Coinbase Institutional released its monthly outlook report on Wednesday, indicating that conditions may favor a market reversal in December following Bitcoin’s underperformance in November.
Summary
- Bitcoin underperformed in November, falling more than three standard deviations below its 90-day average, while U.S. equities saw milder declines.
- Market conditions may favor a December reversal, as the end of quantitative tightening and potential Fed rate cuts could unlock sidelined cash into Bitcoin and crypto vehicles.
- “I am bearish on the Fed and what they continue to do to the value of the dollar,” James Lavish says. “Bitcoin captures this.”
The cryptocurrency exchange’s institutional division cited the Federal Reserve’s return to the bond market as quantitative tightening ends, stating that the cash drain from markets may be ending. The firm characterized this development as typically favorable for risk-on assets, including cryptocurrencies.
According to the report, Bitcoin underperformed U.S. equities on a risk-adjusted basis in November, falling more than three standard deviations below its 90-day average. The S&P 500 declined only one standard deviation during the same period, the report stated.
The analysis identified several challenges affecting the cryptocurrency market. Spot exchange-traded fund flows turned negative in November, with the month posting record cumulative outflows. Stablecoin supply contracted with the weakest 30-day momentum since 2023, according to the findings.
Long-term Bitcoin holders distributed coins rather than accumulating during the period, the report noted. Digital asset treasury vehicles traded below net asset values for the first time in 2024.
K-shaped economic recovery
The report also addressed concerns about a “K-shaped” economic recovery in which artificial intelligence-driven job displacement could increase corporate profits while reducing personal income stability. However, the document stated that evidence of this trend impacting cryptocurrency markets remains weak.
Coinbase Institutional indicated that sidelined cash, including substantial money-market balances, could shift into regulated Bitcoin vehicles when market conditions stabilize. The firm stated that full market stabilization will likely require several months, echoing its October assessment.
The report suggested that conditions could support a reversal in December if the Federal Reserve cuts interest rates and unlocks inflows.
Why so bullish, Lavish?
James Lavish, a former hedge-fund manager, commented on X that over the last 16 years, the Federal Reserve has added a total of $8.8 trillion in liquidity to markets and removed a total of just $3.2 trillion, “before calling ‘uncle’ for the second time.”
He added, “So when people ask why I am so bullish on Bitcoin, it is simple. I am bearish on the Fed and what they continue to do to the value of the dollar. Bitcoin captures this.”
Data from the Federal Reserve Bank of St. Louis showed the Fed recently injected liquidity into the banking system through overnight repurchase agreements, marking the second-largest spike since the COVID-19 pandemic.
