Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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The state of crypto – September 2023
Mads Eberhardt
Cryptocurrency Analyst
Summary: The crypto market shows little sign of life, as the spot volume is at a 4.5-year low amid non-existing volatility. There is a limited flow of new capital into crypto during the absence of retail and traditional investors, leaving the market to hard-core crypto enthusiasts who are still accumulating. The best answer for the crypto market to revive itself in the near term is a Bitcoin ETF.
Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.
Short-term
The crypto market continues to show absolutely zero sign of life, similar to the past couple of months. The spot volume is at a 4.5-year low, fueled by non-existing volatility. It appears that no new capital flows into crypto, especially from retail investors amid macro uncertainty and high-interest rates, so the crypto market is now only cared about by die-hard crypto enthusiasts. The positive aspect, though, is that it appears that these die-hard crypto enthusiasts accumulate crypto, including Bitcoin and Ethereum, as the percentage of these cryptocurrencies on exchanges remains on a downward trajectory month-over-month. This implies that less Bitcoin and Ethereum are available to be sold on short notice by having been transferred off exchanges.
The absence of new capital and speculative retail means that the needle in terms of price is not as easily moved, even as positive news breaks. This was evident as late as last week when the largest crypto asset manager Grayscale won a lawsuit against the Securities and Exchange Commission, effectively forcing the agency to review Grayscale’s application to turn its Bitcoin trust into an ETF. This court ruling barely moved crypto prices, although the ruling is greatly positive for the market, highlighting the present exhausted nature of crypto.
Long-term
The price declines of August have put the average holder of the past 5 years of Bitcoin and Ethereum in negative territory, compared to a positive territory last month. The average loss on both Bitcoin and Ethereum may lead some die-hard crypto enthusiasts to lose faith in crypto and liquidate positions, particularly if the overall macro environment worsens further.
In July, there was a substantial inflow to exchange-traded crypto products such as ETPs, mutual funds, and OTC trusts of nearly $250mn. This inflow was completely erased in August by the total outflow of around $277mn, mostly with respect to Bitcoin products. This stresses that traditional investors cut down on crypto exposure in August, alongside most notably tumbling technology stocks. This supports our view that crypto is almost exclusively left with die-hard enthusiasts. To turn this trend around for good, a Bitcoin ETF is without doubt the answer.
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