Despite a relatively benign week for risk assets on the back of a slightly softer-than-expected July CPI and strong retail sales data staving off recession fears for now, crypto was mostly in the red.
BTC has not been able to stay above the $60k range. The ETH/BTC ratio slightly recovered but it remains at low 0.045, not far from its three-year lows. Turnover shrunk from the elevated levels seen over the past couple of weeks but is still slightly above the averages seen in June and July. Among alts, TON (+6.0%) was the best performer among the larger names as it continues to benefit from its Binance Launchpool addition and ecosystem developments. On the other hand, Solana-related assets such as JUP (-15.4%) and WIF (-22.7%) led losses due to their high-beta behavior.
This week's hottest topic in crypto was likely how the upcoming presidential election might impact the industry’s policy and regulation.
On Wednesday night, a group high-profile democrats that include Senate Majority Leader Chuck Schummer, Senators Kirsten Gillibarnd (NY) and Debbie Stabenow (MI) participated in a virtual town hall with Sheila Warren (CEO of Crypto Council for Innovation) and billionaire investor Mark Cuban and other industry participants.
Most found the rapprochement effort between the Democratic party and the industry noteworthy and laudable. Mr Schummer said that he still sees the possibility of crypto legislation passing in 2024. However, some still want to see more commitment from the Harris campaign, especially after reports that some of her campaign’s potential advisors have a mixed history with the industry.
The Trump campaign, on the other hand, got some industry participants excited with the recent appointment of Cantor Fitzgerald CEO Howard Lutnick, a crypto advocate, to co-chair his transition team. Critics, on the other hand, highlight how Donald Trump himself made derogatory comments about the industry in the past.
With only 80 days until the results of this tight election will be known, one focus of the market will be discussions around which party, if any, is more favorable for the industry.
Interestingly, for the first time we have the ability to measure the relationship between crypto prices and election odds in real time.
Decentralized prediction market Polymarket, one of the most interesting crypto applications, has over $600 million in total bets on the 2024 presidential election winner. According to data from The Block, accumulated volume is brushing $1.3 billion in the first half of August.
The chart below shows market-implied odds of the 2024 presidential election winning party. The trend should look familiar: Trump’s odds steadily increased and reached a whopping 74% shortly after his assassination attempt, but since the nomination of Kamala Harris, her odds have been increasing and markets are now favoring her.
The following chart shows the variation of the BTC price, as a proxy for the crypto market performance, versus the variation of Republican win odds in the election over a three-day period, sampled every 12 hours.
The colors of each dot refer to the period in which Republicans were enjoying strong momentum (between June 27 and July 27, in red), when the Democrats started to catch up (July 28 and the most recent data point, in blue), and earlier in the process when there was not a clear trend (in gray).
Interestingly, there has not been a noticeable relationship between election odds and BTC prices throughout the entire analysis period from June 1 to August 15, 2024. A strong relationship between Republican win odds and BTC prices would look like an upward-sloping line with a 45-degree angle. Conversely, a strong relationship between BTC prices and a Democrat win would look like a downward-sloping line with the same 45-degree angle. We can only identify a fuzzy cloud instead.
The relationship is fuzzy even if we focus only on the periods with intense momentum for each party.
Focusing on the period in which Republicans had momentum, there is a positive relationship (linear regression slope of 0.3 with a p-value of 0.002) but with a small explanatory value (R squared of only 0.13). Zooming in the period when Democrats enjoyed momentum, the relationship becomes less statistically significant (linear regression slope of -0.7 with a p-value of 0.011) and also with a low explanatory value (R square of only 0.14).
One reason for these weaker-than-expected relationships could be the many crosscurrents influencing prices, such as the path of monetary policy in the US, concerns around upcoming supply overhangs, and others, as we highlighted before.
Of course, a lot can change before November 5. As we get closer to election day, it’ll be fascinating to see if prediction market data reveals election news as a key driver—or even the dominant force—behind price action.
Other Trends We're Watching
FalconX Trading Desk Color: After the strong buy-side flow after the sharp correction during the JPY carry unwind weeknd, our desk flows were more balanced with prop desks on the sell side, hedge funds on the buy side. BTC continues to dominate ETH volumes at our desk, with the BTC/ETH volume ratio reaching the highest level since the end of June. At the same time, majors continue to dominate alts flow, as the major/alts volume ratio stood at its highest level over the past couple of months. With the exception of SOL, for which we saw strong volumes with a strong 60% of total flow coming from the buy side, interest in alts remains dependent on relatively few names with strong narratives and flow is mixed between sell and buy side.
Bitcoin Transaction Fees Drop to Lowest Level in 2024: Transaction fees have been trending down for the two major blockchain networks over the past few months. This has been especially the case for Bitcoin, which saw all its ten days with the lowest BTC transaction fees (in USD) so far in 2024 occurring in August. The percentage of transaction fees as total block rewards also reached a 2024 low of 1.3%, versus up to 74.8% on the halving in April.
The chart below shows daily transaction fees in USD millions smoothed by a 10-day moving average for Bitcoin and Ethereum.
Interestingly, the low-fee environment is taking place during a time when BTC trading volumes are at relatively high levels compared to the past couple of months. So far in August, spot and futures BTC trading volumes are 54.0% and 53.2% higher than the daily averages recorded in June and July.
Part of the reason is because Bitcoin transaction volume has been muted over the past few months and the number of active addresses has been down. Another part, however, reflects more efficient usage of block space. The Runes protocol, which launched at the halving in April 2024 and enables the creation of fungible tokens and non-fungible assets directly on Bitcoin, accounts for about 60% of total transactions but has lower fees compared to the previous alternative.
