Bitcoin Resilience Amid Tensions: Low Volatility & Optimism

André Dragosch, PhD Director, Head of Research — Europe

Ayush Tripathi Research Analyst

Overview

Chart of the Week
Performance
Sentiment
Fund Flows
On-Chain
Futures, Options & Perpetuals
Bottom Line
Appendix

Bitcoin and cryptoassets continued to underperform last week amid ongoing geopolitical tensions in the Middle East.
Our Cryptoasset Sentiment Index has continued to decline and now clearly signals a bearish market sentiment. However, a tactical buying signal has not been triggered, yet.
Chart of the Week: Bitcoin has held up quite well relative to other assets despite record high uncertainty – bitcoin’s realized volatility over the past 60 trading days is still significantly lower than for US large-cap equities

Chart of the Week

Performance

Bitcoin and cryptoassets continued to underperform last week amid ongoing geopolitical tensions in the Middle East.

The latest bout of market volatility was brought about by the direct military engagement of the US in the Iran-Israel conflict. The Iranian parliament has now voted to close the Strait of Hormuz – one of the key maritime straits for the global oil and gas trade with access to key oil pricing terminals such as Ras Tanura (Arab Light). This will most likely increase geopolitical risk premia in the price of oil amid significant supply chain disruptions.

It is worth reiterating that geopolitical risk events historically tend to have a rather short-term effect on the performance of bitcoin.

More specifically, across the past top 20 major geopolitical risk events, bitcoin performed on average +31.2% after 50 days after the respective event (+10.2% median) – see our previousCrypto Market Compass.

The implication is that major geopolitical risk events tend to be good buying opportunities for bitcoin and other cryptoassets.

In this context, our Cryptoasset Sentiment Index is now signalling a clear bearish market sentiment, which further increases the likelihood of a short-term bounce in price. That being said, it is worth noting though that a tactical buying signal has not been triggered, yet.

Furthermore, the escalation of the military conflict in the Middle East has several important macro implications for bitcoin:

Firstly, they increase inflation expectations (CPI swaps and break-even rates) via higher energy prices, which feed into higher bond yields.

Secondly, they exacerbate the fiscal debt situation of the US especially if the US military should intensify its engagement in the region. Defence spending continues to be one of the biggest spending items of the US government amounting to around 20% of government revenues already. This is bound to increase credit risks and term premia in US Treasury yields even further.

Amid these macro developments, the Fed finds itself stuck between a rock and a hard place since US Treasury yields are increasingly being influenced by factors that the Fed can't directly control – inflation expectations due to geopolitical risks and term premia due to higher fiscal risks – probably one of the key reasons why the Fed has once again refrained from cutting rates despite increasing political pressure and heightened US recession risks. Nonetheless, Fed Funds Futures traders continue to expect that the Fed will deliver 2 rate cuts until the end of 2025.

We have frequently underscored the value of bitcoin as a potential “portfolio insurance” against sovereign default in this context. Bitcoin is bound to benefit from rising sovereign risks as a scarce, decentralised, immutable asset which is essentially free of counterparty and credit risks.

Seen from this perspective, it is not surprising that bitcoin has held up quite well relative to other assets despite record high uncertainty – bitcoin's realized volatility over the past 60 trading days is still significantly lower than for US large-cap equities (Chart-of-the-Week).

Meanwhile, continued bitcoin purchases by both publicly companies as well as ETPs have certainly provided significant support for the price of bitcoin. Over the past week alone, US spot Bitcoin ETFs have bought more than 9,000 bitcoins which is significantly higher than the new mined supply per week of around 3,150 bitcoins.

Publicly listed companies bought more than 10,000 bitcoins the week prior of which Strategy (MSTR) represented the bulk of buying. The latest tweet by Michael Saylor on X also implies that Strategy has continued to buy bitcoins throughout last week as well.

On a separate note, the state of Texas has enacted its Strategic Bitcoin Reserve (SBR) bill which makes Texas the third US state to pass SBR legislation after Arizona and New Hampshire.

In any case, continued high demand for bitcoin from institutional investors is bound to limit significant downside risks amid rising geopolitical uncertainty.

In general, among the top 10 crypto assets Bitcoin Cash (BCH), TRON, and Bitcoin (BTC) were the relative outperformers.

Overall, altcoin outperformance vis-à-vis bitcoin continued to be quite low last week, with only 15% of our tracked altcoins managing to outperform bitcoin on a weekly basis. Ethereum also underperformed bitcoin significantly last week.

