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“Markets Daily” kicks off a new format with a minute of market updates, followed by an interview with a rotating cast of market analysts across the crypto space. Today, host Jennifer Sanasie speaks with Sean Farrell about an investment pivot to ether and layer 2s, plus the latest bitcoin ETF updates.
This episode was hosted by Jennifer Sanasie. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl, alongside Senior Booking Producer Melissa Montanez. All original music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and may contain errors.
JENNIFER SANASIE:
According to CoinDesk Indices, at 8 a.m. Eastern Time bitcoin was trading up 2.2% over the past 24 hours at $45,112 while ether rose 1.2% over the same time period, at $2,266. Today’s ‘Mover’ is Powerledger ticker POWR, down 29% on the day. In traditional markets, both the NASDAQ and the S&P 500 were up around 1% on Friday. Stock futures are mixed this morning. And in commodities, the Brent crude benchmark was trading at $76.88 a barrel. Meanwhile, gold was trading at $2,030 an ounce. For more on the market action this morning, let’s bring in Sean Farrell, head of digital asset strategy at Fundstrat. Good morning.
SEAN FARRELL:
Hey, thanks for having me.
JENNIFER SANASIE:
Thanks for being here, Sean. Now, we’ve got to talk about what everyone is talking about: the spot bitcoin ETF applications. What do you think happens today?
SEAN FARRELL:
Well, on Friday, backing up real quick, we saw all of the issuers file their 19b-4, which is one leg of approval. Then today, either today or tomorrow, we’ll probably see where it comes out about an SEC vote on the 19b-4 approval. And then unbeknownst to many, there is another leg of this journey, which is the S1. We’re seeing the S1s roll in this morning. You know, we’re gonna have to wait on approval of those S1s to actually get these things live and being traded.
JENNIFER SANASIE:
Now, what do you think happens to the price of bitcoin if the approval comes through? Those S1 filings of course this morning announced the fees for various different asset managers, the price of bitcoin jumped on the announcement of those fees. What do you think happens to the price of bitcoin? Does it jump even further? Does it decline?
SEAN FARRELL:
Yeah, I think the prevailing narrative, especially among crypto circles, has been that this is a consensus “sell the news” event. Many are basing that on prior precedent of the CME futures launch back in 2017, which marked the top of that cycle. And as well as the launch of ProShares futures bitcoin ETF back in late October 2021, which pretty much aligned with the top of that cycle. But you know, what that fails to recognize are the different macro contexts. With each product launch, both of those product launches were at the tail end of very long, enduring injections of liquidity. And we’re just on the precipice of a new tightening cycle. And the macro setup here is just completely different. You know, of course, there’s also completely different players. And I’d be surprised if Larry Fink and BlackRock and all of these blue chip asset managers, if they come out the gate flat, you know, I would be very surprised. So I think it’s right to expect some price appreciation here, especially post launch. And so we’re not in the “sell the news camp.” Certainly, you know, there’s a life to that rally. And after a while, we’ll just go back to focusing on macro trends and will be subject to the same factors that we were before. But in terms of the ETF launch itself, we’re in the “buy the news” camp.
JENNIFER SANASIE:
All right. So you’re in the “buy the news” camp, what do you think happened to the price of bitcoin immediately after the approval?
SEAN FARRELL:
Immediately after? That’s tough. You know, I think we’ll certainly see some volatility. I’m sure everyone that paid attention to the market noticed the pretty substantial drawdown across the entire crypto space last week. We saw some pretty significant liquidations, and we kind of cleared the board from a leverage perspective. So that is a good thing. Funding rates are still pretty neutral across most majors and big alts. So you know, I think we probably have some room to run higher, wouldn’t be surprised if we get north of 50. Of course, on any super strong move higher, there’s bound to be some volatility involved bi directionally. But I certainly wouldn’t be surprised to correct to that 50 level.
JENNIFER SANASIE:
So north of 50 on the approval. I gotta ask, last year Fundstrat Managing Partner Tom Lee called for $180,000 if the ETF was approved, that was in August last year. So a lot has happened since then. Do you think that we could hit that this year?
SEAN FARRELL:
Hey, anything is possible. We’re going to be coming out with our outlook next week, where we’ll have our price target ranges for bitcoin and ether, and perhaps some all, but you know, that was a longer term target. I think that’ll take some time to manifest. But you know, that’s certainly within our sights.
