Cathie Wood: Liquidity contraction will end in the coming weeks.

Source: Ark Funds Webinar; Translated by Jinse Finance

Cathie Wood: At least during this recording, the market is in a state of 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 tightening:

1. Quantitative Tightening (QT) has not ended: Despite many expecting the Federal Reserve to end QT at the last meeting, they did not. We anticipate they will end it at the next meeting on December 10.
2. Treasury General Account (TGA): During the government shutdown, the Treasury's cash balance continued to accumulate. Now that the shutdown is over, the liquidity pressure caused by the TGA should be alleviated.
3. Interest Rate: The market expects another interest rate cut in December, and we believe it will happen. The Federal Reserve will shift from its current hawkish stance back to a more dovish tone.

We have seen inflation significantly decrease. The inflation expectations measured by the yield on 10-year Treasury bonds have been declining over the past few months, hovering around 2.5%. West Texas Intermediate crude oil prices have fallen below $60, and housing price inflation has dropped to 1.5%, which will be reflected in the CPI over the next year.

Our research shows that the deflationary undercurrents accompanying the evolution of new technologies are accumulating. We would not be surprised if inflation experiences a substantial rupture next year after the impact of tariffs has passed.

In addition, we see that employment indicators have significantly weakened, with the ADP report showing that employment is contracting or growing very slowly. The unemployment rate for new graduates is accelerating upwards. All of these indicate that the velocity of money circulation has slowed down, and we believe it will decline year-on-year. Nominal GDP may fall below 4% or 3%. We believe that as the government fully opens up, quantitative tightening ends, and interest rates continue to decline in response to weak indicators, this liquidity tightening will pass.

The crypto ecosystem is a leading indicator of liquidity fluctuations. We believe this liquidity tightening will end within weeks next month. The restructuring of the financial ecosystem has only just begun.

Cathie Wood responds to lowering the Bitcoin price target from $1.5 million to $1.2 million:

The reason we updated the price target model is:

1. The Rise of Stablecoins: Stablecoins are beginning to replace one of the roles we initially expected Bitcoin to play, which is to act as a “safety net” for the people in emerging markets against rampant inflation or corruption. The scale of stablecoins has approached $300 billion, and most are backed by U.S. Treasury securities, making them natural purchasers of U.S. debt.
2. Appreciation of gold prices: The market value of gold, which is anchored as digital gold in the model, has increased from approximately $17 trillion to $28 trillion.

The accelerated growth of stablecoins has replaced part of Bitcoin's role, but the appreciation of gold prices has far exceeded our expectations. Therefore, overall, we have not changed our bullish price target for Bitcoin. We still reaffirm our long-term bullish sentiment.

Cathie Wood Responds to AI Bubble Concerns:

Many people are concerned about the risks of an AI bubble. Compared to the tech and telecom bubble era, the situation now is vastly different. At that time, the technology was not yet mature and costs were too high. Now, we have cloud computing, deep learning, Transformer architecture, and the recent ChatGPT moment. We believe the AI story is just beginning, and we are in the first inning.

Despite studies stating that companies have not yet seen productivity gains from AI, this is because businesses need time to reorganize and transform. However, on the consumer side, AI has flourished. Companies like Palantir demonstrate the strong demand from enterprise clients as they face strategic pressures to avoid losing competitive advantages. We expect the real productivity leap to begin within the next year. In the long run, we see global real GDP growth accelerating to a range of 7% to 8%, reflecting that we are in the midst of an unprecedented technological revolution.

Ark Funds team member Lorenzo:

We remain very optimistic about Solana overall. There are several reasons for the lag in Solana's price:

1. Market uncertainty and liquidity: Recent flash crashes and macro-level liquidity tightening have affected the entire crypto market.
2. Early participant sell-offs: During a bull market, there will always be instances of early participants taking profits on their enormous unrealized gains.
3. Decline in fundamentals: The actual economic value of Solana (the fees users are willing to pay) has dropped from about $900 million per quarter at its peak to about $200 million in the current quarter.
4. Intensified Competition: Layer 2s on Ethereum (such as Coinbase's Base and Robinhood's L2) and high-performance EVMs (such as Monad and Mega) are creating competition. In particular, Hyperliquid holds over 50% market share in the perpetual futures market.

Nonetheless, we believe that Solana has a strong roadmap and a high-quality team of builders, and we remain optimistic.

Ark Funds team member David:

Our initial model had six main contributors: institutional investment, digital gold, emerging market safe havens, national treasury, corporate treasury, and on-chain financial services.

We have revised our hypothesis of the “emerging market safe haven.” While cryptocurrencies are widely adopted in emerging markets, Chainalysis's report shows that Bitcoin accounts for about 20% of trading volume, while stablecoins account for 40% to 50%. Therefore, we have proportionally reduced the hypothesis of the emerging market safe haven.

However, the growth in the market value of gold offset this portion of the adjustment.