- Last week, cryptoassets outperformed traditional assets due to accelerating net inflows into global crypto ETPs and Bitcoin futures short covering.
- Our in-house “Cryptoasset Sentiment Index” continues to signal a slightly bearish level of sentiment.
- The Fed is expected to commence its rate cutting cycle this week. During the last rate cutting cycle, Fed rate cuts and easy monetary policy in general have spurred a rallye in Bitcoin and cryptoassets.
Chart of the Week
Performance
Last week, cryptoassets outperformed traditional assets due to accelerating net inflows into global crypto ETPs and Bitcoin futures short covering.
More specifically, weekly net inflows into US spot Bitcoin ETFs accelerated to a 2-months high. Meanwhile, short liquidations in Bitcoin futures hit the highest level since early August, which additionally supported last week's ascent towards 60k USD as futures traders need to buy back the underlying in order to cover the short position.
The rallye was also fuelled by an announcement that Michael Saylor's Microstrategy (MSTR) bought an additional 18.3k BTC – the highest amount since February 2021. It should be highlighted that these purchases alone amount to approximately 135% of new monthly bitcoin supply.
In fact, bitcoin whales have recently increased accumulation activity again as net exchange transfers off exchanges have recently reached the highest level since February 2024, when the market was clearly mired in a bull market and bitcoin was ascending towards new all-time highs. Whales are defined as network entities that control at least 1,000 BTC.
It appears as if risk appetite is returning to the market.
One of the major reasons could be the upcoming FOMC meeting this week scheduled for the 17 th /18 th of September.
During the last rate cutting cycle, Fed rate cuts and easy monetary policy in general have spurred a rallye in Bitcoin and cryptoassets (Chart-of-the-Week).
The Fed is expected to follow other major central banks with rate cuts such as the ECB which has just recently further reduced its key interest rates by 25 basis points – the 2nd rate cut this year.
Economists surveyed by Bloomberg expect the Fed to cut its target rate by 25 basis points this week and Fed Funds Futures traders also price in a 100% probability for at least a 25 basis points cut. At the time of writing, traders also assess the probability for a 50 basis points cut in September at 59%.
The Empire State Manufacturing Index for September that is scheduled for release today could even reinforce these rate cut probabilities if the data are released below consensus expectations.
Furthermore, Fed Funds Futures already price in 125 basis points in cuts until December 2024 and already 10 cumulative cuts (~250 basis points) until December 2025.
A big focus will likely be on the Fed's Summary of Economic Projections (aka “dot plot”) which will reveal the Fed's updated expectations for the so-called “terminal rate” – the Fed Funds Target rate expected to prevail at the end of the cutting cycle in the long run.
Bitcoin and other scarce cryptoassets are probably on top of many “buy lists” of investors right now, as these assets stand to profit over-proportionally from an easing in monetary policy. We have recently highlighted in our monthly report that improving monetary policy expectations should provide an increasing tailwind for Bitcoin & cryptoassets over the coming months.
Besides, the fact that global money supply has already reached a new all-time high and is currently accelerating is also a very positive signal for the future performance of Bitcoin & cryptoassets.
The reason is that Bitcoin bull markets have been associated with money supply expansions in the past, while Bitcoin bear markets have been associated with money supply contractions.
Therefore, we expect the more positive seasonality in Q4 2024 to align with the abovementioned positive macro tailwinds.
Another major talking point was the continuing underperformance of ETH vs BTC. The ETH/BTC performance ratio has recently slipped below 0.04 and touched a 3.5-year low. As a result, Bitcoin's market cap dominance has increased above 58%.
We have explained the reasons behind this underperformance in our latest weekly report as well. One of the major reasons appears to be the relatively weaker network activity of ETH Layer 1 relative to BTC's Layer 1.
For instance, the relative transaction count of ETH vis-à-vis BTC has declined by -75% since its all-time high in June 2021. This is also related to a significant increase in BTC's network activity during that time period due to the rise of inscriptions and Layer 2 activity more broadly as well.
The recent negative trend was also reinforced by continued insider selling and increasing ETH supply. Ethereum's supply has increased gradually since the Dencun upgrade from April onwards and has now reached the highest level since May 2023.
In general, among the top 10 crypto assets, Toncoin, BNB, and Bitcoin were the relative outperformers.
