Chinese Stocks Crash, Crypto Emerges as a Safe Haven

• The MSCI APAC index saw its largest drop in a month, reflecting fading momentum in Chinese stocks.
• Analysts expect investors to shift focus back to cryptocurrencies amid declining equity performance in China.
• Near-term risks from earnings and CPI releases could challenge the current stock market valuations.

The rally in Chinese stocks has ended after a week-long holiday. This decline follows a government briefing that did not announce any new economic stimulus measures. As a result, the MSCI APAC equity index had its largest decline in a month.

https://web.telegram.org/k/#@QCPbroadcast

US equities also fell overnight, driven by mega-cap tech stocks and rising geopolitical tensions. The VIX index rose to 22 points, showing increased market volatility. Interestingly, cryptocurrency volatility remained stable during this period, with front-end implied volatilities trading at 43%. This figure is a 3-vol discount compared to the seven-day historical realized volatility.

Chinese Investors Shift Strategy

Bloomberg reported that Chinese investors may have sold Tether (USDT) to fund stock purchases since the end of September. Meanwhile, Bitcoin (BTC) has stayed flat. As the momentum from the Chinese stock rally fades, analysts think capital will flow back into the cryptocurrency market. This shift shows the industry’s growing maturity as an alternative risk-on asset. It also suggests a potential trend where investors look to digital assets when equity performance declines.

Read also : Jim Cramer: Get Out of Crypto and Scale-Out of Chinese Stocks

Looking ahead, risks for equities look pronounced due to the upcoming earnings season and the Consumer Price Index (CPI) release. These events may challenge the high valuations we’re seeing in the stock market. Plus, geopolitical tensions are making things more complicated for global markets.

However, despite these risks, many are optimistic for the medium term. Analysts believe that election headlines will continue to affect the cryptocurrency market. This trend was evident following Elon Musk’s remarks on Polymarket, where he predicted that Trump would lead Harris with greater accuracy than traditional polls.

Trade Ideas: Bearish and Bullish Strategies

Here are several trade ideas based on current market conditions. One bearish strategy uses the ERKO Put option set for October 25. This put option has a strike price of 60,000 and a knock-out level of 55,000, with a cost of $1,090 per contract. If the market closes just above 55,000 at expiry, the maximum payout could be 4.59 times the initial investment.

Asia Colour – 1 Oct 24

1/We’re officially in “Uptober,” a historically bullish month for Bitcoin, with an average gain of 22.9% in 8 of the last 9 years. A similar move could push #BTC above 78k, breaking all-time highs.

— QCP (@QCPgroup)
October 1, 2024

A bullish strategy uses the ERKO Call option expiring on November 29. This option has a strike price of 65,000 and a knock-out level of 75,000, costing $1,630 per contract. If the market closes just below 75,000 at expiry, the maximum payout could be 6.13 times the initial investment. The current spot reference price is 62,260.

As of the latest reports, Bitcoin is priced at $62,543.13, with a 24-hour trading volume of approximately 31.77 billion USD. Bitcoin has seen a slight decline of 0.67% over the last 24 hours. Its market capitalization now stands at $1.24 trillion, with a circulating supply of 19,764,815 BTC coins. 

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