Monthly Manager Commentary: September 2024

Multi-Strategy Fund Performance

Following a volatile August, the Fund posted a solid performance in September, gaining 6.7% for the month, closely trailing bitcoin’s 7.5% rise. Our diversified strategy, which balances exposure across various digital assets and active risk management, helped capture a significant portion of the upward momentum in bitcoin while mitigating downside risks in other areas of the portfolio. Heading into Q4, we see several tailwinds that could further strengthen the market, including increasing global liquidity, rising inflows from crypto ETFs signaling renewed interest from institutional capital, and potential repayments stemming from the FTX bankruptcy. We remain focused on navigating these evolving conditions and are encouraged by the positive market sentiment.

Market Commentary

After a challenging August, which marked the worst monthly performance of the year, the crypto markets rebounded sharply in September. Bitcoin surged by 4% early in the month following a pivotal 50 basis point (bps) rate cut by the Federal Reserve—the first interest rate reduction in four years. This decision sparked optimism, further fueled by additional rate cuts from the European Central Bank and a significant stimulus package announced by the Chinese government. These coordinated global monetary easing measures signaled a potential shift towards increased liquidity, driving renewed investor interest in digital assets.

As the month progressed, both Bitcoin and Ethereum ETFs saw sustained inflows, reflecting growing confidence in the asset class. Investors are positioning themselves for what could be a new era of global liquidity, viewing crypto as a hedge against inflationary pressures and a beneficiary of looser monetary policies.

As we head into October, bitcoin has crossed two significant short-term technical indicators we’ve been closely monitoring: the 200-day moving average ($64k) and the short-term holder realized price ($62k). Both of these metrics are pivotal in assessing market sentiment and potential price trajectory.

Short-term holders, who are statistically more sensitive to price movements, often act as key players around market turning points. This group has a tendency to sell during periods of volatility or when prices decline, making their cost basis (the “realized price”) a crucial level of resistance during bearish phases. When the market price breaks and holds above this level, short-term holders tend to gain confidence, as they are sitting on unrealized profits, reducing selling pressure and potentially flipping market sentiment from bearish to bullish.

The last time bitcoin’s price broke above the short-term holder’s realized price was in October 2023, when it was trading at $27k. Following that breakout, bitcoin rallied to an all-time high of $72k by March. As the rally cooled off, bitcoin fell below this threshold in June, and it remained below it until late September. The recent breakout above this level signals renewed optimism, especially as many short-term holders who bought during the March peak have likely exited, reducing overhead selling pressure. If bitcoin maintains its position above this level, it would be a strong indicator for continued bullish momentum heading into the fourth quarter.

The macroeconomic landscape, characterized by rising global liquidity and falling interest rates, is creating a favorable environment for a bullish outlook. In addition, both technical and on-chain metrics are aligning to reinforce this trend. Historically, Q4 has been bitcoin’s strongest season, and with the cryptocurrency reclaiming key levels—such as the short-term holder realized price—the conditions seem ripe for a robust year-end performance. Investors should closely monitor these indicators, as sustained price action above these critical levels could signal the beginning of another major rally, similar to past cycles.

As always, while the broader environment appears favorable, volatility in the crypto market remains high, and prudent risk management is key.

The Blockforce Team

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