October in Crypto & the Rest of 2024
Here's a bit of a review of October along with some forecast for the rest of the year. (We were a little late getting the October monthly review out, but we'll get back on track with November.)
The crypto market has retreated slightly from the initial bullish moves of September. Capital is staying on the sidelines until after the election. Bitcoin was up with most of the major altcoins such as ETH (-3.2%) down. The MOVE Index, which measures bond market volatility was up all month above 120, our yellow threshold for the indicator. Everyone is waiting until after the election to make crypto investments.
We expect the election to bring transparency and for the Fed to drop interest rates another 25 bps in November. After the election, we expect crypto to outperform in Q4 and throughout 2025.
Below, I’ll discuss the summary for the month as well as my continued outlook for 2024.
REPORT SUMMARY
This month was generally a flat month. October was a relatively quiet month with the general bull trend intact. We expect to see the next leg of this bull market to continue after the election. Some highlights:
AI theme, which is our biggest investment theme was down -15% on the month after being up 40% last month. DeFi was up +5% and continues moves higher with the Fund initiating 2 new positions.
One of our projects, TapiocaDAO, experienced a ”social hack” where a developer released access to the protocol. This was not a technical hack or an issue with the technology. They have recovered more than half and since the main dApp hadn’t been launched, they have a plan to re-issue tokens and support project launch.
A Harris presidency foreshadows -15% drawdowns short-term; a Trump presidency could bring the opposite with a +20% upturn, with even more if the GOP captures the House and the Senate.
The election will inform the future short-term for the crypto market. Phase II of this bull run continues after the election results, as long as there isn’t a prolonged contested election.
The Fed should have 2 more rate cuts this year and 4 more next year. They will end QT in Q1 of 2025 and likely return in QE sometime in 2025.
Phase II is being driven by the expansion of global M2 and the coordinated rate cuts from central banks around the world. The expansion of the money supply drives crypto prices higher.
We are entering the (estimated) final 16 months of the bull run where we altcoins historically outperform.
Month Summary
October 2024 was a pivotal month for the cryptocurrency market, characterized by price recoveries, innovations, and sector-specific challenges. The market dynamics were shaped by broader macroeconomic trends, regulatory discussions, and technological advancements, particularly in AI and decentralized finance (DeFi). Here’s an expert perspective on the most critical developments:
Bitcoin ETF Momentum
The most significant driver of market sentiment was the anticipation surrounding Bitcoin spot ETFs. Leading financial institutions, including BlackRock, Fidelity, and Invesco, edged closer to receiving regulatory approval. This development not only bolstered Bitcoin's price, which closed the month above $35,000, but also improved market liquidity and institutional participation. The ETF excitement fueled optimism across the altcoin market, despite lingering macroeconomic uncertainties.
AI-Themed Tokens
AI-integrated cryptocurrencies like Fetch.ai (FET), Render Token (RNDR), and SingularityNET (AGIX) garnered attention, reflecting growing interest in the intersection of artificial intelligence and blockchain technology. However, performance was mixed: while AI tokens enjoyed heightened adoption in data exchange and machine learning applications, some, like FET, declined due to profit-taking and speculative volatility.
DeFi Sector Innovations
The DeFi ecosystem remained dynamic with several noteworthy developments:
Aave expanded its V3 protocol to Layer-2 networks, improving scalability and attracting liquidity providers.
MakerDAO introduced governance upgrades and integrated real-world assets (RWAs) into its DAI stablecoin collateral system. These efforts increased protocol earnings, benefiting MKR token holders.
Pendle Finance (PENDLE) saw growth due to its innovative model for tokenizing and trading yield-bearing assets, leveraging liquid staking derivatives to attract DeFi participants.
Ethena (ENA): A rising DeFi star, Ethena introduced unique staking and synthetic assets strategies that combine on-chain transparency with off-chain efficiency. While still growing, ENA’s focus on modular scalability and ecosystem integration attracted attention in October.
Solana’s Continued Resurgence
Solana was among the month’s best performers, rising 10% as it reinforced its position in the NFT and DeFi ecosystems. Key partnerships, growing developer activity, and increasing user adoption highlighted Solana's scalability and relevance, bolstering investor confidence despite its past network outages.
