Source: Ark Funds Webinar; Compiled by: Jinse Finance
Cathie Wood: At least at the time of this recording, the market is in a state of turmoil. In summary, we are experiencing a liquidity crunch, but we believe it is temporary.
We believe there are three main reasons for the liquidity crunch:
Quantitative tightening (QT) is not over: Although many expected the Fed to end QT at the last meeting, they did not. We expect them to end it at the next meeting, on December 10th.
Treasury General Account (TGA): During the government shutdown, the Treasury's cash balance continued to accumulate. Now that the shutdown is over, the liquidity pressure caused by TGA should be relieved.
Treasury General Account (TGA): During the government shutdown, the Treasury's cash balance continued to accumulate. Now that the shutdown is over, the liquidity pressure caused by TGA should be relieved.
Interest Rates: The market expects another rate cut in December, and we agree. The Fed will shift from its current hawkish stance back to a more dovish tone. We are seeing inflation decline significantly. Inflation expectations, as measured by the 10-year Treasury yield, have been declining over the past few months, hovering around 2.5%. West Texas Intermediate crude oil prices have fallen below $60, and housing price inflation has dropped to 1.5%, which will be reflected in the CPI over the next year. Our research indicates that deflationary undercurrents are building alongside the evolution of new technologies. We would not be surprised if inflation breaks out substantially next year after the effects of tariffs have subsided. Furthermore, we are seeing significant weakening in employment indicators, with the ADP report showing employment contracting or growing very slowly. The unemployment rate for recent graduates is accelerating. All of this suggests that the velocity of money has slowed, and we expect it to decline year-over-year. Nominal GDP may fall to 4% or below 3%. We believe this liquidity crunch will end as governments fully reopen, quantitative tightening concludes, and interest rates continue to decline in response to weak indicators. The crypto ecosystem is a leading indicator of liquidity fluctuations. We believe this liquidity crunch will end within weeks or next month. The restructuring of the financial ecosystem has only just begun. Cathie Wood responded to lowering her Bitcoin price target from $1.5 million to $1.2 million: The reason we updated our price target model is: The rise of stablecoins: Stablecoins are replacing one of the roles we initially expected Bitcoin to play—as an "insurance policy" for emerging market participants against hyperinflation or corruption. Stablecoins have reached a market capitalization of nearly $300 billion, largely backed by US Treasury bonds, making them natural buyers of US Treasuries. Gold Price Appreciation: The market capitalization of gold, which is used as a digital gold anchor in our model, has grown from approximately $17 trillion to $28 trillion. The accelerated growth of stablecoins has replaced some of Bitcoin's role, but the appreciation of gold prices has far exceeded our expectations. Therefore, overall, our bullish price target for Bitcoin remains unchanged. We reiterate our long-term bullish sentiment. Cathie Wood Responds to AI Bubble Concerns: Many people worry about the risks of an AI bubble. The situation is vastly different now compared to the tech and telecom bubbles. Back then, the technology was immature and too expensive. Now, we have cloud computing, deep learning, the Transformer architecture, and most recently, the ChatGPT moment. We believe the AI story is just beginning, and we are in the first round. While some studies suggest that businesses haven't yet seen productivity gains from AI, this is because businesses need time to restructure and transform. However, on the consumer side, AI is booming. Companies like Palantir are demonstrating strong demand from enterprise clients facing strategic pressure to maintain their competitive edge. We expect a real productivity leap to begin next year. In the long term, we see global real GDP growth accelerating to the 7% to 8% range, reflecting that we are in the midst of an unprecedented technological revolution. Lorenzo, Ark Funds team member: We remain very bullish on Solana overall. There are several reasons for the price lag in Solana: Market uncertainty and liquidity: The recent flash crash and macro-level liquidity tightening have impacted the entire crypto market. Early participant sell-off: During bull markets, there is always profit-taking by early participants with large unrealized gains.
Fundamentals Decline: Solana's actual economic value (the fees users are willing to pay) has declined from a peak of approximately $900 million per quarter to approximately $200 million this quarter.
Increased Competition: Layer 2s on Ethereum (such as Coinbase's Base and Robinhood's L2) and high-performance EVMs (such as Monad and Mega) pose competition. Hyperliquid, in particular, holds over 50% of the perpetual futures market share.
Nevertheless, we remain positive on Solana's strong roadmap and high-quality builder team.
David, Ark Funds Team Member:
Our initial model had six main contributors: Institutional Investors, Digital Gold, Emerging Market Safe Havens, Nationwide Treasury, Corporate Treasury, and On-Chain Financial Services.
We have revised the "Emerging Market Safe Havens" assumption.
We have revised the "Emerging Market Safe Havens" assumption.
While cryptocurrencies are widely adopted in emerging markets, Chainalysis reports that Bitcoin accounts for approximately 20% of trading volume, while stablecoins account for 40% to 50%. Therefore, we have scaled down our assumption of emerging markets as a safe haven. However, the growth in gold's market capitalization has offset this adjustment.