Weekly: Constructive Outlook

An alleviation of technical factors pressuring crypto performance and a continuation of Solana airdrops

February 2, 2024

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Key takeaways

  • Many technical factors pressuring crypto performance to the downside are starting to be exhausted, in our view, which may give way to a more supportive trading environment in the weeks ahead.
  • We expect rate cuts in the US to start in May and the tapering of quantitative tightening soon after, coinciding with idiosyncratic events like the bitcoin halving and creating a positive setup for the asset class more broadly.
  • Solana airdrop season continues in earnest with Jupiter, Solana’s leading decentralized exchange aggregator, launching its first of four airdrops on January 31.

Written by

  • David Duong, CFA - Head of Institutional Research
  • David Han, Institutional Research Analyst

Market View

Stronger Macro Backdrop

Many technical factors pressuring bitcoin specifically (and crypto more broadly) are starting to be exhausted, in our view. This is evidenced by the liquidations at FTX (disposing of their Grayscale Bitcoin Trust or GBTC shares, for example) as well as the emergence of some large defunct entities from bankruptcy. Indeed, net inflows into US spot bitcoin ETFs have averaged more than US$200M daily over the last week (taking the total net inflows to $1.46B since January 11) with a healthy daily volume of ~$1.35B. Consequently, we expect macro factors to become more relevant for the digital asset class in the weeks ahead, which could be supportive for performance.

In the US, the likelihood of a soft landing seems higher than it was a few months ago with the economy ostensibly making only minimal tradeoffs between activity and inflation. Core PCE inflation (the Federal Reserve’s preferred measure of prices) at 2.7% YoY is trending in line with their 2% long-run target, and the assortment of recent economic indicators has been fairly resilient. We’ve previously explained that part of the reason for this combination has had to do with procyclical government spending and still buoyant levels of personal consumption, although we believe these drivers will not be sustainable in the months ahead.

Not only is the US budget deficit widening, but the labor market is cooling. Many American households are winding down their savings as suggested by the US personal savings rate falling to 17.6% (in December 2023) of the previous year. That’s despite the upside surprises to retail sales in the last six months relative to median survey expectations. Ultimately then, we would expect the economy to slow down, possibly in 1H24, although the chances of avoiding an outright recession seem very high– albeit the situation at New York Community Bancorp (NYCB) and the implications for regional banks is concerning.

This week, we had some indications of how the Fed is interpreting this scenario. The statement from the FOMC meeting said that “the risks to achieving [the board’s] employment and inflation goals are moving into better balance,” but the board argued that they won’t have the level of confidence they need on the inflation trend before the March meeting. The conversation on tapering its quantitative tightening (QT) program was postponed to the next meeting on March 19-20.

Overall, that suggests the easing cycle will most likely start on May 1, while an end to the Fed’s balance sheet reduction plans could start in June (though there’s a chance it could begin around the same time as rate cuts). We do not believe the disinflationary trend will be derailed and expect the Fed to cut rates by 100bps this year, compared to the 75bps implied in the dot plot or the almost 150bps priced into Fed funds futures. That would also be consistent with the typically anodyne stances pursued by policy makers during election years.

Ultimately, this would coincide with idiosyncratic drivers like the bitcoin halving in late April and could potentially prop up both bitcoin and other tokens in 2Q24. Moreover, we expect the effects of more advertising from ETF issuers and the inclusion of spot bitcoin ETFs in asset managers’ model portfolios to unlock increased liquidity in this space.

Screenshot 2024-02-01 at 4.41.14 PM

Onchain: Solana Airdrop Season

The airdrop for Jupiter, Solana’s leading decentralized exchange aggregator occurred on January 31, in one of the largest airdrops ever. This represents a continuation of major longstanding Solana ecosystem protocols launching tokens (e.g. Pyth in November 2023 and Jito in December) following renewed attention on the ecosystem throughout 2H23.

This trend is set to continue for at least several more months as a number of other high profile Solana projects still remain tokenless, and three more Jupiter airdrop rounds of equal size have yet to be released. We believe these token launches are poised to form the foundation of a renewed Solana ecosystem, and combined with the increasing pace of stablecoin inflows to Solana (up 13.7% in the past week to $2.19B), may make the ecosystem increasingly attractive to developers who may have previously been worried about onchain liquidity.

In our view, an underappreciated, yet important, result of this airdrop was the “real-world” stress testing that the airdrop represented for the Solana blockchain. Although some individual nodes were overloaded, which led to several cases of poor user experiences and transaction timeouts, there was no widespread blockchain halt.