Broader Market Trends and Challenges
While many major tokens showed resilience, October was not without challenges. Regulatory uncertainties persisted, with global policymakers deliberating on stablecoin rules and cryptocurrency taxation. Additionally, a few tokens, such as Polygon (MATIC) and Internet Computer (ICP), struggled due to waning market interest and competitive pressures.
However, The focus on tangible use cases and institutional adoption signals a maturing industry poised for sustained growth.
Project “Social Engineering” Attack, TapiocaDAO
The TapiocaDAO project suffered a hack in October 2024, leading to the theft of funds due to the compromise of private keys belonging to one of its developers. This was just one of many DeFi protocols that was hacked, including EigenLayer, Radiant Capital and various Base contracts. Because this was a social (human error) attack vs a technical attack, the protocol is expected to make a complete recovery. Here's a detailed summary of the incident:
Nature of the Hack
The attack was primarily executed through a social engineering scheme, targeting a developer at TapiocaDAO. The hacker successfully deceived the individual into revealing private key access, enabling them to exploit the protocol. Social engineering attacks like these often involve phishing, impersonation, or other manipulative tactics designed to gain trust and access. This method underscores the importance of securing developer keys with multi-factor authentication (MFA), hardware wallets, or multi-signature wallets to prevent single points of failure. These processes that were required at Tapioca but in which this developer did not follow. The developer has been terminated.
The exploit resulted in the theft of approximately $7 million worth of tokens and stablecoins, which were siphoned from the project’s smart contracts and user accounts associated with TapiocaDAO. Via a quick response Tapioca was able to recover $2.7 Million. This left a net loss of around $4.3 million for the project. (Note the project did receive an additional investment of $1M and still has ample treasury. Though this was a blow to the project it was not critical. Tapioca is well respected in the community and because it was not a technical failure they are expected to not only recover but have a successful Q1 launch.
Worth noting, Ethereum was hacked in 2015 to the tune of $64 million and obviously recovered and went on to be the #2 protocol by market cap.
Protocol Response
TapiocaDAO’s response involved:
Immediate Contract Suspension: To minimize further damage, the team paused affected smart contracts and flagged the stolen assets.
Negotiations with the Hacker: The project opened communication lines with the attacker and offered a $1M bounty and immunity if the remainder of the funds were returned. (This was not accepted.)
Counter-hacking the attacker to recover 1000 Eth (Appx $2.7M)
Working with Seal911 and Binance to freeze additional funds of approx. $400K which will be returned over time.
Post-Mortem Report: TapiocaDAO has been completely transparent and has outlined steps to enhance security measures particularly around personnel.
Immediate termination of the developer and hiring of the former CTO of Yearn Finance, one of the most successful DeFi projects created.
TapiocaDAO will be re-issuing new tokens to investors that are not a part of the compromised contract and based on a snapshot of the blockchain prior to the hack will ensure that all token holders remain whole. The TapiocaDAO hack serves as a stark reminder of the need for constant vigilance, proactive security measures, and the evolving threat landscape within decentralized finance.
Global Macro
October 2024 was marked by several key macroeconomic trends that significantly impacted risk assets, including equities and cryptocurrencies. At the heart of these movements was the expansion of the global M2 money supply, which had been contracting for much of 2023 but began showing signs of recovery in Q3 2024. The M2 money supply, which includes cash, checking, and savings deposits, serves as an important indicator of liquidity in the economy. After a sharp contraction earlier in the year, M2 rebounded to a 2% year-on-year increase by the end of Q3. Historically, such expansions have often led to higher asset prices, as increased liquidity tends to flow into markets, including risk assets like stocks and cryptocurrencies.
This recovery in M2, alongside an anticipated loosening of monetary conditions, is seen as a potential catalyst for the next crypto bull market. The historical correlation between M2 growth and the rise in Bitcoin prices suggests that as liquidity increases, Bitcoin and other digital assets could see significant upward momentum. A key observation from analysts such as Jamie Coutts of RealVision is that the rate of change in the money supply, rather than its nominal value, is most important for driving Bitcoin’s price action. A reversal in M2 momentum, especially following the period of contraction, could lead to renewed interest in cryptocurrencies as a hedge against inflation and also impel the final legs of this bull cycle including a shift from bitcoin dominance into “alt-season.”
