LD Capital: Is it overheated? BTC AUM is close to gold GLD, technology stock funds outflow for the first time in 2 months

Original title: "Is 3.11 Overheated?" BTC AUM is close to gold GLD, technology stock funds outflow for the first time in 2 months"

Original source: LD Capital

Market summary

In terms of U.S. stocks, although Tesla, Apple, and Google among the "Big Seven" stocks have performed poorly this year, other stocks such as Nvidia and Meta have performed strongly, and the overall market continues to A new high. However, chip stocks experienced a sharp correction on Friday, with NVDA experiencing its largest single-day drop of -5.6% in more than nine months. Considering that earlier in the session, NVIDIA's stock price rose by 5.1% and AMD's stock price rose by 7.5%, the market seemed There is a tendency to take profits.

As AI currently dominates the positive sentiment in the entire market, chip stocks lead the entire risk asset market, and NVDA is the leading player, so we must pay close attention to the progress of this stock. . Of course, it is difficult to find fault with the company's fundamentals at present. The valuation is high but not exaggerated. The main bearish views are as follows:

· Supply is catching up with demand. Nvidia's chip delivery times shortened to three months from as long as 11 months, indicating an improvement in supply that could affect its sales growth.

· Facing more intense competition. Because not only AMD is gradually making progress, but more importantly, NVIDIA's major customers, including cloud service providers and Tesla, are designing their own AI chips.

· Technical pullback. Driven by technology stocks, the Nasdaq and S&P indexes experienced huge gains, and the market was fearful of highs. If the Federal Reserve makes unexpected moves, it may trigger a sharp decline in technology stocks.

· Too much profit taking. As the stock price has been rising unilaterally, some investors who have made huge profits may take profits after the upcoming GTC conference, causing the stock price to correct.

BTC and gold both hit record highs last week. During the recent rise in Bitcoin and gold prices, the traditional framework's explanatory power has been clearly insufficient. U.S. bond interest rates and the U.S. dollar exchange rate have only fallen slightly, and risk aversion has shown no obvious signs of warming. The logic of alternatives to the existing fiat currency system is dominating these alternative investment markets.

The mixed non-agricultural data in May is not enough to change too many market expectations, but Overall, it was interpreted as a dovish signal, ahead of the market's expected timing of the Fed's interest rate cut. Interest rate market yields edged lower, while stocks rose before falling. Goldman Sachs believes that this pullback is a good buying opportunity given that employment data supports interest rate cuts. Slowing wage growth should be a positive sign for Tuesday's CPI data.

Cryptocurrency BTC ETF almost equals GLD

Recently listed in the United States Spot Bitcoin ETFs continued to accumulate Bitcoin last week - currently holding about 4% of 21 million Bitcoins worth $54.6 billion, almost tying the largest gold ETF GLD's $56 billion AUM.

According to a public filing this week, BlackRock applied to the SEC Adding spot Bitcoin ETF exposure to its AMU$18 billion Global Allocation Fund and AUM$36.7 billion Strategic Income Opportunities Fund.

These news show that a new trend has just begun, that is, the allocation of passive asset management. These asset management plans will allocate BTC as an alternative asset into the portfolio, and a considerable number of them will adopt a fixed ratio allocation strategy, such as a fixed 1% AUM ratio. When adjusting positions every quarter, the holdings will be reduced if the ratio exceeds, and if the ratio is less than 1%, the AUM ratio will be reduced. As for increasing holdings, these strategies often do not consider the absolute valuation of BTC, which will greatly increase the thickness of the BTC market.

According to our calculations, the total size of open-end funds that can potentially allocate BTC is US$9.7 trillion. It is conservatively assumed that only 0.5% to 1% will be allocated to BTC. It may bring in capital inflows of US$48.5 billion to US$97 billion.

If we assume that the supply and demand of the existing BTC market are balanced, we do not consider the transfer of the stock, and only consider the [newly added] fund allocation part of global institutional management to the BTC market, conservative assumptions The capital flow corresponding to each newly produced BTC with a 0.5% new allocation may also reach US$174,000 this year. Although this cannot be used as an accurate reference, it does show the potential for huge capital inflows.

10X Research founder and CEO Markus Thielen issued an article on Saturday to warn of short-term risks. He believes that the Bitcoin/cryptocurrency market is currently overheated and potential downside risk consolidation should be carefully managed. U.S. ETF flows are no longer the main driver of Bitcoin.

Macro events of the week

Global central banks are currently taking a wait-and-see attitude:

The European Central Bank and the Bank of Canada adopted a wait-and-see approach in March, emphasizing data dependence. The ECB forecasts downward revisions to both growth in 2024 and core inflation in 2025.

