The crypto market slid down slightly last week following a strong correction in the week prior. The total crypto market capitalization was down 0.15% (or 0.17% excluding stablecoins) and it currently stands at $1.03 trillion (or $905 billion excluding stablecoins).
Majors BTC and ETH rehearsed a recovery and were almost 2% in the week, but the small gains were erased in anticipation of and after Jerome Powell’s keynote Jackson Hole speech, which struck a hawkish tone and negatively impacted risk assets more generally. Just a few hours after Powell started his speech, the IRS proposed new tax rules for crypto brokers, exchanges, and payment processors as result of Biden’s 2021 infrastructure bill. Although the industry is still digesting the documents, some policy experts are voicing some concerns, such as the too broad definition of a “digital asset broker”.
DYDX was the only asset with a circulating market cap of more than $250 million that recorded double-digit gains over the week, perhaps as investors start to get excited about its upcoming migration to Cosmos. On the other hand, ATOM continues to sell off during a tough year for most Ethereum alternative L1s.
Legendary investor George Soros used to rely on a concept called “prevailing bias”, which is the end result of many investors bias cancelling each other out.
Where do we stand in crypto in this regard?
There is a positive bias related to the potential historical approval of the first spot BTC ETF in the U.S.. But this is unlikely to happen in the very short term, as there’s a wide expectation that the SEC’s first deadlines for the current round of fillings due this week will likely result in them asking for more time. Potentially more surprising, the decision of the Grayscale vs. SEC lawsuit could come at any moment now and, depending on the decision and language, significantly increase or decrease the odds of the spot BTC ETF approval.
An ETH futures ETF is probably even more likely to get the greenlight before the spot BTC ETF could be approved. Probably less in the radar at the moment, the Ethereum scaling narrative will get a boost as the next major upgrade Dencun could reach the home stretch over the next few months.
But investors who have their negative biases as well. The macro scenario has never been murkier and the “higher for longer” general mood could keep a lid on risk assets, including crypto. There’s also some potential selling pressure coming from wallets seized by the government, chapter 11 portfolios, and large token unlocks over the next 6-12 months. Finally, there’s uncertainty on whether there is more regulatory action coming in the U.S.
Which type of bias will prevail between now and the end of the year is a hard guess. My sense is that the bearish sentiment could prevail in the short term. As most investors seem to be net long at the moment, it could a good time to acquire some downnside protection just in case.
Top Three Trends We're Watching
FalconX Trading Desk Color: BTC traded 2.1x more than ETH and continued to dominate our desk activity over the past week. While our BTC flow was mainly on the buy side (52% of our total hedge fund flow and 59% of our total retail aggregator flow), our ETH flow was more mixed (59% of our hedge fund flow was on the sell side and 70% of our retail aggregator flow was on the buy side). All in, buy/sell ratios in BTC surpassed ETH’s for the fourth week in a row. Alts volumes remained subdued, as majors BTC and ETH traded 2.1x more than alts. We saw most alts flow tilted towards the sell side, with a few notable exceptions such as ARB, OP, and LINK.
Crypto Volumes Renew Year Lows, Focus on How Activity Recovers Post Labor Day: My favorite metric for crypto spot volumes (3-day moving average of total spot volumes as per CoinMetrics’ trusted exchange framework) just hit a new low for 2023. In August 28, BTC volumes registered $1.6 billion, ETH volumes $470 million, and alts $9.8 billion. For context, one would need to go back to October 2020 to find lower numbers than these.
The situation for derivatives notional volume is slightly better, but volumes (also on a 3-day moving average basis) are also the lowest since the beginning of the year.
We are keeping an eye on how these figures on whether we’ll see any improvements in volume figures after September 5, when American investors come back from the Labor Day holiday. Even if I’m not expecitng a steep increase, I believe that volumes could pick up between here and the end of the year, as a number of events (e.g.: decision on spot BTC ETFs, proximity to the next Ethereum upgrade Dencun, etc…) could boost market activity.
September Token Unlcoks Calendar Is Slightly Softer But Still Notable: According to data from TokenUnlocks, the new supply coming to circulating supply to current projects in September includes a few notable projects. DYDX and OP will bring another 3.8% and 3.4% of their circulating supply online today and tomorrow, respectively. In September, the most notable unlocks among the most prominent projects include ACA (Sep 1, 3.4% of circulating supply), LOOKS (Sep 5, 2.3% of circulating supply), APT (Sep 11, 2.0% of circulating supply), and most prominetatly APE (Sep 16, 11.0% of circulating supply). Given the relatively current low liquidity market environment, we might see underperformance on those assets around such dates.
Have a great week!
