Crypto Cheers to Binance’s Guilty Plea and Argentina’s Pro-Bitcoin President

By Ang Kok Wee, Head of Treasury

Past Week’s Performance Dashboard

Holiday Cheer

The US markets will be closed on Thanksgiving Day tomorrow (Nov 23) and we expect a quiet trading week. This also marks the beginning of the holiday season in North America, leading up to Christmas and the New Year.

A Santa rally is unfolding with Wall Street having closed its third consecutive winning week. The three major U.S. stock indices posted solid gains and are at their highest levels in over three months. 

The immediate risk of a government shutdown in the US was averted last Thursday when President Joe Biden signed a last-minute bill to keep federal agencies funded through the new year.

Clearly, softer US Treasury yields have cemented market confidence, and geopolitical concerns have all but faded into the background.

High-Flying Tech Stocks

Big Tech continues to drive the S&P500 winning form, and two tech stocks underscore the importance of AI in the tech stock market narrative.

Microsoft (MSFT) saw its shares surge to a record $378 on Monday following the announcement that Sam Altman and Greg Brockman, previously CEO and co-founder of OpenAI, have joined the tech giant to lead its artificial intelligence innovation division. This move came in the wake of leadership upheavals at OpenAI, which led to the removal of Altman who was the CEO.

Given Microsoft’s 40% ownership of OpenAI, the impact on its stock was notable. Microsoft’s stock initially dropped 1.7% when Altman’s departure became public last Friday. However, the appointment of Altman and Brockman propelled Microsoft’s shares to a record high.

However, OpenAI has since reversed their decision and announced today that Altman will return as CEO.

Nvidia (NVDA), the last of the Magnificent Seven of S&P500 to report quarterly earnings, posted a blowout Q3 results this morning, where it reported annual revenue growth of 206%. Its share price topped USD 504 on Monday prior to this morning’s earnings report.

Trend to Continue into December?

The FOMC Minutes released this morning contained no surprises, echoing the language used by Fed Chair Powell in his post-FOMC communication on Nov 2. This consistency in messaging should help to maintain market stability until the next FOMC meeting, scheduled for Dec 12-13.

The US dollar’s strength has been waning rapidly (DXY is currently below its 200-day moving average) as US Treasury yields continue to appear weak, with solid investor interest evident in Monday’s US Treasury auction. In summary, this market scenario aligns with our earlier predictions (Fig.1).

Fig 1 Interplay of Asset Classes

On the flip side, a survey of economists conducted by Reuters indicates that most of the positive economic news has already been factored in. For example, Bank of America (BoFA) Global Research projects the S&P 500 to reach 4,600 by the end of the year, which is essentially unchanged from its current level.

The expectation of interest rate cuts starting in mid-2024 is already evident in rate futures. As previously mentioned, bond markets have a reliable track record of forecasting economic trends.

In the case of the US, an economic slowdown is anticipated in the coming year.

This is also why crude oil prices have remained stagnant despite the heightened geopolitical tensions arising from the two ongoing wars. However, a successful soft landing by the Federal Reserve could pave the way for higher-risk asset prices in the coming year. In the meantime, given that S&P500 has gained almost 20% year-to-date, it would not be surprising to see some portfolio managers take profits by the end of the year and reallocate a portion of their holdings into bonds.

Potential Market Catalyst This Week

Economic Data:

Nov 22 (Wednesday) 2300 hrs

  • Revised University of Michigan (UoM) Consumer Sentiment (fc. 61.1) – Softer consumer sentiment is expected, since hitting a high of 71.6 in July.

Nov 24 (Friday) 2245 hrs

  • Flash Manufacturing Purchasing Managers’ Index (PMI) (fc. 49.9)
  • Flash Services Purchasing Managers’ Index (PMI) (fc. 50.4)

Both these leading indicators demonstrate health in the manufacturing and services sectors. The forecasts may indicate that these activities have largely been unchanged from last month.

We will also keep an eye on the scheduled OPEC+ meeting this weekend, where extended oil production cuts by Saudi Arabia will be discussed.


Bitcoin and the cryptocurrency market are expected to remain driven by local factors despite the broader macroeconomic backdrop. Positive news, including Argentina’s election of a pro-cryptocurrency president and Binance’s settlement with the US Department of Justice, has bolstered support for Bitcoin.

Binance’s settlement with the US Department of Justice (DOJ) could pave the way for the company to resume its operations in the United States, subject to regulatory oversight. This development marks a turning point for the cryptocurrency industry, as it signals a shift towards a more regulated environment that could encourage greater mainstream participation.

Argentina’s potential adoption of cryptocurrency could be more significant than El Salvador’s, given that it is the third largest Latin American economy and with a population of almost 50 million.

Bitcoin has demonstrated remarkable resilience despite the recent market volatility triggered by forced liquidations of leveraged positions in the past week. Our accumulation strategies have been working well under these circumstances, and we remain committed to this view into the year-end, until the next Bitcoin Spot ETF approval deadlines close (Figs.2 and 3).

Fig 2 Technical Levels for Bitcoin and Ethereum
Fig3 Bitcoin Implied Volatility Across Various Tenures

Portfolio Diversification with Bitcoin

This week, we would like to showcase the diversification benefits of including Bitcoin in a standard investment portfolio via a Modern Portfolio Theory (MPT) model analysis.

We first consider a standard portfolio consisting of gold, stocks and bonds. To model our portfolio, we rely on exchange-traded funds (ETFs) to represent our equity and bond components. In this case, we use SPY for S&P500 equities and SPXB for S&P500 investment-grade corporate bonds.

We decided a five-year lookback would be sufficient to demonstrate a realistic portfolio performance as it would include large market dislocation events such as Covid. Consequently, actual market data from 2018 to 2023 are used to model an optimal portfolio allocation.

Our model shows that we can achieve an optimal portfolio allocation of the following:

  • Gold (XAU) – 61.5%
  • SPY – 38.5%
  • SPXB – 0%

To further bolster our analysis, we use a  metric called the Sharpe ratio, which is  Used to evaluate the expected return of an investment compared to its risk. . The higher the Sharpe ratio, the better the investment is. Generally, a ratio greater than 1.0 is considered acceptable to good by investors.

In the chart below, we plot the Y-axis to indicate expected returns, and the X-axis to indicate the risk that commensurate with it (standard deviation) (Fig.4).

Fig4 Efficient Frontier for Optimal Portfolio Allocation Without Bitcoin

This optimized portfolio would be able to generate an expected return of 9.4% a year, but with a risk of losing 12% over the same period (denoted by a ‘star’). The Sharpe ratio for this portfolio is 0.78 (9.4% / 12%).

We now include Bitcoin into the portfolio and re-run the model analysis. The model shows that we can achieve an optimal portfolio allocation of the following (Fig.5):

  • Gold (XAU) – 57.7%
  • SPY – 29.2%
  • SPXB – 0%
  • Bitcoin – 13.1%
Fig5 Efficient Frontier for Optimal Portfolio Allocation with Bitcoin

With this portfolio allocation, the expected returns are 13.5% a year, with an exposure to a 15% risk of loss in the same period. The Sharpe ratio is higher for the portfolio including Bitcoin, is 0.90 (13.5% / 15%).

Based on our empirical analysis, we have concluded that including Bitcoin in a portfolio over the past five years would have resulted in a more favourable risk-adjusted return as demonstrated in the simplified example above. Bitcoin’s uncorrelated and distinctive risk-reward attributes can serve as a valuable addition to any long-term investor’s portfolio.

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