Crypto continued to grind higher during the week despite an odd correction during an overall risk-off market environment (more on that below). The total crypto market cap renewed its 2023 highs at $1.37 trillion (or $1.24 trillion excluding stablecoins) by climbing another 6.49% (6.92% excluding stablecoins).
ETH outperformed BTC for the second straight week, but the main positive highlights were alts. DYDX was the best performer among the main assets as it continues to progress toward launching its own Cosmos-based blockchain. SOL effortlessly broke above the $45 resistance level and, despite the recent correction, remains the best-performing crypto asset of the year. Finally, MATIC continues to rehearse a recovery from a dismal return so far in the year.
I see the unusual crypto correction during a day when risk assets generally soared on the back of better-than-expected inflation data as a healthy pause to a breathtaking price action over the past six weeks. Since the start of October, ETH is up almost 20%, BTC rose over 30%, and SOL an incredible 167%.
This does not mean that the bullish trend has shifted just yet.
Overall market liquidity, which historically has been an essential confirming indicator to contextualize a bullish trend in crypto, continues to improve.
The chart below shows the three-day moving average of daily trading volumes in spot (right) and futures (left) for majors BTC and ETH. The recovery in spot volumes has been powerful: BTC and ETH went from renewing three-year lows to approaching the highest volumes of the year.
But what makes the recovery more notable is that it is happening during a period of relatively low volatility, even if we use relatively short lookback periods to capture the recent price action. The chart below shows annualized seven-day realized volatility of daily returns, which increased to 43% and 60% for BTC and ETH but are still relatively low historically.
In other words, current spot volumes adjusted for volatility are already in the top 11% of the 2019-2021 period and in the top 17% of the 2020-2021 period, when the bulk of the previous bull market returns were concentrated.
Volatility, of course, can bring ups and downs. Yesterday’s market correction created the second-largest long liquidation event of the year on both a net and gross basis at over $175 million on BTC and ETH alone.
All in, the days of quiet market action with low volatility might be behind us during this bear market cycle. Yesterday’s relatively large liquidation event would not register in the top 18% of liquidations of the 2022-2021 period.
As much as the past few weeks have felt exhilarating, price swings like yesterday’s might become more frequent if we are really starting to switch gears into a new long-term bull market.
Other Top Trends We’re Watching
FalconX Trading Desk Color: ETH traded more than BTC at our desks for the first time since the last leg of the rally in October and sustained the trend of shrinking BTC volume dominance at our desks that we have been pointing out over the past few weeks. Most investor personas were buyers, but bullish activity was concentrated in relatively few names. Notably, our BTC and ETH flows flipped to neutral or slightly to the sell side (50% and 45% of total flows on the buy side, respectively) from firmly on the buy side last week. Alts volume picked up and stood at 1.77x of majors, with increasing interest in select names such as SOL, NEAR, SAND, and others. Besides a few assets sustaining strong narratives and attracting investor interest, buy/sell ratios among alts stood slightly below 1x.
Bull Market Driving Network Fees Higher, Especially for BTC: Daily transaction fees for BTC surpassed the $5 million level over the past week, a level only reached during the peak of the 2017 and 2021 bull market and the meme coin mania earlier this year. The increase comes on the back of increasing activity around Ordinals, with BTC becoming the top blockchain for NFT sales volume, according to CryptoSlam. The spike reflects the encouraging prospects of the Bitcoin network expanding its use cases beyond just digital gold.
As the chart below shows, ETH daily transaction fees also recovered to a much lesser extent. This does not necessarily mean there’s not enough activity happening on Ethereum. Total gas used by Layer 2 applications increased from 2-4% of the whole one year ago to 10-15%. In other words, developing Layer 2 solutions has relieved transaction fee pressure on the L1. It is clearing room for Ethereum to scale much better during the next wave of adoption.
Crypto Venture Capital Activity Remains Relatively Thin: Data aggregated by our market-making team shows that the total capital deployed by venture capital funds in crypto stood at $455 million in October 2023, a tad lower than the average per month of the previous quarter. Unless we see a pick up in the last couple of months of the year, the dwindling trend of venture capital deployment, which we previously highlighted in a dedicated white paper, should remain during the quarter.
Activity remains concentrated on earlier-stage deals, with only one of the leading deals in the month done beyond the series A stage (SynFutures, series B). The top deals of the month included VC fund Animoca Brands, followed by web3 security firm Blockaid, and crypto restaurant app Blackbird. DeFi as a vertical also gained market share versus the previous months led by SynFutures, Ekubo Protocol, and Cube.Exchange.
