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by André Dragosch, Head of Research

Key Takeaways

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• Cryptoassets were again the best asset class last week, outperforming global equities, bonds and commodities
• Our in-house Crypto Sentiment Index has improved further as underlying sentiment was mainly supported by the positive statements of Fed Chairman Powell
• In general, exchange inflows have leveled off as well, implying overall less selling pressure, which is also true for Bitcoin miner’s transfers to exchanges

Chart of the Week

 

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Performance

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Last week, cryptoasset prices managed to outperform again, being supported by the news that “it makes sense to moderate the pace of our rate hikes” for the Federal Reserve as soon as December. This statement was made by Fed Chairman Powell last week.

Accordingly, cryptoasset prices and other risky assets have mostly performed positively. Among the major cryptoassets, Polygon, Dogecoin and Ethereum were the relative outperformers. Cryptoassets were once again the best asset class last week, outperforming global equities, commodities and bonds. The Dollar weakened last week again.

Sentiment

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Our in-house Crypto Sentiment Index has improved further compared to last week and has shortly entered into positive territory. That means that the majority of our indicators were above their short-term trend. The major contributors were the increase in hedge fund beta to BTC as well as the reversals in BTC options’ implied volatilities and funding rates which are usually indicative of an increase in risk appetite within cryptoassets.

Dispersion among cryptoassets on a rolling basis was still very low, implying that the cryptomarket was rather trading on systematic factors than on coin-specific factors. At the same time, altcoins mostly managed to outperform Bitcoin which is usually a sign of increasing risk appetite. 

The Crypto Fear & Greed Index improved as well but is still in “Fear” territory.

Flows

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Fund flows continued to be weak during the last week and we saw net outflows out of global crypto ETPs in the amount of -4.0 mn USD. However, Bitcoin-based products fared rather well and experienced inflows of +13.7 mn USD net over the week while all other crypto ETP products experienced net outflows. 

On a positive note, the Beta of global Hedge Funds to Bitcoin over the last 20 trading days continued to rise, implying that hedge funds might have further increased their exposure to cryptoassets during the month. The beta of global hedge funds to Bitcoin increased to the highest reading since 2018 which implies a significant increase in hedge funds’ exposure to cryptoassets during the last 20 trading days.

Another highlight is that the Coinbase-Binance premium continued to be positive throughout the week which is indicative of relative buying interest from institutional investors vis-à-vis retail investors.

On-Chain

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In general, exchange inflows have leveled off as well, implying overall less selling pressure.

There were no significant exchange flows neither from nor to exchanges during last week.

It seems that we are slowly entering the rather calm Christmas season as Bitcoin transactions volumes have declined to a 2-year low.

BTC miners’ transfers to exchanges declined as well compared to last week, when we noticed the highest transfers year-to-date, implying that selling pressure has somewhat receded. 

We have highlighted the increased risk of “miner capitulation” in our latest issue of the “Crypto Market Intelligence” report as well. The decrease in miner exchange inflows is a positive development in this regard.

Another highlight is that short-term hodlers with a holding period of less than 155 days, managed to realize profits again after weeks of realizing harsh losses which usually improves overall market sentiment as well.

However, OTC desk holdings of Bitcoin are still very low and don’t imply significant buying interest by institutional investors, yet.

Derivatives

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In general, we saw some significant moderation in risk aversion within the Bitcoin derivatives markets. This is evident in the continuing decrease in Bitcoin Implied volatilities and a normalization in the skew.  The sharp reversal in perpetual funding rates is also indicative of a gradual unwind of downside hedges and a reduction in risk aversion among derivatives traders.

Bottom Line

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Cryptoassets were again the best asset class last week, outperforming global equities, bonds and commodities.

Our in-house Crypto Sentiment Index has improved further as underlying sentiment was mainly supported by Fed Chairman Powell’s statement to moderate the pace of rate hikes as soon as December. Crypto ETP fund flows slightly negative except for Bitcoin ETPs while global hedge funds’ beta to Bitcoin increased even further. On-chain indicators imply that overall selling pressure has receded as exchange inflows have declined compared to last week. Miner’s transfers to exchanges have also declined which is a positive development in light of a potential “miner capitulation”.

Besides, we saw another significant moderation in risk aversion within the Bitcoin derivatives markets.

Download the full report with appendix here.

About Deutsche Digital Assets

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