JENNIFER SANASIE:
I’m happy you brought up eth and alts. Because I want to talk about that, I know the headlines are being overrun by the spot bitcoin ETF, but there’s still a lot going on. A lot of our past guests have said that after this approval, we should be looking to ether. What’s your perspective there?
SEAN FARRELL:
Yeah well, the implications of a spot bitcoin ETF approval with the spot ETF applications waiting in the wings. The implications, obviously, are that the probability of approval for an ETF at some point this year, those probabilities move quite higher, quite rapidly. And so it’s likely that we probably do see a huge spike in dominance. But that might actually put in a longer term bottom for eth, BTC. As you know, a lot of traders start to eye up front running any potential approval, or speculation of that approval of an ether ETF sometime in Q2.
JENNIFER SANASIE:
On the topic of ether, are you watching the Ethereum ecosystem? If you were to make a portfolio allocation today, what would you be looking at?
SEAN FARRELL:
Yeah, we offer these types of strategy and insights to our clients. And you know, we’ve been pretty constructive on leading layer 2 tokens. So you look at arbitrage and optimism, they’ve rallied quite significantly, they’re both at or approaching all time highs and likely to enter what many fondly referred to as ‘price discovery’ territory, you know, they have far above the most traction in the L2 space. So those are great places to be in our view. But then you know, there’s a longer tail of eth-adjacent names, like you have LIDO and Maker and some other names that have been showing some life recently. So I think, you know, we’re gonna pay attention to which names are the strongest, once we do see that longer term bottom or substantial bottom ETH, BTC. And that’ll give us more information as to how to position going forward.
JENNIFER SANASIE:
You mentioned Arbitrum and Optimism, any predictions on layer 2s or layer 2 tokens that are going to steal the headlines steal the spotlight this year?
SEAN FARRELL:
Well, you know, I think we finally have clarity over that. The Dencun upgrade, which, you know, for those unfamiliar, essentially lowers the cost to transact on layer 2 networks, because it decreases the fees that the alts have to pay to the layer one to submit data. And, and so you know, naturally I think, I think a lot of people are skeptical, but I think the the fees and the costs of running L2 and transacting on an L2 are going to impress a lot of people, we’re going to see activity spike, perhaps 10x from there, and we’re likely to see a very strong narrative around layer 2 and layer 2 ecosystems.
JENNIFER SANASIE:
All right, and I gotta get your thoughts on Stacks. I know that was noted in Fundstrat latest note here, Fundstrat increasing allocation for Stacks. Talk to us about why.
SEAN FARRELL:
Yeah, so we’ve been pretty constructive on the bitcoin economy, kind of grew out of early in 2023, when ordinals started popping off, there was a clear appetite for building on bitcoin that was growing, that kind of rolled into, you know, broader use cases and broader scaling mechanisms for bitcoin. Spending some time around stacks and other builders working on projects that are meant to scale bitcoin in a similarly modular fashion as a lot of these L2s on ethereum are building. Now, it became evident that this appetite for building in this bitcoin economy is not going away. And then, you know, we turned constructive on Stacks, you know, several months ago, with their, you know, the progress that they’re making on updating their network, they get the upgrade coming in Q1 called the Nakamoto upgrade. Right now Stacks is very clunky. To be frank, it’s unusable at this point. I mean, I’ve tried using it. But you know, this upgrade should get blocked time down to three to five seconds. And it’s likely we see a complete rewriting of Stacks, which is the only L2 on bitcoin that has a token and has a nonzero amount of TVL and activity on it. So it certainly has performed quite well the past couple of months, but I think it certainly has more, more juice from here.
JENNIFER SANASIE:
Okay, it sounds like in 2024 we should be watching layer 2s across the Ethereum and Bitcoin ecosystems. Just before we go, a year from now, what is the price of bitcoin?
SEAN FARRELL:
Ah, you called me at a bad time. Our outlook is next week. It’s going to be higher. That’s what I can give you right now.
JENNIFER SANASIE:
All right, Sean, we’ll have to have you back on after the outlook comes out so you can give us a little price prediction there. Thanks so much for joining the show this morning. That was Fundstrat Head of Digital Asset Strategy Sean Farrell. That’s it for today’s show.
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