Crypto prices recovered swiftly from overhang concerns from the FTX liquidation proceedings, as we anticipated last week. SOL, the asset most impacted by those concerns, was the best performer among the more prominent names. The crypto market cap was up 1.50% last week (1.71% excluding stablecoins) and currently stands at $1.03 trillion ($904 billion excluding stablecoins).
BTC continues to outperform ETH, but the week's highlights were several assets registering robust returns over the week on the back of news flow related to their projects. MKR is doing well amid talks about potentially launching its own chain based on the Solana codebase (nothing to do with the Solana blockchain). ATOM likely responded positively to the new Cosmos Hub upgrade that introduced liquid staking. LINK continues to attract strong partners to its interoperability protocol CCIP.
This week, all eyes will be on the FOMC meeting. Even if the meeting decision is practically a done deal (CME Fed Funds Futures are pricing a 99% probability of steady rates), the future path of monetary policy is more uncertain. Other central banks will also announce interest rate decisions this week, including the Bank of England and Bank of Japan on Thursday.
This is especially the case at the moment, as the market is starting to question again whether the Fed will be able to engineer a soft landing. The great Nick Timiraos stated in the Wall Street Journal: “The goal [soft landing] faces four threats: the Fed holds rates too high for too long, economic growth accelerates, energy prices rise or a financial crisis erupts.”
The question we are increasingly paying attention to is to what extent these potential ripples could spill over to the crypto market. One of the key points to watch from here will be whether correlations between crypto and broader risk assets, which have been relatively high for most of 2021 and 2022, will keep trending down.
Top Three Trends We're Watching
FalconX Trading Desk Color: Most client personas were slightly net buyers over the past week. BTC continues to lead the charge, as we saw it trade more than 2x than ETH for the eighth week in a row. Our flows in majors were more tilted toward the sell side versus the week prior, with 50% and 42% for our BTC and ETH flow on the buy side (versus 65% and 72% in the week prior). BTC and ETH traded 1.7x more than other assets combined, but the fact that this ratio is the lowest over the past five weeks suggests that interest in alts is gradually improving. Buy/Sell ratios varied substantially across alts, with assets such as ARB and OP showing strong buy interest and assets such as AVAX and MATIC attracting more sellers.
Volume Market Share During North-American Trade Hours Breaks Above 50% and Reaches Multi-Year Highs: One of the significant trends in crypto throughout 2023 has been how jurisdictions such as Singapore, Hong Kong, Japan, and the UAE are embracing crypto while the US has been lagging in providing regulatory clarity.
Some metrics, such as the share of blockchain developers, are already showing how the US is starting to lag behind other countries. Other metrics show how resilient the US market is: Spot volume market share shows that activity during North American trading hours reached multi-year highs.
The chart below shows the market share of crypto spot trade volume (30-day moving average) between North American, Asian, and other trading hours since 2018. In September, the percentage of spot volume during US hours surpassed 50% for the first time since 2018.
This shows that although the US has been lagging in regulatory clarity and less than 15% of the crypto spot volume takes place in US-based exchanges, the US centrality in market trading activity still spills over to crypto.
BTC and ETH Spot Volumes Sink to 2023 Lows While Alts Volume Slightly Recovers: Those expecting a recovery in crypto spot trade volumes post the Labor Day weekend in the US will have to keep looking. Spot volumes for BTC and ETH just renewed their 2023 lows to under $1.2 billion and $500 million, respectively. These numbers are the lowest since October 2020, when BTC used to trade less than $1 billion per day. Alts remain somewhat resilient and posted a slight spot volume recovery, as the chart below shows.
Have a great week!
