GM friends.
Hereâs what Iâll cover today:
đ The calm before the storm
đ Crypto chart of the week
đď¸ The latest DeFi news
đ The calm before the storm
BTCâs volatility has been pretty low recently, but I expect that to change soon.
We got a small pump yesterday after the Fed announced it was keeping interest rates unchanged, but the move mostly retraced afterward.
As much as Iâd love to see crypto decouple from macro news and hit new highs, I think the current macro environment explains the recent underperformance.
On the macro side, several not-so-great things happened recently:
AI companies are starting to face difficulties borrowing money as debt markets begin to shut off funding, which potentially puts them at risk of bankruptcy
US inflation remains high, making future FED rate hikes likely
The US-Iran war looks increasingly likely to resume.
I think the last point isn't discussed enough and is a main reason why markets have been in a risk-off environment lately. According to Polymarket, thereâs only a 29% chance that the US doesnât attack Iran again by December 31.
The US and Iran still seem far from reaching a peace deal after months of negotiations, and Trump has increasingly hinted that heâs considering another military operation against Iran.
There are only two reasons why I think the ceasefire has lasted this long:
The US midterm elections are coming up on November 3. Trump likely doesnât want to restart the war before the elections, as doing so would hurt his partyâs chances at a good election result
Israelâs political situation remains uncertain after the recent parliamentary elections, and itâs not yet clear whether Benjamin Netanyahu will remain prime minister. This matters because the US is unlikely to attack Iran without Israelâs help, and Benjamin Netanyahu has been one of the biggest proponents of the war
So whatâs next?
The US midterm elections are just five days away, and I expect to get more clarity after that on whether the current ceasefire will hold.
Meanwhile, Polymarket gives Netanyahu roughly a 45% chance of remaining Israel's prime minister. If he stays in office, I think the chances of the US and Israel resuming their strikes against Iran increase significantly.
In that scenario, BTC revisiting $75,000-$77,000 seems entirely possible. I donât expect a crash as severe as the one we saw in Q1 when the war first started, but a renewed escalation could still trigger another sell-off.
The only good news is that this would probably also mark the BTC local bottom, since I canât think of anything that could cause more market fear than a restarting war.
Obviously, I hope the war doesnât restart. Putting financial markets aside, another war escalation would mean more innocent people losing their lives.
But Trumpâs recent comments + Polymarket implying a 71% chance that the US-Iran ceasefire ends before Dec. 31 + the US recently evacuating family members of US diplomats from Middle Eastern countries make me think that the US attacking Iran again is a likely outcome.
How am I positioning myself in the market
I rotated a part of my altcoin exposure into BTC.
My reasoning is simple: if the US vs. Iran conflict escalates, I expect BTC to outperform most altcoins on the way down. Given my view that BTCâs downside from here is limited and its local bottom is no more than 5-10% away, I don't think selling BTC here makes sense from a risk/reward perspective, so I am holding my BTC bag.
On a longer timeframe, I'm also very bullish on revenue-generating altcoins. I think many of them will be trading significantly higher a year from now.
But in the short term, the sad reality is that the market could remain choppy unless 1) the US finds a way to make a deal with Iran and 2) inflation cools down.
There are two Polymarket markets I will monitor closely in the next days:
Prime Minister of Israel after the next election? - Netanyahu has a 46% chance atm of remaining the Israeli prime minister. If his chances shrink and he is replaced by someone else, the odds of the war resuming will drop quite a bit in my view, as Trump publicly said he wants to fight Iran alongside him
US-Iran ceasefire continues through Dec. 31? - Thereâs only a 29% chance that the ceasefire wonât be broken by that date. If the odds of the ceasefire continuing significantly rise and the war no longer restarts as expected after the midterms, then I am planning to re-add my altcoin exposure and will become more bullish
I think prediction market odds are a valuable tool for understanding what's likely to happen next on the geopolitical/macro side without spending all day reading the news, so thatâs why Iâm keeping an eye on them.
To sum up my view:
If the US-Iran war restarts, I expect another major market dip, primarily affecting stocks and altcoins, with a limited impact on BTC.
If a peace deal is signed or the ceasefire simply continues after the midterms, I expect an explosive rally, as this isn't priced in.
Either way, this low volatility environment will likely be over soon.
Chart of the week
The weekly DeFi revenue has grown from $80 million to over $300 million
Crypto meme of the weekđ
The latest developments in DeFi
Trade[XYZ] and NYSE announced plans to bring Hyperliquid perps to the US
Chainlink launched CustodySync, a solution that enables institutions to borrow from DeFi against assets held in custody
INFINIT reopened deposits for APEX MS Vault, a trading vault that has generated 35% APY since launch
Uniswap launched Aggregator Hooks, turning Uniswap V4 into a DEX aggregator
Ethena launched Earn+, a 12% APY DeFi vault for its neobank users
Stanley Druckenmiller, a very famous American investor, invested in Trade[XYZ]
Predict fun introduced its token and announced an airdrop
Jupiter introduced Jupiter Bridge - a new bridge aggregator
Extended announced the launch of its own token XTEN in November
Kamino enabled borrowing against Backpack tokenized stocks on Solana
Pumpfun launched perps powered by Hyperliquid
USDai introduced a token buyback program
Osmosis ended OSMO token inflation
Thatâs all for this week!
Until next time,
The DeFi Investor
Want to sponsor this newsletter?
Please send me a DM on Twitter (X). I have a sponsorship deck that I can send you.