong, Bitcoin hit a rough patch on Sunday night into the following morning, losing around 4%. There's a range of choices around the specific catalyst, but they can all be summed up as

rising fear of an economic slowdown amid large macro shifts. The first big event was the Japanese government installing Shigeru Ashiba as their new prime minister. The selection was something of a shock, with Ashiba being an outsider to the dominant faction within the ruling Liberal Democratic Party. Ishiba represents two big shifts for Japan. He is a form of a form of a shock. He is a form of a shock. former defense minister and campaigned on the idea of forming an Asian version of NATO, as well as continuing to strengthen the Japanese armed forces. On economic policy, Ashiba is believed to be a supporter of the Bank of Japan's attempt to normalize interest rates. You'll recall that a single BOJ rate hike in August sent the yen's skyrocketing in royal global markets. The BOJ has since

backed off from their normalization plan, guiding markets that they won't hike rates for the rest of the year. Still, Ashiba's appointment spiked the yen and set the Japanese Niki index down 5% on Monday. Presumably, markets are starting to price in another rise in Japanese rates. In his first action after winning leadership, Isheba called a snap election to be held at the end of this month. Provided he wins, Asheba could take office with a mandate to normalize monetary policy in Japan, which would fundamentally change the funding mechanisms of global finance. The second event was a speech from Fed Chair Jerome Powell on Monday afternoon. Powell largely repeated his narrative from the September meeting, insisted the Fed is in no

rush to bring rates down. He specifically guided to the dot plot stating, if the economy continues to perform as expected, we're looking at two more rate cuts by year end, both 25 basis point cuts. While this isn't a change in stance from Powell, it rejected market positioning, which had been leaning towards another 50 basis point cut at the November meeting. There's not really any data that clearly demonstrates a slowdown in the U.S., but with emergency intervention ramping up in China, it wouldn't be unheard of for the Fed to lean a little more doveish. Brent Donnelly of Spectrum markets thinks Powell is simply playing his cards close to the vest, tweeting Powell reinforced what the dots said today so that it's dovish when he unilaterally cuts

50 basis points again. Joseph Fahmi of Zora Capital believes Powell is dealing himself out of this round, commenting, summary of Powell's speech, we're propping up the market and providing tons of liquidity ahead of this poop show of an election. We don't care about economic data and neither should you. Smoke them if you got them. On top of all of that, Hurricane Helene carved a trail of destruction through the southeast over the weekend, decimating multiple towns. We also had breaking news overnight that the Longshoremen's Union has gone on strike, which is expected to shut down 36 ports along the eastern Gulf coasts, disrupting international shipping and supply chains. Both of these events will likely scramble economic data and make it extremely difficult for the Fed

to decide their next move. And so while it's not as though a dockworker strike impacts Bitcoin directly, all of these events are feeding into uncertainty in the macro picture. Last week, the narrative was alignment amongst global central banks to boost liquidity and a straight shot to all-time highs. By next week, I'm sure there will be an entirely different narrative, but for now there's just a lot of new question marks. What's more, shifting back to our small corner of the global markets. Some are suggesting traders got a little over-enthusiastic about October. Earlier this week, on-chain analytics firm Santiment published their latest review of social media trends. They found that bullish posts overwhelmed the bearish by almost two to one.

What's even more notable is how quickly sentiment turned around. Over the past three weeks, as Bitcoin pumped by over 20% off the local bottom, sentiment rapidly shifted. At the end of last week, the ratio between bullish and bearish posts hit a six-month high, surpassing anything since Bitcoin's all-time high in March. Santiment wrote, If you're awaiting Bitcoin's new all-time high, it may need to wait until the crowd slows down their expectations. Markets historically always move the opposite direction of crowd's expectations. Hottomogu suggested, hey, if you guys could stop posting about Omega Candle in October, we might actually go up. Just saying, the enthusiasm also showed up in the order books.

