Cathie Wood: Liquidity crunch will end in coming weeks

Source:Ark Funds Webinar;Compiled by: Bitchain Vision

Cathie Wood: At least at the time of this recording, the market is in turmoil.In summary, we are experiencing a liquidity crunch, but we believe it is temporary.

We believe there are three main reasons for the liquidity crunch:

1. Quantitative Tightening (QT) Not Ended: While many expected the Fed to end QT at its last meeting, they did not.We expect them to conclude at the next meeting, which is December 10th.

2. Treasury General Account (TGA): Cash balances at the Treasury Department have continued to accumulate during the government shutdown.Now that the shutdown is over, the liquidity pressure caused by the TGA should be relieved.

3. Interest rates: The market expects another interest rate cut in December, and we also think it will.The Fed will shift from its current hawkish stance to a more dovish tone.

We are seeing inflation falling significantly.Inflation expectations, as measured by the 10-year Treasury note yield, have been declining over the past few months and are around the 2.5% range.West Texas Intermediate crude oil prices fell below $60 and housing price inflation has fallen to 1.5%, which will be reflected in CPI over the next year.

Our research shows that deflationary undercurrents are building as new technologies evolve.We would not be surprised to see a material break in inflation next year after the impact of tariffs wears off.

Additionally, we are seeing significant weakening in employment indicators, with the ADP report showing that employment is contracting or growing very slowly.Unemployment among new graduates is accelerating.These all indicate that the velocity of money has slowed, and we think it will decline year-on-year.Nominal GDP could fall below 4% or 3%.We believe this liquidity crunch will pass as governments fully reopen, quantitative tightening ends, and interest rates continue to fall in response to softer indicators.

The crypto ecosystem is a leading indicator of liquidity ebbs and flows.We think thisThe liquidity crunch is set to end next month within weeks.The reorganization of the financial ecosystem has only just begun.

Cathie Wood responded by lowering her Bitcoin price target from $1.5 million to $1.2 million:

The reasons we updated our price target model are:

1. The Rise of Stablecoins: Stablecoins are taking over one of the roles we originally expected Bitcoin to play, which was as an “insurance policy” for people in emerging markets against hyperinflation or corruption.The scale of stablecoins has reached nearly 300 billion US dollars, and most of them are supported by U.S. Treasury bonds, making them natural buyers of U.S. debt.

2. Gold price appreciation: The market value of gold as the anchor of digital gold in the model has grown from approximately US$17 trillion to US$28 trillion.

Accelerating growth of stablecoins takes over some of Bitcoin’s roles, but the appreciation of gold prices far exceeded our expectations.Therefore,Overall, our bull price target for Bitcoin has not changed.We still reiterate our long-term bullish sentiment.

Cathie Wood responds to the AI bubble issue:

Many people are worried about the risk of an AI bubble.The situation is worlds apart from the days of the tech and telecom bubbles.At that time, the technology was not yet mature and the cost was too high.Now, we have cloud computing, deep learning, Transformer architecture, until the recent ChatGPT moment.We believe the AI ​​story has just begun and we are in the first inning.

Although some studies claim that companies have not yet seen productivity gains from AI, this is because companies need time to reorganize and transform.However, on the consumer side, AI has flourished.Companies like Palantir demonstrate strong demand from enterprise customers as they face strategic pressure to lose competitive advantage.We expect the real productivity leap to begin within the next year.Over the longer term, we see global real GDP growth accelerating to the 7% to 8% range, reflecting the fact that we are in the midst of an unprecedented technological revolution.

Lorenzo, Ark Funds team member:

We remain very bullish on Solana overall.There are several reasons why Solana prices lag:

1. Market Uncertainty and Liquidity: The recent flash crash and macro-level liquidity crunch have impacted the entire crypto market.

2. Sell-Off by Early Participants: When going through a bull market, you will always encounter profit-taking by early participants on huge unrealized gains.

3. Fundamental decline: Solana’s real economic value (what users are willing to pay) fell from about $900 million per quarter at its peak to about $200 million this quarter.

4. Increasing competition: Layer 2s on Ethereum (such as Coinbase’s Base, Robinhood’s L2) and high-performance EVMs (such as Monad and Mega) all constitute competition.Hyperliquid, in particular, accounts for more than 50% of the perpetual futures market.

Still, we think Solana remains positive with a strong roadmap and a highly qualified team of builders.

David, a member of the Ark Funds team:

Our initial model has six major contributors: institutional investment, digital gold, emerging market safe havens, nation-state treasury, corporate treasury and on-chain financial services.

We revised our “emerging market safe haven” hypothesis.While cryptocurrencies are widely adopted in emerging markets, Chainalysis reports show that Bitcoin’s share of transaction volume is around 20%, while stablecoins account for 40% to 50%.Therefore, we scale down our emerging market safe haven assumptions.

However, growth in gold’s market capitalization offset some of this adjustment.