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Buying opportunity or a reason to be cautious?
218 Plays1 month ago
In this week's episode, we dig into this week's market volatility, looking at the impact of DeepSeek across global markets, yesterday's FOMC meeting, and the reasons behind the disproportionate sell off in alts and memes.
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Transcript
Introduction and Crypto Recap
00:00:11
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's January 30th, 2025, and this is Off Chain, your weekly recap of the biggest stories in the crypto space. I'm Matthew Housebarbie, and I'm flying solo today. Austin is unable to record. I'm sure he'll be back at my side, at least virtually, and next week.
DeepSeek's Market Impact
00:00:31
Speaker
So it'll be a bit of a shorter episode today, but I figured we could just kind of go through a bit of a recap of markets, where they're at. Quite a lot of things have have happened this week, a huge amount of volatility, as has been very well-documented. DeepSeek, the um AI company coming out of a... small lab in China has nuked the market. a Familiar story that I seem to remember that kind of same scenario playing out in 2020, but hey. DeepSeek has certainly spooked the equity market and that has bled into the crypto space and pretty much every other ah market that's that's been traded.
00:01:20
Speaker
And I guess for for many of you listening, Monday was ah probably a ah worrying period where we're questioning, you know, is this a buying opportunity or is this a ah reason to to be cautious?
00:01:39
Speaker
I think it's both. um I certainly think from a crypto perspective, this this doesn't change anything. In certain areas of the equity markets, pockets particularly, I think there are some areas to to be cautious. But my take, as I've shared earlier this week,
00:02:02
Speaker
and I've reiterated through the week is that I think that this is going to be very short-lived. I don't think the takeaway here should be that the current tranche of AI darlings are no longer going to be able to excel, survive, and gain adoption.
AI's Influence on Markets
00:02:32
Speaker
um And it's probably worth just you know explaining initially what happened um on Monday. So you know over the weekend, DeepSeek hit number one in the US App Store. Tons of people downloading it, playing around with it globally, in fact.
00:02:52
Speaker
and Deepsea claims to have trained its L&M at a fraction of the cost of OpenAI. And if you're familiar with everything that's been happening in AI, especially over the past 18-24 months, a lot of the discussion and why Nvidia is commanding such an obscene market cap and driving such a huge amount of revenue has been down to the fact that training LLMs is an extremely expensive and hardware intensive task. Deep Seekers kind of came in to challenge that by saying, you know, they trained their algorithm, I think sub six million dollars, which is ah just unheard of. And assuming you believe that,
00:03:39
Speaker
Which it may it may be true. the The one thing that is not up for debate is that they have delivered a superior product I think by all measures even the likes of Sam Altman coming out and and ah saying this so I Think and where this is raised questions and I promise I will get back to why this is important to ah Crypto, but if any of you have been listening to the podcast for sometime You know that we we touch on macro and a whole different areas as well because it's all related But this raised questions about you know the computing power, the energy needed to build and win in the AI vertical. And when you look at the impact across markets, now markets across the board, crypto, equities were all red. The only thing that wasn't red was um the the bond market for reasons I'll explain in a second. but
00:04:36
Speaker
the energy companies and many of the AI infrastructure companies, you know, Nvidia, ASML, et cetera, et cetera, TSMC, they were all down pretty bad, um around 16%. Outside of that, not a whole lot. um Now, the ah in the equity market, that is.
00:05:06
Speaker
Nvidia being down 16% in a single day is enough to dramatically move the whole S and&P index,
Market Frothiness and Reactions
00:05:15
Speaker
right? So that they command so much power. I mean, I think there was like something in the region of 20 or $30 billion dollars of ah Jensen Huang's net worth.
00:05:26
Speaker
simply reduced in in that day, which is more than the market caps of many of the the the companies that make up some of these indexes. So it just gives you a little bit of scale here on the the impact. But you know what we did see is a big sell-off in crypto.
00:05:49
Speaker
And when you look at this, um there's there's often a lot of chatter and it's like, you know, well, why is DeepSeek tanking crypto? It's got nothing to do with it. Yeah, that that's right. I think there's an element here of like,
00:06:05
Speaker
Well, on one hand, the thing that is obviously changing this, ah sorry, impacting the the crypto market is that the ripple effect of what is ultimately ah largely algorithmic trading that that's happening. We saw treasury yields, especially um on the long term, dropping pretty significantly for the first time in quite a while, which tends to signal a flight to safety away from risk assets. um So we saw bonds being bought up and a flight out of the equity market, at least in the chunkiest valuations, those AI, the energy and infrastructure companies. And I think the narrative to probably take from this is people questioning
00:06:55
Speaker
Is this market and are some of these big players in the market that are driving most of the indexes getting a little frothy? Are we overvaluing some of these companies right now? And certainly in in pockets that is is is absolutely the case.
00:07:14
Speaker
um Energy companies, I think, ah are going to struggle the most with this narrative. um But honestly, I'd be very surprised after we get to the end of February, when Nvidia release their earnings call, share some updates on their new Blackwell chip.