Future's open interest had been ticking up slightly over the weekend, but it seems traders were caught badly offside by Monday's price action. $40 million worth of Bitcoin longs were liquidated, the largest wipeout since early September. Crypto Quant, head of research, Julio Moreno, said, Bitcoin's perpetual futures market data shows that there was a long squeeze in recent hours as long liquidations spiked. A long squeeze will tend to overshoot to the downside as liquidations forced the price down, causing more liquidations. Bitcoin captured a larger-than-usual slice of the market-wide deleveraging, suggesting that bets were skewed towards Bitcoin heading into October. That effect played out on the drawdown with long-tail alt suffering relatively less

than usual. All of this could suggest that Bitcoin is separating from the rest of the market with its own unique macro sensitivities, or it could simply be an indication that traders are not rushing to lever up alt coins after a few rough months. Plenty of commentators took this as a sign to go way out on the risk curve while others were a little troubled by the move. Shmawsby of APG Capital tweeted, Bitcoin Week, but alt's unbothered does give me concern, but I guess you dance when the music is on. This episode of The Breakdown is brought to you by XAT Network.

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security or transparency. The X-SAT network aims to unlock and scale the Bitcoin ecosystem without compromising Bitcoin ideology. Check out X-SAT.network or follow X-SAT on Twitter at X-Sat Network. That's X-S-A-T-N-E-T-W-R-K, and unlock Bitcoin Defi with X-Sat. Hello, friends. Before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for Cryptonatives by CryptoNatives, and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning.

Policymakers have pivoted from fighting crypto to embracing it. Literally now we are in a major political party's platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. and perhaps more importantly, I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use code breakdown 10.

Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use code breakdown 10 to get 10% off. Another sentiment gauge that many keep an eye on is Coinbase's rank in the app store. During the last bull run, Coinbase hit number one in both May and October of 2021, just days before Bitcoin hit cycle highs. This March, Coinbase surged back into the top 100 a week before Bitcoin made its all-time high. At the moment, the Coinbase app is hovering around the top 400. Definitely not a sign that crypto is back to being a front-of-mind retail phenomenon. The noteworthy part is that the app spent most of September outside of the top 500 after falling sharply from July.

This suggests that retail interest might be beginning to return and the trend is reversing, but it's certainly not super notable yet. An analyst calling themselves Bitcoin Data 21 has charted the ranking and believes that above 175 is the line for a raging bull market. A few weeks ago, they wrote, just like the previous cycle, the line 175 was not tested until all-time highs were attacked. In other words, more people start downloading the app when Bitcoin was testing all-time highs.

We are also now back down to bare market levels where retail is no longer interested, but with a price around 60K. This week, they added, getting a small bounce off the lows on Coinbase app ranking. early signs of retail investors returning for a Q4 rally. What's more, on-chain indicators support this thesis. Bitcoin transactions below 100,000 are still at around half the volume of their March peak. Network fees are stuck at cycle lows, and active addresses are below the 12-month average. Short-term holder supply has been declining over recent months, demonstrating a lack of new buying interest. At the same time, the cost basis for short-term holders is at around 63,000, which typically

provides strong resistance. Another interesting signal is the Coinbase premium. This is the spread between the quoted Bitcoin price on Coinbase compared to quotes on Binance. In previous cycles, this was used as a measure of demand from either U.S.-based liquid funds or retail customers. Since the launch of the ETFs, this metric has largely reflected price-insensitive demand coming in from those products. Late last week, the Coinbase premium hit a two-week high. Another North Star for sentiment is the Bitcoin ETFs. Last week's numbers featured a blaring signal that bulls were back in control. The Bitcoin ETFs gathered $1.1 billion in fresh investment the largest week since mid-July. The total was larger than the last two weeks combined. It capped off with almost half a billion on Friday. By Thursday, the numbers were already strong enough to generate some buzz, with Nate Garassi of the ETFs tweeting, nearly 400 million into spot Bitcoin ETFs today. For context, out of 500 ETFs launched in 2024, less than 25 have taken this amount in for entire year.

