Last week, we said the break below $82.5K did not change our view. This week, BTC pushed up to almost $85K. It could not stay there, and now it is back near $82K.
We don’t read too much into this pullback. On the way up, leverage went up with the price. On the way down, open interest fell about $3 billion from the high, so some of that leverage got cleaned out. Funding rates also cooled, which means longs are less crowded than a few days ago. The price is still well above the average cost of short-term holders, around $75.9K. Above us, $85K is close to the average cost of active investors, so some of them may sell there just to get their money back. That is the level to watch.
So we are still in the range. BTC needs more time to build strength before the next leg up. Our view stays the same: cautiously bullish, trade less, buy on dips.
What Changed
Macro. The dollar fell to a three-week low. Treasury yields and oil came down too. This fits what we said last week, that long-term rates may be close to the top. The next big test is the Fed meeting on October 27-28, and GDP data comes out the day after. Before the meeting, we trust short-term breakouts less.
AI. We think this sell-off is a short-term trim, not a long-term turning point. Demand has not changed. What changed is what the market is willing to pay for. For a long time, any AI spending was rewarded. Now the market only rewards spending that earns a good return, so the gap between winners and losers keeps getting bigger.
In the short term, there are some real problems:
Overall stock positioning is much lower than in mid-September. But inside the AI trade, people are still crowded into the same names.
Last week, a lot of money bought the chip dip through 3x leveraged ETFs, about $7 billion into one fund alone. Counting the leverage, those inflows add up to about $20 billion of exposure. That is how much came in, not how much is still held today. But leveraged ETFs have to sell more when prices fall, so if chips break key levels, this money can make the drop worse.
The S&P 500 and Nasdaq are below their 50-day averages. Trend-following funds may keep selling for a while.
Earnings growth is very narrow. S&P 500 earnings for Q3 are expected to grow about 24% from a year ago, but for the median company it is only about 8%. So the results of a few AI leaders matter much more to the index than everyone else.
Options are expensive going into earnings. Implied volatility is around the 80th percentile of history. The market already expects big moves, so even a good report may not lift the stock much.
Still, this does not look like a bubble to us. Tech trades at only about a 20% premium to the market. Valuations are low because the market does not believe the 2027-28 earnings numbers yet, and we think that doubt will fade as the numbers come in. We keep our views. We do not rush to add.
Crypto. BTC went up and came back down. On the way down, leverage came out of the market. We also don’t see a big build-up of new shorts, since open interest did not rise during the drop. ETF demand got better. Over the last four US trading days, spot BTC ETFs took in about $1 billion, and the October 21 inflow was spread across most of the funds. That is a big change from the outflows earlier in the month. It does not mean US selling is over, but the pressure is lighter now. In the last 24 hours, every major altcoin did worse than BTC, and BTC dominance rose to about 60%. For now, BTC is leading. BTC is still our main position.