Market Sentiment and Trends in Crypto

This column was co-written by Frank Chaparro, director of special projects at The Block, and Laura Vidiella of MNNC Group. The views expressed in this column are their own and do not reflect the opinions of their employers.

Right after Tuesday's Uptober newsletter, the market observed a downturn, with only a 1% dip in BTC price—highlighting how rapidly conditions can change.

Overall, it’s been another mild week, consistent with the past three months. The exception was the brief relief we saw in September when most directional funds recorded gains of 10% to 15%. This was a positive sign, especially given the challenges directional funds have faced throughout 2024. However, sentiment from fund managers and subscribers suggests that change could be on the horizon. As always, we remain optimistic and prefer to zoom out for the bigger picture.

Back in 2017, Preqin identified just 55 crypto funds, but by 2024 that number has surged to nearly 1,200—an impressive 21x increase. These funds focus purely on digital assets, out of almost 30,000 funds in Preqin’s database. Additionally, 400 traditional or non-crypto funds now have exposure to digital assets.

As October kicked off, most managers positioned themselves with strong long positions in line with the usual "Uptober" trend. However, with many already fully allocated, the question remains—who will provide the additional capital needed to push markets higher by month-end? The answer remains unclear for now.

According to Crypto Insights Group's monthly report, which surveys dozens of liquid crypto funds, we’re seeing some of the highest conviction levels of the year across different time horizons, reflecting the sentiment of fund managers and allocators alike.

None of this comes as a surprise. As we’ve highlighted before, 2024 feels like a transitional year. Institutions are increasingly comfortable with the Bitcoin spot ETF, which not only broadens access but also reinforces regulatory acceptance of the industry; soon they might be able to trade options on it.

Now, the focus shifts to what crypto-native companies have been quietly building, as well as how non-crypto companies are integrating web3 technology into their tech stacks. It’s clear that not every innovation requires a token, a reality that both crypto startups and VCs are beginning to embrace.

October brings more pressure than many might realize. From "Uptober" to managers shaping their strategies ahead of the U.S. elections—a central theme in this year’s newsletter. The sentiment is mirrored in a recent chart, where about 55% of fund managers aren't particularly concerned about the election, while 45% are monitoring the outcome closely before adjusting their allocations.

That said, only about 15% of managers believe a Democratic win would be catastrophic—a minority that may not share the prevailing optimism of this newsletter.

What seems more likely is that a Democratic win would slow regulatory progress over the next presidential term, giving other regions a chance to strengthen their foothold in the crypto space while the United States lags.

Let’s dive into some market talk! This morning brought a surprise with the release of nonfarm payroll results, which sent Bitcoin higher. According to Josh Lim, Co-Founder of Arbelos, “the strong NFP report has shifted traders’ conviction to a 95% probability of a 25bp rate cut in November.”

Looking ahead to the weekend, volatility might be in store. As Josh points out, “1-day options on Deribit are signaling some fear of a potential retaliatory move by Israel, with Saturday’s options reflecting a 44 implied vol, compared to 37 for Sunday and Monday.”

For those new to options, implied volatility is a measure of expected price swings—higher volatility suggests bigger price movements ahead.

In addition to crypto-specific concerns, traders are keeping an eye on broader macroeconomic indicators.

“The VIX front-month futures have stayed above 20 vol all week, especially with Chinese equity markets closed for Golden Week,” Josh notes. For reference, VIX futures tend to average around 20, so when they rise above that level, it's a signal for increased market caution.

The combination of these factors suggests we might be in for a weekend of heightened market activity.

The Block’s Frank Chaparro serves up the latest headlines, charts, trends, and views on crypto and DeFi from around The Block, Twitter, and The Scoop pod. Subscribe to The Scoop newsletter, which hits inboxes on Tuesday and Friday mornings.

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