Flighty DGEN retail, apparently having a second look. Even the much maligned Ethereum ETFs caught a break, snapping a five-week run of negative flows. James Butterfield, the head of research at coin shares, gave the obvious insight. that they believe strong flows are, quote, a reaction to continued expectations of Dovish monetary policy in the U.S. And this is, of course, what makes Powell's neutral tone a problem for Bitcoin. Basically, although there's not necessarily a big reason for Bitcoin to go lower, there's also not a big reason for Bitcoin to push higher with Powell kind of maintaining this middle line. Now, if the Bitcoin ETFs are a decent gauge for overall sentiment for crypto, we might have found our new gauge to judge when things are getting out of hand. Last week was the first week of trading for a new ETF that offers 2x leveraged exposure to

micro strategy. For crypto-native traders who are used to pushing the leverage slider all the way to the right, this is nothing. But for Tradfai investors, this is a ton of embedded leverage on one of the most risky assets on offer. This isn't the first leveraged micro strategy ETF either. Another was launched in August offering 1.75X exposure. We've also seen similar products for Tesla and Nvidia stock in the past.

Why this matters is that these ETFs are doing numbers. Bloomberg's Eric Bocunis wrote, this is wild. The 2x micro-strategy ETF was launched a week ago and already has 72 million in AUM. For context, that puts it in top 20% of the 515 ETFs launch this year. Despite the 1.75x micro-strategy ETF having a head start and 375 million, which puts it in the top 8% of new launches. Both have robust liquidity too. I didn't think there was room for both, especially so quickly. It's just how much need for speed there is out there. What a country. In short, this performance validates demand, at least for something. It's probably a little simplistic to think this is demand for Bitcoin

as the fastest horse in the race. It could simply be another expression of ravenous demand for high-risk, high-leverage speculation. Either way, during this cycle, the fastest horse in the race now comes with a supercharger. And we now have a new ticker to watch for the signal that things are getting a little too insane. So with all of the mixed signals and multidirectional sentiment, is October still coming? Analyst at QCP Capital believe the positive trend will continue, eyeing a breakout above 70,000 as a trigger for further upside momentum. They noted bullish flows into equities as well, adding, China's CSI 300 index jumped by 9% last Monday, after introducing its largest property support package in years, and Goldman Sachs Prime Brokerage desks showed hedge funds positioning with three times as

many bets on rising IT stocks compared to falling ones. They flagged some concerns around earning season in the middle of October, which could force a reassessment of rich stock valuations. However, even if stocks hit an air pocket in a few weeks, QCP expects Bitcoin to carry momentum, adding, we expect Bitcoin to benefit from any equity retracement due to its nature as a risk-on asset amid global monetary easing. Essentially, Bitcoin is the purest bet on rising liquidity because it never misses earnings. So then where might we go? The price targets that people are willing to forecast are often a better gauge of sentiment than of any sort of real predictive power when it comes to price. In other words, it's not so much about whether the price target is achieved, but about analysts

being able to give eye-popping numbers with a straight face. Earlier this week, CleanSpark's CEO, Zach Bradford said, Based on my current analysis, I believe we could see Bitcoin peak just under 200,000 sometime in the next 18 months. That'll likely be a peak, but I do think we'll see a rapid jump

and then hopefully, an extended elongated period of it being up before we revisit a bare cycle. He added, one positive sign is that Bitcoin's extended flat period shows that sustained upside may last longer as well.

Of course, this is all subject to macro events and other factors. 200,000 is not exactly ridiculous as a longer term prediction for the cycle top. Earlier in the year, when Bitcoin was ripping, standard chartered felt comfortable to predict 150,000 by the end of this year. They've since

walked that back, but this was the high watermark for short-term predictions. Given that frame, Bradford's forecast seems optimistic, but not pie in the sky. Have Hundell the lead crypto analyst at Swedenic said, all-time highs by the end of the year are in range, but further upside is capped, commenting, the window to get to 100K by the end of the quarter looks very tight to me. You would need everything to go right from this point on, and you simply can't be sure that's going to happen. Hundle noted that options traders are currently clustered around prices from 90,000 to 110,000 by Christmas Eve. He added that this strike price has been remarkably consistent over the last six months. While he wasn't getting too fired up about a massive run into the end of the year,

Handel's view was definitely bullish. He commented that Bitcoin has now made its first higher high, potentially breaking the downward trend. Further, central banks are adding liquidity and the U.S. election has been somewhat derrised. All that's left is the price action, with Handel adding, the stage is now set. So that is the October story. Obviously, it is a story we will be watching all month. But for now, that is going to do it for today's breakdown. Appreciate you guys listening as always. And until next time, be safe and take care of each other. Peace.