The whirlwind that hit crypto over the weekend triggered by concerns on the JPY carry trade unwind was followed by a swift recovery following a more supportive environment for risk assets on the back of the BoJ prompt walk back of rate increase talks, a slightly better than expected jobless claims release calming down economic slowdown fears, and the perception that the FTX payments to creditors, part of which could come back to crypto is one step closer to its conclusion.
BTC was down over 20% but recovered most of the losses to finish down 7% over the past seven days. ETH, on the other hand, was not able to recover at the same pace and the ETH/BTC price ratio reached 0.43, renewing its multi-year lows. Alts had a more mixed performance, with SUI (+23%) leading gains and MKR (-27%) leading losses for assets with a circulating market capitalization of more than $1 billion.
Perhaps the strength of the recovery back to the $60-70k range that BTC has mostly been in since early March was more surprising than the speed of the correction on Sunday.
As it has been the case for over a year, the price recovery happened almost entirely during U.S. hours. While the share of the BTC and ETH spot turnover taking place during Asia hours broke above the 45% for the first time in over three years, the share of volume during US hours spiked to a whopping 55% during the recovery in the following few days.
As we highlighted earlier this week, the price recovery has been accompanied by strong turnover. This trend is being sustained after the record-breaking volumes on Monday even as realized volatility has smoothed out a bit.
BTC spot and futures volumes since Tuesday are already 54.6% and 43.8% above July levels, which was a more active month than usual in terms of market liquidity. Assets beyond BTC saw even higher increases. ETH saw increases of 61.2% and 53.0% for futures and spot over the same period. For SOL, the same comparisons are 106.9% and 111.7%.
We wrote in late June that stronger liquidity trends will be a critical confirming indicator for a sustainable break from the $60-70k BTC price range. Since then, we broke that trend three times but none of them proved sustainable.
First, we broke below the range due to concerns of BTC sales by the German government, which did not last because the market impact proved smaller than most expected. Then, we went above $70k very briefly on the back of excitement around Donald Trump’s keynote speech at Bitcoin Nashville 2024. This week’s break below the $60k level was also short lived due to reasons highlighted above.
There are many cross currents in the market, such as geopolitical risks and flows, but it looks like that the events that could break the current trend sustainably are likely more related to monetary policy and the U.S. presidential elections.
The market is currently split 50/50 between a 50 bps and 25 bps rate cut in the September 18 meeting. Prediction markets are now giving equal odds for the U.S. presidential election on November 5. Fed Funds CME futures are also implying a 14% change that the Fed will have slashed rates by 75 bps in total between now and its November meeting, which will take place only two days after the election.
It is looking likely that a decisive break from the current trend will be linked to more visibility in these two topics.
Other Trends We're Watching
FalconX Trading Desk Color: The net seller flow that we have been seeing from most investor personas over the past couple of weeks turned into strong net buyer flow starting on Monday. This was especially the case for BTC, with 60-70% of our total flow coming from the buy side depending on the type of investor. We saw BTC volumes top ETH’s by a factor of 1.9x over the past few days, versus 3.5x in the past week. With the exception of SOL, for which we saw strong volumes with a whopping 66% on the buy side, activity in alts was relatively lower and more mixed between sell and buy side.
Non-Circulating Crypto Market Cap Touches $150 Billion Before Slight Recovery: The supply dynamics of alts have been a topic of conversation for a while, as we highlighted almost three months ago. One critical factor driving these concerns is the amount of non-circulating market capitalization (i.e., the difference between fully diluted and circulating market capitalization) in some of the most prominent alt assets that is due to unlock and bring selling pressure.
As the chart below shows, the industry’s total non-circulating market capitalization reached an all-time high of over $400 billion in March. After stabilizing at about $250 billion for a few months, it touched $150 billion this week. Despite the slight recovery over the course of the week, this indicator is only about one third above what it was before the crypto bull market started in October 2023.
The reason for the adjustment is lower alt token prices. It seems too early to call for a recovery in the alts sleeve of the market, as we still probably need to see an improvement in narratives, liquidity trends, and still potential futures selling pressure from early investors. However, as fully-diluted valuations start to approach pre-bull market levels, it could be time to watch this market more closely from here on.
If current trends remain, conversations about where is the turning point for alts should start springing up in a few months or maybe even weeks.
