- Last week, cryptoassets outperformed traditional assets as general risk appetite returned to the market and major selling pressure receded.
- Our in-house “Cryptoasset Sentiment Index” currently signals neutral sentiment again. It had decreased to slightly bearish levels recently before reversing higher again.
- The return in risk appetite was also due to the fact that Microstrategy (MSTR) hit a fresh multi-decade high which tends to bode well for the price of bitcoin.
Chart of the Week
Performance
Last week, cryptoassets outperformed traditional assets as general risk appetite returned to the market and major selling pressure receded. The market started recovering once this selling pressure receded and net outflows stabilized and turned into net inflows at the end of last week.
Large selling pressure particularly on Coinbase exchange had led to larger underperformance at the beginning of last week which was likely associated with net outflows from US spot Bitcoin ETFs. These net inflows have recently even accelerated at the beginning of this week and US spot Bitcoin ETFs have seen the highest daily net inflows since July 2024.
Moreover, cryptoasset markets were concerned about an imminent large distribution of bitcoins by the US government. More specifically, the US government currently possesses about 69k bitcoins according to data provided by Arkham, which was confiscated from the Silk Road marketplace. After years of legal uncertainty, a recent Supreme Court ruling has given the government full control of these assets, allowing for the possibility of selling them. Should the government proceed with liquidation, it could increase market selling pressure and potentially cause a decline in Bitcoin's price which has weighed on market sentiment.
However, these imminent sales have not materialised at the time of writing this report, which has also supported the return in risk appetite.
The return in risk appetite was also due to the fact that Microstrategy (MSTR) hit a fresh multi-decade high which tends to bode well for the price of bitcoin (Chart-of-the-Week). Due to its outsized bitcoin holdings, Microstrategy's stock has traditionally been used as a popular proxy for bitcoin by equity investors.
The return in risk appetite was also supported by the widening in election betting odds between Trump and Harris. In our most recent research piece, we have demonstrated that performances of major cryptoassets such as Bitcoin (BTC) or Ethereum (ETH) tend to be positively correlated with Trump's odds and inversely correlated with Harris' odds of winning the presidency.
At the time of writing, betting odds across multiple betting websites imply a chance of winning of 54.1% for Trump and 45.0% for Harris.
On the macro side, we have seen mixed news about the US economy. Initial jobless claims have surged past expectations and have reached the highest level in more than a year. However, there seem to be one-off effects from both Hurricane Helene and the recent Boeing strike.
That being said, small businesses still appear to be slowing down hirings according to the latest NFIB survey of small businesses released for September. The “job openings hard to fill” sub-index reached a new post-Covid low and the uncertainty index reached a multi-year high. This is mirroring the most recent ISM Manufacturing survey for September which had already shown that the factory employment slump deepened. Challenger job cut announcements have also accelerated recently.
Nonetheless, a re-acceleration in inflation measures has prompted rates traders to price out further rate cuts from the Fed. More specifically, US core CPI inflation has accelerated to a 3-months high. Moreover, 5-year break-even inflation rates have accelerated the most since the beginning of 2023 on the back of the latest University of Michigan consumer survey that has shown that average inflation expectations by consumers over the next 5-10 years has increased above 7%.
At the time of writing, Fed Funds Futures only price in 6 additional rate cuts until the end of 2025. This is down from 8 rate cuts that were priced in after the FOMC meeting in September.
In general, increases in market-based inflation expectations also tend to be positive for Bitcoin and cryptoassets.
In general, among the top 10 crypto assets, Avalanche, TRON, and Ethereum were the relative outperformers.
Overall, altcoin outperformance vis-à-vis Bitcoin has increased slightly compared to last week with only around 40% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. Ethereum also outperformed Bitcoin last week.
Sentiment
Our in-house “Cryptoasset Sentiment Index” currently signals neutral sentiment again. It had decreased to slightly bearish levels recently before reversing higher again.
At the moment, 9 out of 15 indicators are above their short-term trend.
Last week, there were significant increases to the upside in the crypto dispersion index and BTC exchange flows.
The Crypto Fear & Greed Index currently signals a “Greed” level of sentiment as of this morning.
Performance dispersion among cryptoassets continued to increase last week and has now reached the highest level since early August, before the major capitulation event. This signals that altcoins are becoming less correlated with the performance of Bitcoin.
Altcoin outperformance vis-à-vis Bitcoin increased slightly compared to last week, with around 40% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. Ethereum also outperformed 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 decline in altcoin outperformance could signal a decrease in risk appetite at the moment.
Meanwhile, sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) made a sharp reversal throughout the week. After turning slightly bearish, the index has recovered again and is signalling a neutral cross asset risk appetite again.
