EMC Labs September Report: Settling Dust, Chaos and Conflict during Currency Expansion Launch

The market, project, currency and other information, views and judgments mentioned in this report are for reference only and do not constitute any investment advice.

On September 18, the Federal Reserve began a rate-cutting cycle, with the first rate cut being 50 basis points. This marks the complete end of the rate-hike cycle that began in March 2022, and also signifies that the Federal Reserve and the U.S. government believe that the task of reclaiming the excessive currency liquidity due to the epidemic has been successful. Attention has shifted to the negative effects of this 'strong medicine' on the economy and employment. One of the best ways to prevent economic damage is to return the money supply to an expansionary phase.

On September 24th, the Chinese government announced an unprecedented monetary policy targeting the economy, stock market, and real estate market, increasing Liquidity release on the basis of existing interest rate and reserve ratio cuts. This means that the world's second-largest economy has decided to use a strong increase in money supply and push for equity market pump to combat weak consumption, falling real estate prices, and rising unemployment. The record-breaking strong Rebound of the Chinese stock market (including Hong Kong stocks) has attracted the attention and capital flow of the global Capital Market.

In addition to the previously interest rate-cutting European Central Bank, three of the world's four major central banks have launched monetary easing policies. The total amount of currency issuance they control is about $23 trillion, accounting for about 20% of the total global currency issuance.

Extraordinary significance, 2024 is the year when major Central Banks globally shift towards monetary easing. This shift is a necessary means to revitalize the economy in the post-pandemic era, and also marks the starting point of a new round of asset value reassessment.

As an emerging equity market, Crypto assets will also undergo a value reassessment under the background of currency expansion. EMC Labs holds a cautious and optimistic attitude towards the future market, believing that the encryption market with sufficient internal adjustments will enter the second half of the Bull Market in the interest rate reduction cycle.

US Dollar, US Stocks, US Bonds and Gold

US Dollar Index

Interest rate cuts are underway, and the US dollar index has experienced a slight Rebound before returning to a downward trend, approaching the 100 level again by the end of the month, back to the level of April 2022. With the continuous interest rate cuts, breaking through 100 is only a matter of time.

Thanks to the advanced pricing of the equity market, the US stock market relatively smoothly passed September, during which the three major indexes experienced violent fluctuations in July, August, and September to rebalance various funds. In the monthly cycle, Nasdaq and Dow Jones respectively gained 2.68% and 1.85% increase. However, due to the advanced pricing, the stock index did not realize a significant pump. A reality that must be faced is that the current valuation of US stocks has reflected a certain degree of rate cut expectations and does not appear to be "cheap". Traders seem to temporarily find no basis for trading. This has become the biggest obstacle to the pump of US stocks.

Regarding the economic outlook of the United States, various market participants are still using CPI and employment data for speculation and pricing. The biggest point of contention is whether the US economy will achieve a 'soft landing' or a 'hard landing', as well as the magnitude of interest rate cuts in November and December. Currently, the stock prices in the US have essentially priced in the 'soft landing'. If the data deteriorates, there may be downward pricing to prevent the investment risk triggered by a 'hard landing'. This is the biggest uncertainty. The resolution of this uncertainty may have to wait until later in Q4.

US 10-Year Minus 2-Year Treasury Yield Spread

With the interest rate cut, the US bond market has also undergone a directional change. Concerns about the long-term development of the US economy have led to the 2-year Treasury yield being consistently higher than the 10-year Treasury yield since July 2022. This trend was reversed in the past September, and currently the 10-year and 2-year Treasury Interest Spread has returned to positive at 0.16. This means that bond investors have preliminarily confirmed the 'soft landing' of the US economy.

As another important investment target outside of US debt, London Gold responded to the arrival of the currency expansion cycle with a significant 6.21% monthly pump. Such a large monthly increase indicates that a large amount of capital has chosen a stable target in the face of uncertain economic prospects.

As a representation of the Crypto market, BTC performs a function similar to that of a large-cap index. Currently, the pricing of BTC is controlled by BTC ETF channel funds, but such funds seem to refuse to see BTC as 'digital gold' and prefer to see it as a 'tech stock' like the 'Seven Giants'. This linkage has enabled BTC to stabilize in September and achieve a 7.35% increase, which is higher than the Nasdaq, but it is still constrained by the Nasdaq's trend, which stopped at $65,000 and has not yet recovered its previous high.

There are two paths to surpass the previous high. First, the Nasdaq regains the previous high, and BTC follows the breakthrough; second, the on-exchange funds regain pricing power. If the second path is realized, the trend of the second half of the Bull Market will be more positive. Based on the principle of caution, we consider "breaking the previous high" as a necessary condition for the recovery of funds inflow and the increase in risk preference of on-exchange funds to boost Altcoin targets.

BTC Supply Structure

We view the market cycle as a value transfer phenomenon of long and short hands in the space-time range. After the long-hand Holdings reached its peak in December, it continued to reduce holdings until May. Starting from June, the second round of buying began in this rise cycle. By the end of September, Holdings had risen to 14.07 million. This restructuring is conducive to price increases.

