Over the last month, the crypto rally has broadened beyond Bitcoin to include other market sectors, notably smart contract platforms—the best performing FTSE Grayscale Crypto Sector since mid-October.
The market is now discounting a more optimistic outlook, and active crypto traders appear to be positioned long, as futures open interest has picked up and the cost of leverage has increased. If the favorable news does not continue, there is a greater risk of disappointment.
Encouragingly, lower-than-expected inflation for October should allow the Fed to remain on hold. If real interest rates have peaked and we continue to see progress toward spot ETF approvals in the US market, we believe the recovery in crypto valuations can continue.
Exhibit 3: Leverage more expensive on centralized and decentralized platforms
Exhibit 4: Lower real interest rates should support a crypto recovery
[3] Source: Electric Capital Developer Report. Not including Layer 0 chains.
[7] Live data suggest that borrowing costs fell back on Tuesday, November 14.
[8] Source: Grayscale Research based on Bloomberg data as of November 13, 2023.
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