Crypto prices had another strong week as the odds of a Trump presidency shot up following the assassination attempt over the past weekend. It also did not take long for the market to notice how well the German government sales were well absorbed, which reduced concerns about potential Mt. Gox-related sales that could weigh on price action over the next few weeks.
BTC slightly outperformed ETH, as the ETH/BTC price ratio continues to drift down from the recent highs when the spot ETH ETF 19b-4 filings were approved by the SEC on May 23. Within alts, the dispersion of returns widened significantly. While some alts names that have been underperforming recently such as WIF and XRP squeezed past 30-45% gains, TIA registered led losses over the past seven days.
The winds seem to be shifting in broader risk assets.
Since cool inflation data last week lifted the market odds of a September cut to over 95%, high-flying names started to give way to beaten-up companies that might benefit more from a more abundant liquidity environment. Donald Trump’s remarks about Taiwan’s chip dominance hurt AI-related stocks and added to this trend.
The IWM (iShares Russell 2000 ETF, a proxy for small-cap stocks) decisively outperformed the megacap-dominated SPY and QQQ for the first time in a while, and some analysts are starting to believe this dynamic could have legs.
What could this mean for crypto?
One underlooked trend is that BTC has been significantly more correlated to smaller cap versus large-cap equities in 2024. The chart below shows 90-day correlations of BTC daily returns versus IWM, a proxy for small-cap equities, QQQ and SPY, a proxy for large-cap equities, and other risk assets for reference.
The consistent widening of the BTC correlation gap between small and large-cap stocks in 2024 may indicate that BTC could benefit from the current rotation out ot megacap tech into names that could benefit from a more abundant liquidity environment.
One confirming indicator I’m paying attention to is how alts are behaving versus BTC.
The chart below shows the betas of the top 20 assets by fully-diluted market capitalization versus BTC, on a rolling 90-day basis. The top 20 assets by FDV represent a good mix of leading L1s (ETH, SOL), L2s (ARB, OP), legacy projects (XRP, ADA, DOT), exchange tokens (BNB, OKB), memecoins (DOGE, SHIB), and newer names with shiny narratives (SUI, APT, TON), among others.
The betas of most altcoins versus BTC have generally been on the rise over the past three months. There are a few exceptions, such as memecoins, which have consistently shown high-beta behavior, and specific names like OKB and TON, which have demonstrated lower beta behavior.
If this trend continues, it could signal a more widespread market movement than we've seen so far.
It is too early to definitively call for the return of alt season, as BTC and ETH have many significant drivers in the coming months. But it might be prudent to start looking beyond majors.
Other Trends We're Watching
FalconX Trading Desk Color: We saw most investor personas active on the buy side, especially proprietary trading firms. Interest in BTC picked up more than ETH, especially over the past few days, in which the BTC/ETH volume ratio spiked to over 3.5x, more than double the level it’s been over the past couple of weeks. Buy/Sell ratios have been above 1x for both BTC and ETH but went different ways over the past few days in favor of BTC and against ETH. Alts flow was more mixed, with names such as SOL, MATIC, and LDO on the sell side and DOGE, AAVE, and LINK on the buy side.
U.S. Spot ETH ETFs Set to Start Trading Next Tuesday, July 23: This week, all spot ETH ETF issuers filed what appear to be the final S1/S3 amendments before launch. Investors were keenly watching how aggressive issuers would be on costs, and those betting on the higher side were not disappointed. According to data compiled by Bloomberg Intelligence’s James Seyffart, these products will charge between 0.15% and 0.25% with different initial waivers, except for Grayscale’s ETHE, which kept its 2.50% fee.
The view we advanced a month ago has not changed.
There prevailing expectation remains that, similarly to the initial dynamic we saw after the spot BTC ETF launches, ETHE outflows will likely outweigh the other issuers' inflows.
That said, it is important to notice that ETH punches well above its weight in terms of liquidity and could have more potential to absorb such flows than some expect.
The chart below illustrates the relative size of ETH compared to BTC using various metrics. The purple line represents the market cap ratio, showing that ETH is about one-third the size of BTC. However, the picture changes when examining liquidity metrics. The orange and brown lines, representing futures and spot trading liquidity, respectively, indicate that ETH's liquidity is at 45-60% of BTC's turnover. Additionally, the green and blue lines at the top, which show the 1% book depth (bid and ask sides) in spot markets, reveal a surprising 70-85% of BTC’s liquidity.
At the same time, the long-term impact of a broader investor audience getting exposure to crypto use cases beyond digital gold and the policy shift that underpinned the approval is likely to bring tailwinds to ETH and the broader industry for a long time.