In tandem with the M2 rebound, another key development was the ongoing behavior of the U.S. Dollar Index (DXY). Throughout October, the DXY remained relatively stable but continued to face downward pressure, which is typical of an environment where the Fed is more likely to cut interest rates. A weaker dollar tends to be supportive for Bitcoin, as a global reserve asset, and for other commodities. Analysts believe that if the DXY falls below the 101 threshold, this could act as "rocket fuel" for Bitcoin's price, propelling it upwards.
Meanwhile, in the U.S. Treasury market, bond volatility was notable. The MOVE Index, which tracks bond market volatility, remained elevated, signaling persistent uncertainty in fixed-income markets. The 2-year U.S. Treasury yield continued to be relatively high, reflecting investor expectations of short-term rates staying elevated as the Fed maintains a hawkish stance on inflation. In contrast, the 10-year yield remained lower, reflecting the market's expectation of a slowdown in the economy. This inverted yield curve is a signal of future economic challenges, as it implies that investors anticipate weaker growth over the longer term. This divergence in yields adds to the volatility in global risk markets, leading many investors to seek safe-haven assets, while simultaneously causing concern for riskier assets like equities and cryptocurrencies.
Looking deeper at the broader investment landscape, famed global macro investor Raoul Pal’s “Everything Code” framework was again relevant in October. This concept revolves around the idea that as central banks, particularly the U.S. Federal Reserve, begin cutting interest rates and possibly reintroducing Quantitative Easing (QE), liquidity will flood back into financial markets. Such policies would likely spur a fresh rally in risk assets, including stocks and cryptocurrencies. As liquidity conditions improve, cryptocurrencies, especially Bitcoin, are likely to be viewed once more as a key hedge against inflation and the devaluation of fiat currencies.
Pal has long emphasized that the combination of M2 expansion, lower interest rates, and renewed QE would likely fuel a dramatic rally in crypto markets, driving prices higher in the next bull market cycle. This dovish shift from central banks, coupled with continued liquidity inflows, could see Bitcoin, in particular, outperform many other assets in the near term. His analysis aligns with broader market sentiment, which suggests that while we may see short-term volatility, the longer-term outlook for risk assets remains positive if monetary conditions continue to ease.
In conclusion, October 2024 was a pivotal month for global markets, marked by a reversal in M2 contraction, signs of a weaker dollar, and significant volatility in the U.S. Treasury market. For risk assets, especially cryptocurrencies, the implications of these shifts were clear: an eventual liquidity surge, likely driven by lower interest rates and potential QE from the Fed, could provide the fuel for the next major rally. While bond market volatility remains a concern, the broader macro environment, especially the potential for an expansionary monetary policy, points to a favorable setup for risk assets in the medium to long term.
The Boring Zone & the Banana Zone
Raoul Pal’s Global Macro Investor, GMI, and his YouTube video’s from RealVision tout some of the best explanations of what happens during this 4-5-year monetary cycle. Historically we’ve been through this 3 times before with bitcoin. (see chart below, from GMI.)
A few months after the first rate cuts from the Fed is when the “Boring Zone” completes, and the “Banana Zone” begins. This is when we see the biggest moves in bitcoin and by extension crypto assets. The last 12 – 16 months of the cycle is when we’ve historically seen the parabolic moves. You can see it was the same in the 2012-13 cycle, the 2016-17 cycle and the 2021-2022 cycle. We expect Q1 of 2025 to being the “Banana Zone” for this cycle around.
Most importantly for our fund, this is the cycle when bitcoin dominance fades, when alt-season begins and when crypto assets other than bitcoin outperform bitcoin.
Bitcoin Chart – Bullish
Bitcoin demonstrated robust performance in October 2024, driven by significant developments in both market sentiment and institutional interest. The cryptocurrency began the month trading in the mid-$50,000 range and surged past $73,000 by late October, fueled by momentum from institutional investors and the approaching U.S. elections.