Overall, altcoin outperformance vis-à-vis Bitcoin was relatively weak, with only 20% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. This is also consistent with the abovementioned underperformance of Ethereum vis-à-vis Bitcoin by almost 7%-points last week.
Sentiment
Our in-house “Cryptoasset Sentiment Index” continues to signal a slightly bearish level of sentiment.
At the moment, 6 out of 15 indicators are above their short-term trend.
Last week, there were significant reversals to the upside in BTC exchange flows and global crypto ETP fund flows.
The Crypto Fear & Greed Index currently signals a “Fear” level of sentiment as of this morning.
Performance dispersion among cryptoassets still remains at very low levels. This means that altcoins are still very much correlated with the performance of Bitcoin.
Altcoin outperformance vis-à-vis Bitcoin reversed to the downside again last week, with only 20% of our tracked altcoins outperforming Bitcoin on a weekly basis. This was somewhat consistent with an ongoing underperformance of Ethereum vis-à-vis Bitcoin last week.
In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets and the latest altcoin underperformance could signal decreasing risk appetite at the moment.
Meanwhile, sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) continued to recover from its recent lows but still signals a bearish sentiment in traditional financial markets.
Fund Flows
Fund flows into global crypto ETPs have reversed sharply to the upside compared to last week.
Global crypto ETPs saw around +472.5 mn USD in net inflows across all types of cryptoassets which shows that net inflows have accelerated compared to prior week's -867.2 mn USD in net outflows.
GlobalBitcoinETPs saw net inflows totalling +450.7 mn USD last week, of which +358.0 mn USD in net inflows were related to US spot Bitcoin ETFs alone.
The ETC Group Physical Bitcoin ETP (BTCE) showed minor net outflows equivalent to -0.4 mn USD and the ETC Group Core Bitcoin ETP (BTC1) experienced some net inflows (+0.3 mn USD).
The Grayscale Bitcoin Trust (GBTC) experienced decelerating net outflows of around -27.2 mn USD last week. A notable exception was the fact that the iShares Bitcoin Trust (IBIT) experienced net outflows of -9.1 mn USD, defying overall positive flow trends.
Meanwhile, globalEthereumETPs also continued to see net outflows last week of -14.9 mn USD, albeit at a decelerating pace. US Ethereum spot ETFs saw around -12.9 mn USD in net outflows in aggregate. However, this was again mostly related to continuing outflows from the Grayscale Ethereum Trust (ETHE) which experienced -50 mn USD in net outflows last week.
The ETC Group Physical Ethereum ETP (ZETH) experienced some positive net inflows (+0.3 mn USD) while the ETC Group Ethereum Staking ETP (ET32) even managed to attract +5.6 mn USD last week.
In contrast, Altcoin ETPs ex Ethereum continued to experience positive net flows of around +6.8 mn USD last week.
Besides, Thematic & basket crypto ETPs also saw continued net inflows with around +29.9 mn USD last week. The ETC Group MSCI Digital Assets Select 20 ETP (DA20) saw neither in- nor outflows last week (+/- 0 mn USD).
Meanwhile, global crypto hedge funds slightly increased their market exposure again last week. However, global crypto hedge funds still remain slightly underweight to Bitcoin. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin increased to around 0.91 per yesterday's close, up from 0.83 the week before.
On-Chain Data
In general, Bitcoin on-chain metrics have turned more positive recently.
For instance, Bitcoin spot intraday net selling volumes on exchanges have gradually decreased implying a reduction in selling pressure over the past week.
Over the 7 days, net selling volumes across BTC spot exchanges amounted to only -127 mn USD, compared to around -606 mn USD the week prior. As already highlighted last week, we are observing increasing evidence for seller exhaustion on bitcoin spot exchanges.
Another positive development is the fact that whales have become net accumulators of bitcoin again. More specifically, BTC whales have transferred 31,274 BTC off exchanges last week on a net basis – the highest amount since February 2024, when Bitcoin was clearly mired in a bull market. Whales are defined as network entities that control at least 1,000 BTC.
As a result, BTC on-exchange balances have declined to a 2-months low according to Glassnode data.
Meanwhile, large bitcoin holders like the US government or the Mt Gox trustee remained on the sidelines last week.
As far as Ethereum is concerned, the ETH/BTC performance ratio has recently slipped below 0.04 and touched a 3.5-year low. As a result, Bitcoin's market cap dominance has increased above 58%.