Most major central banks are expected to start cutting interest rates by mid-2024, with global policy rates falling by an average of 1.4 percentage points.

Europe may cut interest rates faster than the United States:

Based on historical circumstances, central banks in developed countries usually cut interest rates three times in a row before slowing down during the soft landing period. The pace of rate cuts tends to accelerate if inflation is below target and economic activity deteriorates or interest rates are well above neutral.

Employment and Income Growth:

U.S. Employment in February The number of people increased by 275,000, significantly exceeding the expected 200,000. While the number of jobs added in February appears positive, the weakness in the household survey and the rise in the unemployment rate reveal some underlying instability in the job market. Wage growth was lower than expected, with average hourly earnings (AHE) rising 0.14% month-on-month, missing expectations of 0.2%. The unemployment rate rose 0.2 percentage points to 3.9%, above expectations of 3.7%. These breakdowns may be a positive sign for controlling inflation, but they may also put some pressure on consumer spending.

Corporate profit margins expected to remain high in 2024:

According to Goldman Sachs’ latest forecast, non-financial corporate profits will fall from 17% of GDP in 2022 to an average of 16% in 2023, but it is still higher than the 13% in the fourth quarter of 2019. Economy-wide non-financial profit margins are expected to rise slightly to about 16.3% in 2024.

China’s macroeconomic policy objectives and stance:

Macroeconomics Target: At the National People's Congress, policymakers set a 2024 GDP growth target of 5%, in line with broad expectations.

Fiscal policy: China’s official fiscal deficit target is set at 3.0% of GDP (compared to 3.8% in 2023). The market’s first reaction was to There was disappointment at the figure, but then also the realization that this official figure may not fully reflect the actual extent of the government's fiscal support for the economy. Taking into account a wider range of fiscal activities and policy measures, including but not limited to bond issuance, spending on specific projects, government-guaranteed loans, etc., these may not be directly reflected in the standard fiscal deficit ratio. Goldman Sachs expects at least an additional 0.7% of this implicit stimulus.

Monetary and real estate policies: Although no major new measures have been announced, China's monetary and real estate policy stance is still supportive, and has new expressions and new formulations. Deal with potential risks in an orderly manner, improve basic systems related to commercial housing, and meet diverse and improved housing needs.

Economic data: As the focus of the government's economic strategy, China's exports increased by 7.1% year-on-year from January to February, much higher than the expected 1.9%; China's trade surplus hit a record high of $125 billion, and imports also increased by 3.5%. February's manufacturing purchasing managers' index (PMI) also came in slightly better than expected.

Asia and emerging market economic data:

Asia 2 Month's inflation data generally rose and exceeded expectations:

- South Korea's CPI rose 30 basis points year-on-year to 3.1%;

-Taiwan's CPI year-on-year rose 130 basis points to 3.1%;

-Philippine CPI rose 60 basis points year-on-year to 3.4%;

-Indonesia CPI rose 20 basis points year-on-year to 2.8%;

-The CPI in Tokyo, Japan, increased by 80 basis points year-on-year to 2.6%;

-The CPI in Thailand increased by 30 basis points year-on-year to -0.8%.

Manufacturing PMI has mixed performance:

-China, India, Philippines and Australia PMI increased;

-PMI decreased in South Korea, Japan, Taiwan, Thailand and Indonesia;

-PMI in other regions remained generally stable.

Funds and positions

· The inflow of technology stocks has stopped for two consecutive months;

·Bitcoin and gold futures OI hit record highs, ETH slightly behind;

·Growth and Momentum stocks are seriously overbought;

·Chinese stock market experienced temporary outflows Another substantial inflow a week later;

· Nasdaq speculative longs fell to the lowest since last fall;

As secondary market gains The rate dropped, gold prices and Bitcoin prices both hit record highs, and gold and Bitcoin futures positions increased significantly. Gold open interest has increased by US$20 billion to US$98 billion in the past two weeks, but the momentum of continuous outflows from gold ETFs has not changed. GLD positions have outflowed 11.8 tons during the same period, showing that the buyers are not financial market investors but central banks and physical entities. gold buyer.

CME Bitcoin contracts increased by $1.7 billion last week to $10.37 billion, even with cryptocurrency trading Contract-inclusive growth of approximately US$5 billion to US$32.36 billion, both continued to hit record highs.

However, even cryptocurrency exchange contracts There are only 460,000 positions denominated in BTC, which is nearly 50% higher than the historical high of 678,000 in November 2022. It also shows that market funds and sentiment in the "traditional" currency circle have not yet recovered. Previous extreme levels:

The CME position currency standard of Ethereum ETH is at It also set a new all-time high last week, showing that Wall Street funds are indeed interested in participating in the next physical ETF game. However, the range of new highs is much inferior to that of BTC.