Federal Reserve's Stance
00:07:36
Speaker
I think the markets will have amnesia and forget all about this and it'll be back to business as usual. um But really, you know we we see a knock on effect. And I think this is where when you see a flight to safety and where there's questions around frothiness, the crypto market will be impacted by that. People will pull money away, especially from tail assets. Meme coins in particular have just tanked and the the whole alt space has has really tanked as well. Much more disproportionately to the likes of Bitcoin which while it briefly dropped below 100k has you know resumed back on a nice upward trajectory sitting at around about 105k as we're recording.
00:08:26
Speaker
Now, why? Why have we seen this upward trajectory and what's happening in the wider markets? What we saw on Tuesday, while Nvidia was down 16% on Monday, i it it pulled an upward trend of around about 8%, right? Which you know pales in significance to the 16% drop that that was previously saw, but we started to see, I think people realizing maybe there was some slight irrationality and maybe some over the top ah worries that were starting to happen here. And um the markets kind of have continued that slightly today, which has been helped to a certain degree in yesterday's FOMC meeting where the Fed had to make a decision around rate cuts. Now, I don't think
00:09:18
Speaker
anyone was expecting for the Fed to reduce rates yesterday and of course they they didn't, they held rates flat.
00:09:29
Speaker
i also think it's somewhat helped Jay Powell in that a lot of the attention has actually been around the stock market and deep seek, which isn't going to be a major input into any of their rate cutting decisions. They're going to be much more focused.
00:09:49
Speaker
As I was kind of surprised that Powell actually kind of called this out, it is going to be much more around like tariffs and fiscal policy, as well as, you know, wider economic, labor data, etc.
00:10:03
Speaker
And what most of us, myself in particular, yesterday were looking for was the commentary alongside the rate pause. I mean, we've we've had some murmurs of, outside of the Fed,
00:10:24
Speaker
around the potential for rate hikes later in the year. um The first week of Jan, we significantly repriced the likelihood of rate cuts. I think we went from somewhere in the region of four to five consensus bets of rate cuts down to one to two now. So I talked about this a little bit and that ah in in last at the last episode,
00:10:53
Speaker
of the podcast where we were talking a little bit about expectations for kind of moving forward and I think there's a lot of downside baked in which isn't a bad thing because as we see when we even just have like Not bad news. ah The market's reacting somewhat positively. Okay, we moved tiny amounts over past 24 hours, but I think we needed a little bit of that hope ah to to get us, even if it was from 101 to 105k on the BTC and alt slowly clawing back some of the losses they've had.
00:11:31
Speaker
But I think overall the FOMC meeting was positive. There are a few things in there. You know, Jerome Powell obviously reiterating that they are very independent from politics and trying to downplay Trump's influence on their rate ah cutting decisions. Trump obviously is very much in favor and vocally.
00:11:53
Speaker
is been putting a lot of pressure on the Fed to reduce rates sooner. We'll see how that kind of plays out. But I mean, in the Q and&A, he said they were, I quote, focusing on you using ah their tools to achieve their goals. And I think that's really saying, you know, but they've got the blinkers on from stuff like this. um the The main question, you know, was was around,
00:12:20
Speaker
when are we gonna see the next rate cut? And this is where J-PAL said that they're not in a hurry to cut rates. I think the takeaway here is they're in somewhat of
Crypto Innovation and Resilience
00:12:30
Speaker
a holding pattern. They wanna see further progress on inflation. However, what I did think was probably the biggest positive from the whole meeting was that he mentioned that, you know, inflation doesn't need to be below the 2% target.
00:12:46
Speaker
for them to cut rates. So while they're going to be keeping an eye on things, they're not going to have this strict barome like line that they're going to draw and say, unless, you know, we get this below the 2% target, we're going to cut rates. So that I think is is positive.
00:13:07
Speaker
The final thing, which I wasn't really expecting this, but there was some commentary around crypto, ah much more in the context of banks serving crypto. And he was asked a little bit about um their their view and focus of like innovation. um And Jay Powell said, I quote, we're not against innovation.
00:13:30
Speaker
Banks are perfectly able to serve crypto customers as long as they manage risk I think even just like hearing jpal starting to comment in a non-negative way around Crypto is a really good thing. So We came out and um I think any hawkishness that we would have got from the FIMC would have really hurt the markets quite significantly. So coming out kind of even just marginally green from from yesterday's meeting is definitely a positive here. um And I guess like the final piece, and this is a question that we're we're seeing, you know,
00:14:12
Speaker
Clearly, ah lot of a lot of you probably listening, ah if you've been following the podcast, certainly since we first started, may have ah quite a lot of your portfolio in altcoins. And I think one of the areas that certainly crypto Twitter, I see a lot of um sorrow. It feels like at times there's blood on the streets, even though, you know, Bitcoin's only a couple of thousand.
00:14:39
Speaker
off its all-time highs is that altcoins have been bleeding disproportionately to to majors. we've We've seen this. And I think there's a few things at play here. One, which is being discussed a fair bit, and I i am definitely a firm believer in this, at least in the short term,
00:14:58
Speaker
is yeah there's there there's this huge battle for attention that alts and now memes are losing.
