In a significant shift in strategy, cryptocurrency research firm, 10x Research, has revealed it sold most of its holdings in risk assets, including technology stocks and cryptocurrencies. This decision, detailed in an investor note released by the firm’s founder Markus Thielen, stems from growing concerns about inflation and a changing economic landscape.
Thielen’s note highlights several factors influencing 10x Research’s decision. A key concern is rising inflation in the United States, with projections from Bank of America suggesting Consumer Price Index (CPI) inflation could reach 4.8% by the November elections. This would significantly surpass the Federal Reserve’s target of 2%.
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Further complicating the investment environment is a shift in the bond market. The US bond market currently anticipates fewer Federal Reserve rate cuts this year compared to earlier forecasts. Additionally, 10-year Treasury Yields have reached their highest point since November 2023, at 4.61%.
These combined factors have led 10x Research to believe that risk assets are vulnerable to a significant price correction. “We sold all our tech stocks last night as the Nasdaq is trading poorly and reacting to the higher bond yield,” stated Thielen. “We only hold a few high-conviction crypto coins. Overall, we are bearish on risk assets.”
The performance of US-listed Bitcoin exchange-traded funds (ETFs) further reinforces 10x Research’s cautious stance. Despite the initial surge in Bitcoin prices following the approval of these ETFs in January, inflows have slowed dramatically. The five-day average net inflows have dropped to zero this month, compared to nearly $12 billion earlier in the year.
The upcoming Bitcoin halving this month (April 2024), which will cut Bitcoin mining rewards in half, presents another layer of uncertainty. While such halvings have historically triggered price increases due to perceived scarcity, Thielen believes current market conditions might mute any potential rally.
In response to criticism regarding a perceived change in stance on Bitcoin, Thielen defended 10x Research’s trading strategy. He emphasized a focus on “continuous analysis” and adaptation to market conditions. “There are times when we advocate for a total risk-on approach and when the priority is safeguarding your capital,” Thielen explained.
Concluding the investor note, Thielen promised a return to the market under more favorable conditions: “Will buy back with both hands at $52,000 – promise.” At the time of writing, Bitcoin is currently trading at $62,986.
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