By investor type, hedge funds and asset managers hold Both net shorts and net longs hit record highs last week:

According to According to Goldman Sachs PB statistics, the U.S. stock market experienced net buying for the second consecutive week, with long buying exceeding short selling, with a ratio of approximately 1.6 to 1. The top net buying sectors were communication services, industrials, utilities and real estate. The largest net selling sectors were energy, health care, consumer discretionary and materials. Communications Services last week saw its largest notional net buying in more than five months of +1.2 standard deviations.

Momentum stock continues to perform strongly, and everyone has been worried about momentum stocks rising Depletion, but the market still shows confidence in long-term themes such as artificial intelligence, improving corporate profits, receding recession fears, and cryptocurrency reaching new highs. The momentum factor calculated by Goldman Sachs has risen by more than 20% this year, the best performance for the same period in history. Judging from the Relative Strength Index (RSI), Momentum US stocks have entered the severely overbought zone, above the 99% historical quantile level.

From the perspective of long and short positions, hedge funds are extremely fond of momentum factors and growth stocks, and the level of crowded trading has reached a record high:

Large-cap growth stock positions enter the 96th percentile of history since 2009:

According to the EPFR statistical caliber, funds have flowed into currency funds, investment-grade debt funds and stock funds significantly, with record inflows into cryptocurrency funds and outflows from technology and energy stock funds.

Tech funds end two months with record $4.4 billion in outflows inflows

Chinese stocks continued to surge last week after a brief week of outflows Inflow of US$3.8 billion

Subjective investor positions remain basically unchanged, systematic investment The positions of investors decreased slightly:

CTA fund positions remained flat last week, at the highest level in history 90th percentile

Nasdaq futures net longs decline for third straight week, down to last fall’s levels:

Mainly driven by hedge fund shorting, currently short The level is close to the highest level in the past three years:

The impact of the general election

For the past three presidential elections, of course this coincides with the halving cycle, so the US elections in 2012, 2016 and 2020, Bitcoin’s average in those years The return is 192%, and Bitcoin is up over 100% every year. So based on 192%, we start the year at $40,000 and end the year with Bitcoin reaching $125,000.

Trump is currently leading the polls. If he wins, possible monetary and economic policies include:

· There is no large-scale tax reform like the last time

· Emphasis on "protectionism", increase tariffs, and expand trade wars (bad for the stock market)

· Relaxation in the financial and environmental fields regulation (good for the stock market)

· After Trump is elected, he may put pressure on the Federal Reserve to maintain lower interest rates (good for the stock market)

· The Fed hopes to maintain low interest rates before the election Maintain a low political profile to prevent economic recession (good for the stock market)

· Put more emphasis on suppressing inflation (good for the bond market) than maintaining employment (good for the bond market)

History is the best-performing asset during the election of Biden and Trump. BTC is not included in it. BTC increased by 400% during the Biden period and increased by 400% during the Trump period. It is 1900%. What is interesting is that the returns of crude oil, the US dollar, South American stock markets, Asian stock markets, and bonds were almost completely opposite during the two presidents’ administration:

Market Sentiment

Investor survey sentiment climbed to an 11-week high, entering the top ten in history one part.

Institutional Perspective

[GS: The volume of buybacks is expected to increase significantly this year and next year]

The current scale of corporate buybacks far exceeds The scale of corporate new stock financing. A Goldman Sachs report predicts that the scale of stock repurchases implemented by U.S. listed companies will reach $925 billion in 2024, a year-on-year increase of 13%. Looking forward to 2025, Goldman Sachs expects the scale of repurchases to further increase to a level of US$1.075 trillion, a year-on-year increase of 16%. Buybacks remain one of the most important supporting forces for U.S. stocks.

[JPM: Bitcoin allocation ratio is already higher than gold? ]

JPMorgan Chase mentioned in a report last week that of the US$3.3 trillion invested in gold, only 7% or US$230 billion It is held in ETF format. If the Bitcoin ETF reaches 230 billion, Bitcoin’s market cap could increase from $1.3 trillion to $3.3 trillion.

But considering that Bitcoin is 3.7 times more volatile than gold, Bitcoin should account for a lower portion of the portfolio. Simply use 3.3 trillion US dollars / 3.7 = 0.9 trillion US dollars, which corresponds to a Bitcoin price of 45,000 US dollars. So the current price of more than 60,000 means that the implicit allocation to Bitcoin in everyone's investment portfolio has exceeded that of gold.

Still using the so-called "vol ratio" (volatility ratio), divide the gold ETF's market value of $230 billion by the volatility ratio of 3.7 = $62 billion. The author believes that this is an asset management goal that a Bitcoin ETF can achieve conservatively. It’s already 52 billion.

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