Fund Flows
Fund flows into global crypto ETPs have reversed last week and turned positive again.
Global crypto ETPs saw around +399.3 mn USD in net inflows across all types of cryptoassets which is a significant reversal compared to prior week's -186 mn USD in net outflows.
GlobalBitcoinETPs saw net inflows totalling +422.6 mn USD last week, of which +348.5 mn USD in net inflows were related to US spot Bitcoin ETFs alone.
Yesterday, US spot Bitcoin ETFs had their highest daily net inflow since July 2024 with +556 mn USD.
The ETC Group Physical Bitcoin ETP (BTCE) experienced minor net outflows equivalent to -1.7 mn USD, while the ETC Group Core Bitcoin ETP (BTC1) experienced slightly positive net inflows (+0.1 mn USD).
Outflows from the Grayscale Bitcoin Trust (GBTC) continued to be relatively high, with around -50.0 mn USD last week. iShares Bitcoin Trust (IBIT) continued to see positive net inflows of +140.5 mn USD.
Meanwhile, globalEthereumETPs continued to see negative ETP flows albeit at a decelerating pace with around -1.7 mn USD in net outflows.
US Ethereum spot ETFs saw around -22.2 mn USD in net outflows in aggregate. The Grayscale Ethereum Trust (ETHE) continued to see net outflows of around -19.1 mn USD last week.
The ETC Group Physical Ethereum ETP (ZETH) saw minor net outflows with -0.1 mn USD while the ETC Group Ethereum Staking ETP (ET32) once again managed to attract capital of around +2.3 mn USD in net inflows.
However, net inflows into Altcoin ETPs ex Ethereum also saw minor net outflows with around -1.7 mn USD last week.
Besides, flows into Thematic & basket crypto ETPs were mostly unchanged with around +0.7 mn USD last week. The ETC Group MSCI Digital Assets Select 20 ETP (DA20) experienced neither net in-/ nor outflows last week (+/- 0 mn USD).
Meanwhile, global crypto hedge funds increased their exposure to Bitcoin last week. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin increased to around 0.81 per yesterday's close, after 0.78 the week before.
On-Chain Data
In general, Bitcoin on-chain metrics have improved significantly more recently.
Bitcoin spot intraday net buying volumes on exchanges have reversed on Monday to the highest level since August 2024 which has pushed priced above 65k USD again. This marks a significant shift from the negative buying volumes last week.
Bitcoin whales have also turned more positive compared to the previous week with around -832 BTC net transfers off exchanges. Whales are defined as network entities that control at least 1,000 BTC.
Overall BTC on-exchange balances have continued to drift downwards again according to Glassnode data.
We are generally observing a surge in renewed buying interest. For instance, Bitcoin's realized cap increased the most since May 2024 last week on Tuesday. Moreover, we are seeing an increasing demand overhang based on the amount held for more than 1 year relative to the mined supply.
In fact, we continue to see increasing evidence that the BTC supply shock emanating from the latest Bitcoin Halving is intensifying. Liquid and highly supply has just reached a new year-to-date low while measures of illiquid supply continued to hit new all-time highs according to data provided by Glassnode.
Futures, Options & Perpetuals
Last week, there was significant pick-up in BTC futures and perpetuals open interest.
More specifically, BTC futures open interest increased by around +33k BTC while perpetual open interest increased by +16k BTC. Futures open interest reached a new all-time high in USD terms.
Meanwhile, BTC perpetual funding rates remained very positive throughout the week. Perpetual funding rates reached the highest level since July 2024 on Monday.
When the funding rate is positive (negative), long (short) positions periodically pay short (long) positions. A positive funding rate tends to be a sign of bullish sentiment in perpetual futures markets.
The BTC 3-months annualised basis also picked up significantly and is currently at around 9.4% p.a.
Besides, BTC option open interest also increased significantly last week by around +14k BTC. Meanwhile, the put-call open interest ratio was mostly unchanged, which implies that option traders both increased their put and call positions concordantly.
However, the 1-month 25-delta skews for BTC drifted downwards last week, signalling an increase in the relative demand for call options. The 1-month skew is now more biased towards call options.
BTC option implied volatilities moved higher due to an increase in realized volatility as well. At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 57.2% p.a.
Bottom Line
- Last week, cryptoassets outperformed traditional assets as general risk appetite returned to the market and major selling pressure receded.
- Our in-house “Cryptoasset Sentiment Index” currently signals neutral sentiment again. It had decreased to slightly bearish levels recently before reversing higher again.
- The return in risk appetite was also due to the fact that Microstrategy (MSTR) hit a fresh multi-decade high which tends to bode well for the price of bitcoin.
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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