Long/Short Position Changes (Monthly)

Analyzing the distribution of all on-chain BTC, it can be found that as of September 29th, over 87% of BTC is in a profitable state. The distribution of chips in the range of 54,000 to 73,000 (the 'new high consolidation zone') is 6.24 million, an increase of 238,300 compared to August 31st. The price of the largest Holdings has risen from $58,893 at the end of August to $65,518. The continuous upward shift of the price center helps to alleviate selling pressure during the price uptrend.

BTC Cost Structure

It is worth noting that in late September, with the Rebound of BTC, the longs once again began tentative reductions, while the shorts began to increase. This 'from long to short' is a signal of Liquidity recovery, and it will also test buying strength again. If buying strength is difficult to absorb selling pressure, there is a possibility of repeated fluctuations or even a downward trend in the market. If there are repeated fluctuations, the longs may return to collection again, and the time for the market to regain its previous high will be extended. As of now, we cannot determine whether the new trend of 'from long to short' has been initiated.

Funding

Stablecoins and Monthly Fund Flow Statistics for 11 US BTC ETFs

In terms of funds, there have also been optimistic performances this month, with both channels eliminating differences and recording positive inflows. The total scale is 3.788 billion US dollars, among which the Stable Coin channel flows into the Market Maker with a scale of 2.588 billion US dollars. The ETF channel, which was in outflow status last month, resumed inflows this month, recording 1.2 billion US dollars.

However, there is also a worrisome aspect. Since the recovery of inflow scale in July, the inflow scale has been gradually shrinking month by month for the past three months. In the context of overall improvement in global stock markets, BTC needs to break through the previous high to attract funds to accelerate inflow.

During the 6-month consolidation in the 'new high consolidation zone', the inflow of stablecoins and ETF channels has exceeded 38 billion, which has absorbed the selling pressure in the 'new high consolidation zone', refreshing the cost price of over 6 million BTC in this area to around $64,000.

technical indicator

BTC PA (日)

Technical indicators are important trading tools for short-term traders. Currently, the market is in the early stage of continuous capital inflow and liquidity recovery. The decisions of short-term traders have a significant impact on market trends.

64000, 66000, 70000, and 73000 US dollars are the key follow prices in the short term, representing the cost suppression in the short term, the descending trend line suppression, the rise trend line reversal suppression, and the new high suppression, respectively. The breakthrough of the 200-day moving average, which has already shown a downward shift, is significant this month. The price of 64000 US dollars is also the short-term cost price and the high point of the August Rebound. It is very important to effectively break through this key level, after which comes the breakthrough of 66000 US dollars and 70000 US dollars. Currently, three out of the four key price levels have not been broken, and it is hoped that the funds will be on the BTC ETF channel.

A $73000 valid breakthrough means the awakening of the most conservative funds on the exchange and the subsequent entry of OTC funds.

Possibilities for the second half

In the previous report, we have mentioned multiple times that the first stage of the Bull Market is mainly driven by the Position replenishment of on-exchange funds and the additional funds before and after the approval of BTC ETF. With the major Central Banks globally entering the stage of Liquidity expansion, EMC Labs judges that the subsequent rise in BTC asset prices will mainly come from the value reassessment triggered by currency expansion and the additional allocation of BTC ETF by traditional capital.

As risk appetite gradually increases, in the second half of this Crypto Bull Market, attention and funds will gradually flow into well-adjusted Altcoins. We believe that BTC's market share will gradually decline, approaching 40% from the near 60% peak of this round. Altcoins will gradually differentiate after the general rise in the Rebound market. We will focus on following the industry development direction, possessing technological or model innovation, user acquisition capability, Token model-friendly Blockchain infrastructure, and Web3 applications.

Conclusion

Currently, the eMerge Engine developed by EMC LABS has repaired the upward trend index to 0.75, gradually entering a mild expansion state. The repair of this indicator marks a significant repair of the BTC ecosystem and market structure, and is the internal structural adjustment that we have repeatedly emphasized as being ready for higher prices under greater Liquidity impact.

Anticipating and participating in the market's development will yield substantial rewards. We believe that increasing risk appetite, adopting a positive attitude, and taking decisive action are the optimal choices in the current stage.

The biggest concern comes from the US economy, whether there will be a 'hard landing'. Once a 'hard landing' occurs, the decrease in risk appetite leads to undervaluation of assets, and the US stock market may experience a weak annual trend, which may make it difficult for the encryption asset market to break out of an independent trend.

In addition, the crazy Rebound of the Chinese stock market has also attracted a certain inflow of international capital. Considering that this Rebound comes from an unprecedented monetary policy input by the Chinese government (various fiscal policies will also be introduced in October), we believe that the Rebound in the Chinese market has a certain sustainability, and the inflow of international capital will also continue. This will undoubtedly affect the Rebound and stability of the US stock market, and may also affect BTC and the entire crypto market, which have higher requirements for risk appetite.

The negative impact comes from the inevitable chaos and conflicts during the global shift in monetary policy. In the short term, it will inevitably lead to the continuous Fluctuation of BTC prices, but it does not change our long-term judgment of its trend.

About EMC Labs

EMC Labs was founded by encryption asset investors and data scientists in April 2023. It is dedicated to researching the blockchain industry and investing in the Crypto Secondary Market, with industry foresight, insights, and data mining as its core competitiveness. It is committed to participating in the booming blockchain industry through research and investment, and promoting blockchain and encryption assets for the benefit of humanity.