A pivotal driver was the record-breaking inflows into Bitcoin ETFs, which totaled $870 million in a single day on October 30. BlackRock’s iShares Bitcoin Trust (IBIT) led the charge, capturing $629 million, followed by Fidelity’s FBTC at $133 million. These ETFs collectively saw their highest trading volumes since March, underlining the increased confidence from institutional investors. Total Bitcoin ETF net inflows for the year have surpassed $20 billion, far outpacing the adoption rates of comparable gold ETFs during their early years. As global M2 expands, these flows will drive into altcoins once altseason is on, typically the last 12 months of the cycle.
Other noteworthy factors in October include Bitcoin’s halving event earlier in the year, which introduced supply constraints that began influencing prices more acutely. Additionally, macroeconomic policies, including looser monetary stances from major central banks, supported the bullish sentiment. Analysts highlighted the halving-induced supply shock, increased whale accumulation, and expectations of further global rate cuts as critical elements boosting Bitcoin's prospects.
TFA Model – Fundamental Indicators
Fundamental Analysis – Short-term C. Bullish
Assessment Areas:
• Macro risk metric summarizes the macro risk environment — Orange, is Slightly Bearish.
• BTC Fundamental metric shows metrics of blockchain activity — Lt. Green , is Slightly Bullish.
• BTC Technicals metric summarizes the technicals of BTC – Green , is Bullish.
• Ethereum Fundamentals metric shows blockchain activity — Yellow, is Neutral.
• Ethereum Technicals metric shows technical price movement — Lt. Green, is slightly Bullish.
• Trend summarizes social metrics, futures & system leverage – Green, is Bullish.
• Correlation summarizes how assets correlate to one another — Lt. Green, is slightly Bullish.
All in all, this is short-term bullish. After the election, Q4 looks bright! Be careful of Macro with a Strong Dollar and too much volatility in the bond market.
In Closing
October has been somewhat muted this time around due to the election with a difference in policy being reflected by each candidate. Bitcoin is now trading above its trend averages and is posed to break to new all-time highs. We talk a lot about Bitcoin because it’s the largest market cap asset and as it goes the markets follow. Historically at this point in the cycle bitcoin dominance fades which opens the door for “alt season”. More simply, bitcoin moves first, then the innovation crypto assets follow.
We’ve seen a lot of investors waiting on the sidelines until after the election before deploying capital. Either candidate will be fine for crypto in the medium and long term. As we’ve said, the biggest risk would be a contested election.
We expect the Fed to also cut another 25 bps in November. This continues the monetary expansion cycle and growth of the global M2 money supply. We also still expect a cut in December followed by 4 more cuts in 2025. They may wait one meeting in early 2025 as a “wait and see” meeting where they continue to check in with economic data. However, their need to drive rates lower to keep the debt service amounts lower will force them to take rates lower than what the probable economic data shows. This is all a part of the 4-5-year cycle we discuss at length.
The biggest hit to the portfolio in October was profit taking in the AI Investment Theme due to September was such a high performing month for those crypto assets. Two of our positions were up 40% - 50% last month with Fetch and Render. Each pulled back 10% - 15% this month, though via hedging we were able to mitigate larger downdrafts which were common among many these and other alternative crypto assets. The other major investment themes we’re focusing on for the rest of the year are Platforms (Layer1’s like Solana and SUI) and DeFi (decentralized finance with tokens like AAVE, Pendle and Ethena.)
We expect outperformance to begin after the election. If history repeats itself, bitcoin will make some large moves and then altseason will begin. Historically this is a few months after the first rate cuts from the Fed which happened in mid-September, so this puts on on track. During the last 16 months of last cycle the fund outperformed both bitcoin and the markets, and we expect the same outperformance this time around as well.
We will position defensively short-term prior to the election to hedge out volatility if there’s a Harris win. However, if/when it becomes clear of a Trump win, we will be adding leverage to our bitcoin holdings to catch the ride after a win. A Trump win, and a Republican Congress would mean big moves up in crypto assets sooner rather than later. We expect bitcoin to hit $100k by year’s end if the latter becomes true.
We will discuss more about Raoul Pal’s everything code and the 4-5 year monetary cycle in next month’s report where we’ll back up our position with some charts and data. November is what we’ve been waiting for, and the next 16 months are the time for crypto asset investing.
Happy hunting,
Jake Ryan
CIO, Tradecraft Capital
Author, Crypto Investing in the Age of Autonomy & Crypto Decrypted