Altcoin Market Dynamics
00:15:09
Speaker
One of the reasons behind this is just the sheer velocity of new tokens being created. we We talked about this on the podcast at the start of 2024. And I remember saying at the time, um you know, there's 5,000 new tokens being created every day. And that was unbelievable. You know, you look at the trailing 12 months from that, and it's just like a straight up and to the right chart. And that's April 2024.
00:15:39
Speaker
5,000 tokens each day. Now, Jan 2025, 140,000 tokens each day. That's a million tokens a week. Just think about that. One million new tokens are issued per week.
00:15:58
Speaker
There wouldn't have even been that many tokens issued in like the whole of 2017, 2018, I'm pretty sure. So you're starting to get a sense of the scale here of assets and the shelf life of those assets, of those millions of which many, the majority, are memes.
00:16:19
Speaker
the shelf life is extremely short, you know, probably under a week ah in terms of like the the longevity of those tokens. So the battle for attention is extremely tough. Even some of the bigger memes by market cap, you know, I'm not gonna name a load of these, but I guess like, you know, outside of Doge that's been around for such a long time, you know,
00:16:45
Speaker
um and the big market cap ones that aren't kind of riding the the next wave, like the AI meme stuff, whatever's going to be next. the They're not only losing the battle for attention overall, but they're not even in the attention battle in the current meta.
00:17:09
Speaker
we've been here before. you know but it when it When it comes to memes, I personally still have the view that 99.9% of memes go to zero. But alts with strong fundamentals, i'm not talking I'm not really talking about memes. I think some memes will rise to the top like we've seen through every cycle. It's a small batch. But alts with strong fundamentals will still have their day in the sun. I think as the momentum around meme shifts,
00:17:40
Speaker
I think actually a lot of meme traders are burnt out. I think the market is going to get burnt out here soon um because the the more of these tokens that are pushed out, the more that are losing, the you know the the less value there is to to have when it's just mainly extractive.
00:18:01
Speaker
but I still feel very strongly that the the majors on alts and those with strong fundamentals are going to do well this year. And in all of this, BTC has remained extremely resilient. It's probably a lesson in there actually. And I think especially with the talks of the strategic reserve really starting to ramp up, it it does feel like
00:18:34
Speaker
this is going to happen now.
US Crypto Strategy and Speculation
00:18:37
Speaker
I think the the biggest risk that we see around the strategic reserve, hence ah you know me calling it a strategic reserve and not necessarily a Bitcoin strategic reserve, is this a wider crypto strategic reserve? There's also this rumour chatter around US crypto assets, potentially getting some tax favourability coming up soon. It's still speculation at this point. And I don't even quite know how we would define ah decentralized asset to be US centric. But there's there's ways that that can be cut up. So we'll see. I mean, probably the
00:19:17
Speaker
The base case for a Bitcoin strategic reserve is simply them not selling all of the Bitcoin that they currently hold that have been confiscated, which sounds bearish, but I actually don't think it is. There's a huge amount of cell pressure there and that being locked up and not sold. I know Cynthia Loomis was talking about something much more aggressive where ah the US government would buy something in the region of what was it 200,000 Bitcoin a year and not sell for 30 years. ah So that is on the other end of the spectrum. I think Bitcoin certainly absolutely rips if if something like that comes to fruition. But I think we're a little way away from that, but there's been a lot of
Future Market Volatility and Launches
00:20:00
Speaker
positive signals. So I think overall,
00:20:02
Speaker
We've had a bit of a roller coaster week. And honestly, I think every week has been a roller coaster. We've had the absolute insanity of the Trump token launch. We've had the big kind of red day where markets nuked across the border on Monday. Already feels like we've kind of forgotten about that. January has just been an absolute blur. And I think many of you listening, myself included,
00:20:31
Speaker
ah You know, I'm tired, boss. it's It's tough out there in the trenches. So I think these are the moments, and there's always these moments, especially as we're gearing up into kind of more bullish conditions where it's really important to zoom out, don't get chopped up, don't start following and trading outside of where where you have skills or an edge and just focus a bit more on the long term here.
00:20:57
Speaker
But overall, remain very bullish. I think we've got a Fed rate cut decision in March. I still think it's extremely unlikely that we see a cut. However, positive, dovish language would be very much welcomed around that time. And I think February is going to be just as chaotic as this month. I think we have like huge red weeks, huge green weeks, um and It's it's gonna be tough to predict how how things play out but a lot of good stuff happening I think it's gonna be a number of really major Launches as well that are that are happening. I know abstract just launched We should have I think in q1 Barra chain mega Eve Monad, I believe they're all ah launching in in q1 and So there'll be enormous TGs if they happen and we we know what often happens off the back of enormous airdrops like that. So we'll keep an eye on it. I'll have Austin back by my side next week. Hopefully some of this
Conclusion and Listener Engagement
00:22:05
Speaker
was useful. And of course, any questions on any of this, hit me up on
00:22:37
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.