Solana is fast approaching its first full year mark without any downtime (the last outage was on February 25, 2023), showcasing its significant ecosystem progress – especially when compared to an early history of crashes that halted the chain for days at a time. Solana’s recent 1.17 mainnet release for validators on January 15 was also timely in improving overall node performance and stability. There was also the recent announcement of a Solana Labs spinoff to a new legal entity, Anza Technologies, that may further increase diversification and strengthen the network’s resilience.

That said, the elevated airdrop activity did reveal some limitations in Solana’s performance. Gaining clear metrics on transaction failures caused by overloaded nodes is a known reporting gap because such transactions are neither recorded onchain nor do they reside long-term in a mempool like Ethereum. Ultimately, it makes little difference to the end user, particularly non-technical ones, whether their transaction failed due to a reversion in onchain execution or due to a leakage or delay in the node broadcasting stage. The lack of data collection and tooling around such infrastructure issues makes it harder to replicate, test, and resolve, which could lead to divergences between realized user experiences compared to purely onchain transaction statistics in the long-term. 

In addition, the average priority fee surged more than 100x at times during the initial airdrop launch, up from $0.001 to more than $0.1. Although this is significantly less than a congested Ethereum counterpart, it highlights the incompleteness of Solana’s pseudo-localized fee markets and its priority fee mechanism where high fee transactions only have a probabilistic guarantee for block inclusion. The fee mechanism is currently undergoing some rework by the Solana labs team, and we may see preliminary fixes for this in the 1.18 release (as early as April), though the final resolution mechanism has not yet been decided. Still, the surge in fees in addition to a temporarily degraded user experience on the chain highlights the continued focus and importance of various approaches to scalability in the space.

Crypto & Traditional Overview

(as of 4pm EDT, Jan 18)



Mkt Cap

24 hour change

7 day change

BTC correlation













Gold (Spot)






S&P 500


















Coinbase Exchange & CES Insights

Traders are becoming more constructive on the market. BTC found good support at its 100D MA and CME OI has stabilized. Furthermore, ETF flows have been solidly positive with over $600M entering the products over the past week, nearly $1.5B since launch. Together, these data points are making market participants more comfortable holding and adding to long crypto exposure. However, even with the positive overall sentiment, ETH still seems to lack interest. It has fallen from the second to the third most traded asset on the exchange and saw only slightly more volume than SOL.

Screenshot 2024-02-01 at 4.41.22 PM

Financing Rates







5.00% - 10.75%


USD - 1m


5.25% - 11.00%

USD - 6m


5.50% - 11.50%


1.50% - 5.00%


3.00% - 8.00%


Notable Crypto News


  • FTX Expects to Repay Customers in Full, Drops Exchange Relaunch (Bloomberg)


  • SEC likely to approve spot Ethereum ETFs on May 23: Standard Chartered Bank (The Block)
  • How the Crypto Industry Responded to FinCEN's Proposed Mixer Rule (Coindesk)


  • Vitalik Buterin details four ways cryptocurrency and AI can overlap: 'A growing number of use cases' (The Block)


Views From Around the World


The Bank of England and UK Treasury published their response to last year's consultation on a potential digital pound, determining that further research is needed before conclusively deciding whether a CBDC is necessary for the UK but that their exploratory work on a potential design will continue. (The Block)

According to guidelines proposed by the European Securities and Markets Authority (ESMA), crypto companies based outside the EU will only be permitted to directly serve customers within the bloc under limited conditions in order to promote fair competition as outlined by the MiCA regulations. (Reuters)

German authorities seized over $2 billion worth of bitcoin that two individuals had allegedly obtained from the unauthorized commercial use and distribution of copyrighted materials, in what became the largest cryptocurrency seizure by German law enforcement to date. (The Block)

An Italian startup called BlockInvest plans to tokenize non-performing loans on the Polygon network through two new projects aimed at addressing the multi-billion dollar distressed credit market. (Defiant)

The Swiss Financial Market Supervisory Authority (FINMA) has approved Taurus, a digital asset marketplace provider, to open its platform to retail investors, allowing individuals to trade digital securities and tokenized assets accepted on the Taurus Digital Exchange (TDX). (Bitcoin.com)


Chinese asset manager Harvest Global Investments has applied for a spot bitcoin ETF in Hong Kong according to reports, as it also discusses participation in the city's planned stablecoin regulatory sandbox. (CoinDesk)

Two Japanese congressmen want to develop policies for web3 in the country, and have been holding discussions and a DAO hackathon to understand stakeholders' needs. (CoinDesk)

Thailand's Securities and Exchange Commission has updated its cryptocurrency regulations, removing retail investment limits in asset-backed tokens and establishing new custodial wallet and digital business monitoring rules. (CoinDesk)

The Week Ahead

Feb 5 

Feb 6

Feb 7

Feb 8

Feb 9

Notable Macro


Notable Earnings

Microstrategy Inc

Cleanspark Inc


Ethereum launches Dencun on Holesky testnet


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