We have explained the reasons behind this underperformance in our latest weekly report as well. One of the major reasons appears to be the relatively weaker network activity of ETH Layer 1 relative to BTC's Layer 1.
For instance, the relative transaction count of ETH vis-à-vis BTC has declined by -75% since its all-time high in June 2021. This is also related to a significant increase in BTC's network activity during that time period due to the rise of inscriptions and Layer 2 activity more broadly as well.
The recent negative trend was also reinforced by continued insider selling and increasing ETH supply. Ethereum's supply has increased gradually since the Dencun upgrade from April onwards and has now reached the highest level since May 2023.
Overall ETH exchange balances continued to drift up last week consistent with an increase in selling pressure. However, overall ETH exchange balances still remain close to their multi-year lows according to Glassnode data.
Futures, Options & Perpetuals
Last week, derivatives traders moderately increased their exposure to bitcoin futures and perpetuals.
More specifically, both BTC futures and perpetual open interest increased by around +9k BTC and +1k BTC, respectively, amid increasing prices. Meanwhile, short liquidations in Bitcoin futures hit the highest level since early August on Friday with 21 mn USD which additionally supported last week's ascent towards 60k USD as futures traders need to buy back the underlying in order to cover the short position.
It is interesting to note that BTC perpetual funding rates have remained negative during 4 out of 7 days last week. This implies that the market is still very much positioned on the short side and there is still plenty of “dry-powder” left in terms of short covering once bitcoin starts to rallye.
When the funding rate is positive (negative), long (short) positions periodically pay short (long) positions. A negative funding rate tends to be a sign of bearish sentiment in perpetual futures markets.
However, the BTC 3-months annualised basis rate declined moderately last week and is currently around 7.0% p.a.
Besides, BTC option open interest increased only slightly last week. Meanwhile, the put-call open interest ratio declined which implies a relative build-up in BTC calls. This also signals a gradual return in risk appetite.
The 1-month 25-delta skews for BTC also declined somewhat last week but still remains positive, suggesting increasing relative demand for put options.
Furthermore, BTC option implied volatilities declined significantly amid the reversal in prices. At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 50.8% p.a.
Bottom Line
- Last week, cryptoassets outperformed traditional assets due to accelerating net inflows into global crypto ETPs and Bitcoin futures short covering.
- Our in-house “Cryptoasset Sentiment Index” continues to signal a slightly bearish level of sentiment.
- The Fed is expected to commence its rate cutting cycle this week. During the last rate cutting cycle, Fed rate cuts and easy monetary policy in general have spurred a rallye in Bitcoin and cryptoassets.
Appendix
Important Information
This publication constitutes a marketing communication and is provided for informational purposes only. It does not constitute investment advice, a personal recommendation, or an offer or solicitation to buy or sell any financial instrument.
This document (which may take the form of a presentation, press release, social media post, blog article, broadcast communication or similar instrument – collectively referred to as a “Document”) is issued by Bitwise Europe GmbH (“BEU” or the “Issuer”) and has been prepared in accordance with applicable laws and regulations, including those relating to financial promotions.
Bitwise Europe GmbH, incorporated under the laws of Germany, is the issuer of the Exchange Traded Products (“ETPs”) referenced in this Document under a base prospectus and the applicable final terms, as supplemented from time to time, approved by the German Federal Financial Supervisory Authority (BaFin). The approval of the prospectus by BaFin relates solely to the completeness, coherence and comprehensibility of the prospectus in accordance with the Prospectus Regulation and does not constitute an endorsement, recommendation or assessment of the merits of the products.
The market analyses, views and scenarios presented reflect the assessment as of the date of publication and are based on information considered reliable. However, no representation or warranty is made as to their accuracy or completeness. Forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Past performance is not a reliable indicator of future results.
Capital at risk. Cryptoassets are highly volatile and involve a high degree of risk. The value of investments in cryptoassets and crypto-linked ETPs may fluctuate significantly, and investors may lose part or all of their invested capital. No capital protection or guaranteed compensation mechanism applies in respect of market losses.
Any investment decision should be made solely on the basis of the relevant base prospectus, the applicable final terms and the key information document, in particular the section entitled “Risk Warning”. The base prospectus, final terms and additional risk information are available at: www.bitwiseinvestments.eu
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