Cumberland is commenting on the recent volatility and potential opportunities to take advantage of it.
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The post-election rally continues; despite BTC, ETH, and SOL trading fairly muted (all within 1% of where they started the week), crypto markets in general have been rallying sharply on the week. Outside of these three, it’s essentially an everything rally. The Earlycoins have continue to perform (XRP +14%, HVAR +56%, XTZ +8%). L1/L2s have gotten some steam and entered a new price level (AVAX +17%, MATIC +19%, NEAR +7%, APT +6%). DeFi has been performing solidly (CRV +41%, AAVA +16%, LDO +13%). We could go on, and these rallies are just over the past two-and-a-half days.
It’s always challenging to call for a reversal, and also not much fun. We’re also in a macro environment that is extremely favorable; equities printed a new ATH yesterday, the incoming Trump administration has signaled that it will look to build the crypto industry in the US, and it seems like more coins are going to be candidates for ETFs. However, there are a few signals that need to be noted here.
First, that BTC and ETH, are stalling out, pricewise, is historically a sign that the rally is in the late stages. From a capital standpoint, it’s hardest to move the large caps, which is why alts can typically move more easily than the large caps. This doesn’t quite ring true here, as some of the coins that are leading the rally here, most notably XRP, are very-large-caps (in fact, XRP has passed SOL in market cap.) But another way to think of it is that the largest coins are the most liquid, and thus the hardest to move;
Perhaps more concerning, however, is the yield on stablecoins within the crypto space. USDC on Aave on Ethereum currently yields over 10%, and Kamino is paying over 15% on USDC on Solana as of writing. This has two implications. On the “cause” side: these yields are high because the market sentiment is so bullish that the market generally wants to own risk assets, and doesn’t want to be stuck in stables; further, they may be using risk assets as collateral to borrow stables and purchase more assets on leverage. This type of market may keep the momentum going for a while, but it usually results in a washout. And on the “effect” side, these healthy yields on stables might actually encourage traders to take profits on risk assets and take the less-risky stablecoin yield. Being long feels right, but at a certain point, on a risk-adjusted basis, it just makes more sense to take the stables yield.
Trendy markets like this one can continue for a while, so these signals are just that. At some point, the rally will run out of steam, and drawdowns are inevitable; how the market plays out between now and the peak will probably determine how sharp the eventual drawdown is. The next month will be fascinating, with not just the end of a calendar year in which BTC was the fastest horse, but also with Trump preparing to move into the White House in January.
From a price action standpoint, the rally could sustain if traders take profit from their alts and rotate back into BTC and ETH. With ETH within 1% of its five-month high, that would have the potential to reignite the momentum.
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