Pionex Special Edition: Fourth Quarter Market Outlook

Overview

We generally maintain a cautiously optimistic attitude, with a long-term positive outlook that remains unchanged. The Federal Reserve and inflation can no longer produce significant shocks to the market, and currently, no obvious negative factors are emerging. However, if the market lacks continuous positive news from sources such as the media (ETFs), fundamentals (major technological breakthroughs), and the financial side (increase in stablecoin supply, continuous inflow of off-market funds), it may become difficult to see substantial gains in the short term.

Short to Mid-term Outlook (3~6 months)

1. Sentiment Side

Large investors in the market have been continuously selling options, betting that market volatility will continue to decrease. In other words, they believe market volatility will reduce in the upcoming period. Whenever the market shows any fluctuations, they immediately sell off the volatility.

Based on our observation and analysis of the options market, we believe that the market trend in the second half of the year will still be dominated by consolidation. In other words, market prices will fluctuate within a narrower range, but overall volatility will decrease. However, this does not mean that the market will be completely devoid of significant fluctuations. On the contrary, we expect the market to still experience intermittent large swings.

For most of the recent times, the market has been in a calm state. However, the recent bear and bull double-kill trend once again confirmed the accuracy of our observations and predictions. Such changes once again prove that, no matter how calm the market seems on the surface, it is actually full of variables. The bear and bull double-kill trend is a reminder that investors must always be vigilant and choose the right trading/investment tools because market trends can change dramatically overnight.

2. Funding Perspective

1) Liquidity Concerns

We have noticed that the supply of stablecoins is continuously shrinking. Changes in the supply of stablecoins often reflect the liquidity situation in the market. It has already shrunk from 166 billion USD in the same period last year to 130 billion USD. This phenomenon deserves our deep reflection and analysis. Although positive news such as ETFs has emerged in the market over the past period, these positive developments have not made a tangible improvement in market liquidity.

2) U.S. Stock Market Siphoning Effect

Recently, Tesla’s new product, Dojo, has added fuel to the global artificial intelligence (AI) industry’s fire. Dojo is a supercomputer designed by Tesla to accelerate the mass production of AI chips for autonomous driving cars. Its astounding performance and potential once again validate the revolutionary impact and broad prospects of AI, heightening global investors’ attention and investment in the AI sector.

However, this situation is not entirely beneficial for the crypto sector. As the enthusiasm for Tesla’s Dojo continues to ignite the U.S. stock market, we’ve observed the siphoning effect of U.S. stocks on crypto funds intensifying. In other words, more and more capital is flowing out of the crypto world and into the U.S. stock market. This puts certain pressures on the vibrancy and stability of the crypto market. In fact, this phenomenon isn’t temporary. As global capital markets become more interconnected and liquidity increases, especially after the introduction of ETFs, this movement will accelerate. Given that the U.S. stock market is the largest and most mature capital market globally, its allure cannot be ignored. When such hot topics emerge in the U.S. stock market, capital flow undergoes certain changes. Such shifts can profoundly impact specific capital markets, like the crypto sector we are currently focusing on.

We believe that only substantial positive changes in the fundamentals, such as the passage of ETFs and significant technological upgrades, will provide a strong tailwind for the crypto sector. By then, we might see multiple positive factors across the fundamentals, news, and capital fronts, potentially ushering in a comprehensive bull market following Bitcoin’s halving.

3. Technical Analysis

1) Continuous decline of the highs and lows in the candlestick chart (K-line)

Recently, we’ve noticed a consistent downward trend of the highs and lows in the cryptocurrency’s candlestick chart. This is a typical characteristic of a declining market. Such market behavior might undermine investors’ confidence, further pushing the cryptocurrency price downward.

2) Analysis of Bullish vs. Bearish Momentum

Since September, we have observed that the comparison of volume between the bulls and bears in the market has generally shown a decreasing trend. Specifically, this means that after an active downtrend, the bullish rebound that occurs in the market is passive, rather than a positive performance of a bullish market.

This situation points out a danger signal, which is that in the future, the market might see a downward trend with significant volume. In other words, the market decline might be accompanied by a larger trading volume, suggesting that there’s considerable selling pressure in the market, and the bullish market might experience some instability.

3) UTXO Realized Price Distribution

From the perspective of chip distribution, we can observe that there is a substantial chip distribution in the range of 25,000 to 26,000. In other words, a vast number of investors within this range have relatively heavier holdings of Bitcoin, forming a strong support for Bitcoin’s price.

If Bitcoin’s price drops below approximately $25,000, there’s a significant risk it might probe further down to the $23,000 Realized Price support level or even lower. This $23,000 mark is also the current mining cost for Bitcoin. Based on data provided by Cambridge University regarding global Bitcoin ‘electricity consumption’ and ‘daily new issuance,’ we’ve estimated the average cost for miners to produce each Bitcoin. We can consider $23,000 as a critical support price for Bitcoin. Historically, this mining-cost-based indicator has always been an effective bottom indicator.

4. Fundamentals

From our analytical standpoint, only when there’s a substantial positive shift in the fundamentals, such as the approval of ETFs or significant technological upgrades, can we expect a tangible positive impact on the cryptocurrency market. A healthy, robust, and sustained bull market must be based on solid foundations and requires a combination of positive factors in fundamentals, news, and capital inflows. For instance, the approval of an ETF not only signifies regulatory bodies’ acceptance of cryptocurrencies but also provides a new avenue for traditional investors to enter the cryptocurrency market. As for technological upgrades, such as Bitcoin’s on-chain ecosystem BRC20, Ethereum’s ecosystem ERC20, and Ethereum’s Layer2 scaling solutions, they can significantly enhance the efficiency of cryptocurrencies, attracting more users. These are tangible positive factors that can provide a robust thrust for a bull market. On the other hand, Bitcoin halving cycles are often

considered the beginning of a bull market. With each Bitcoin halving, the production rate of new Bitcoins is halved, leading to a reduced market supply. If the demand remains consistent, there’s upward pressure on the price. Thus, next year’s Bitcoin halving could accelerate the onset of a new bull cycle. However, investors should be aware that while these are potential positive factors, they come with their respective risks. For instance, the outcome of a technical upgrade might not go as expected, or an ETF might face prolonged delays in approval. Consequently, investors should adopt a cautious stance, closely monitor market developments, and adjust their investment strategies based on the latest information.

Trading Recommendations

Bitcoin

We recommend users initiate a manual periodic investment plan, opting to invest in Bitcoin spot at the $25,000 bargain price, with an investment duration of 1-2 days, yielding an annual return of 23%~29%. If Bitcoin’s price continues to decline, we’ll make purchases between the $25,000 and $23,000 levels. The greater the price dip, the more Bitcoins we’ll buy to lower the overall cost.

Ethereum

Given Ethereum’s relative underperformance, we believe it still has the potential to outperform Bitcoin in the latter half of the year due to upcoming upgrades such as Cancun and improvements in its ecosystem, like layer2. For Ethereum, we continue to recommend a position size of 10% to 20%. We suggest purchasing Ethereum at a bargain price around the previous low of $1,550 for an investment duration of 1~2 days, targeting a return of 40%+. The more the price declines, the more Ethereum we will purchase to reduce the overall cost.