Bitcoin Leads the Way Decoupling from Traditional Markets
DDA Crypto Market Pulse, October 09, 2023
by André Dragosch, Head of Research
- Last week, crypto assets mostly went sideways after a week of strong gains
- Our in-house Crypto Sentiment Index has increased somewhat and is now neutral
- Correlations between crypto assets and traditional assets have decreased significantly and especially Bitcoin has started to decouple
Chart of the week
Last week, crypto assets mostly went sideways after a week of strong gains. Tight monetary policy still appears to be a major headwind for both traditional assets and crypto assets. Below the surface, we saw stronger outperformance of Bitcoin vis-à-vis other altcoins which implies a decline in risk appetite as well. Especially Ethereum underperformed Bitcoin by a wide margin which is also pointing in that direction. This is also consistent with a general decline in risk appetite in traditional financial markets as measured by our Cross Asset Risk Sentiment Index.
Nonetheless, net fund flows into global Bitcoin ETPs have been relatively strong last week which might have supported Bitcoin’s general outperformance. However, the debut of several Ethereum Futures ETFs in the US was rather lukewarm and did not attract significant amounts of money.
In general, correlations between crypto assets and traditional assets have decreased significantly as especially Bitcoin has started to decouple (Chart-of-the-Week).
Among the top 10 crypto assets, Bitcoin, XRP, and Polygon were the relative outperformers.
As mentioned above, altcoin outperformance vis-à-vis Bitcoin has recently declined pointing to a decrease in risk appetite. Only 30% of our tracked altcoins managed to outperform Bitcoin on a weekly basis.
Crypto Market Sentiment
Our in-house Crypto Sentiment Index has increased somewhat and is now neutral. At the moment, 8 out of 15 indicators are above their short-term trend.
Compared to last week, we saw major reversals to the downside in the Altseason Index and BTC Put-Call Volume Ratio. However, we also saw major reversals to the upside in crypto ETP fund flows and the BTC STH-NUPL.
The Crypto Fear & Greed Index also remains in “Neutral” territory as of this morning.
Performance dispersion among cryptoassets continues to be relatively high.
In general, high performance dispersion among cryptoassets implies that correlations among cryptoassets have decreased which means that cryptoassets are trading more on coin-specific factors.
At the same time, as mentioned above, altcoin outperformance has continued to be low with only 30% of altcoins outperforming Bitcoin on a weekly basis.
In general, low altcoin outperformance is a sign of low risk appetite within crypto asset markets.
Crypto Asset Flows
Last week saw a significant pick-up in net fund inflows into global crypto ETPs.
In aggregate, we saw net fund inflows in the amount of +102.9 mn USD (week ending Friday).
Most of these inflows focused on Bitcoin funds (+85.4 mn USD) and Altcoin ex Ethereum funds (+23.9 mn USD).
In contrast, despite the debut of several new Ethereum Futures ETFs in the US, Ethereum funds in aggregate did not attract significant amounts of money last week (+0.9 mn USD).
Thematic & basket crypto funds experienced net outflows to the tune of -7.4 mn last week.
The NAV discount of the biggest Bitcoin fund in the world – Grayscale Bitcoin Trust (GBTC) – narrowed significantly last week and is now around -17%. In other words, investors are assigning a slightly higher probability of around 83% that the Trust will be converted into a Spot Bitcoin ETF.
Furthermore, the beta of global crypto hedge funds to Bitcoin over the last 20 trading has decreased significantly, implying that global crypto hedge funds have reduced their market exposure to crypto assets.
Overall, on-chain activity has continued to worsen over the last week, albeit from very high levels.
For instance, active addresses on the Bitcoin blockchain have continued to decrease and are approaching year-to-date lows again. Similarly, new addresses on the Bitcoin blockchain have also decreased and are now at their lowest reading since May this year. The number of addresses with non-zero balances has also declined somewhat.
Nonetheless, Bitcoin’s hash continues to hover near all-time highs.
Meanwhile, Bitcoin exchange balances have hit fresh lows and are now at their lowest level since March 2018. In contrast, Ethereum exchange balances have moved sideways last week but remain near 7-year lows.
The divergence in net on-chain flows between Bitcoin and Ethereum might explain the recent outperformance of Bitcoin vis-à-vis Ethereum as well.
However, accumulation dynamics across all wallet cohorts for Bitcoin have recently declined significantly. In particular, smaller wallet cohorts have reduced their accumulation activity which might limit any further upside in the short term.
Last week, open interest in the BTC futures and perpetual markets increased only slightly. The same can be said for Ethereum Futures and Perpetuals traded across all major exchanges despite the debut of several new US Ethereum Futures ETFs last week.
BTC options open interest also increased only slightly. Most of this increase was related to a relative surge in put options, so option traders have increased their downside protection somewhat.
BTC option skews increased somewhat for expiries longer than 3 months but mostly went sideways for shorter expiries. Implied volatilities also mostly went sideways last week and remain at very low levels.
Last week, crypto assets mostly went sideways after a week of strong gains.
Our in-house Crypto Sentiment Index has increased somewhat and is now neutral.
Correlations between crypto assets and traditional assets have decreased significantly and especially Bitcoin has started to decouple.
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