Sentiment

Our in-house “Cryptoasset Sentiment Index” signals a neutral sentiment, amid the escalation of the military conflict in the Middle East.

At the moment, 6 out of 15 indicators are above their short-term trend.

BTC Exchange Inflows and Crypto Hedge Fund Beta showed positive movement. However, the Altseason Index and BTC Long Futures Liquidation Dominance both decreased week-on-week.

The Crypto Fear & Greed Index currently signals a “Neutral” level of sentiment as of this morning, deteriorating from last week.

Performance dispersion among cryptoassets remained stagnant last week, signalling that altcoins have kept their correlation with the performance of Bitcoin.

Altcoin outperformance vis-à-vis Bitcoin has increased from last week, with around 15% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. Furthermore, Ethereum managed to underperform 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 outperformance signals a bullish risk appetite at the moment.

Sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) has decreased, moving from 0.48 to 0.36.

Fund Flows

Weekly fund flows into global crypto ETPs have moderated, with net inflows continuing at sustained pace.

Global crypto ETPs saw around +526.0 mn USD in weekly net inflows across all types of cryptoassets, after +977.7 mn USD in net inflows the previous week.

Global Bitcoin ETPs have experienced net inflows totalling +904.3 mn USD last week, of which +1024.6 mn USD in net inflows were related to US spot Bitcoin ETFs.

The Bitwise Bitcoin ETF (BITB) in the US experienced net inflows, totalling +29.9 mn USD last week.

In Europe, the Bitwise Physical Bitcoin ETP (BTCE) experienced minor net outflows equivalent to -5.4 mn USD, while the Bitwise Core Bitcoin ETP (BTC1) experienced minor net inflows of +0.4 mn USD.

The Grayscale Bitcoin Trust (GBTC) has posted net outflows of -3.5 mn USD. The iShares Bitcoin Trust (IBIT), however, experienced net inflows of around +1231.6 mn USD last week.

Meanwhile, flows into global Ethereum ETPs continued its positive trend last week, with around +98.5 mn USD in net inflows last week

US Ethereum spot ETFs, also recorded net inflows of around + 40.2 mn USD on aggregate. The Grayscale Ethereum Trust (ETHE), has posted net outflows of -9.0 mn USD.

The Bitwise Ethereum ETF (ETHW) in the US, however, has posted net inflows of +3.6 mn USD.

In Europe, the Bitwise Physical Ethereum ETP (ZETH) saw minor net outflows of -1.8 mn USD while the Bitwise Ethereum Staking ETP (ET32) had sticky AuM (+/- 0 mn USD).

Altcoin ETPs ex Ethereum saw +10.0 mn USD in global net inflows.

However, thematic & basket crypto ETPs experienced net outflows of around - 35.1 mn USD on aggregate last week. The Bitwise MSCI Digital Assets Select 20 ETP (DA20) saw minor outflows of -0.1 mn USD.

Global crypto hedge funds have increased their market exposure to Bitcoin. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin consolidated to around 0.76 per yesterday's close, down from 0.77 from the week before.

On-Chain Data

Broadly speaking, Bitcoin's on-chain activity has remained slightly bearish last week.

Bitcoin spot exchanges continued to see higher selling pressure with net selling volumes increased to approximately -$2.22 bn compared to -$0.53 bn two weeks ago.

The Spot Cumulative Volume Delta (CVD), which tracks the difference between buying and selling volumes, also remained mostly negative throughout last week, peaking on Sunday.

In terms of supply dynamics, we are observing a different pattern. Whales have removed bitcoins from exchanges on a net basis, indicating a decrease in whale selling pressure. More specifically, BTC whales removed -60,660 BTC to exchanges last week. Network entities that possess at least 1,000 Bitcoin are referred to as whales.

Furthermore, based on recent data from Glassnode, the overall downward trend in exchange-held Bitcoin reserves remains intact. The current level stands at 2.92 million BTC, representing approximately 14.6% of the total circulating supply.

It's worth noting that the 30-day measure of “apparent demand” for Bitcoin remains positive, though momentum has started to decline in recent days.

Futures, Options & Perpetuals

Last week, BTC futures open interest increased last week by +3.5K BTC across all exchanges, and decreased by -4.8K BTC on CME Exchange. Perpetual open interest increased by around +2.9k BTC.

BTC perpetual funding rates remained positive last week, despite being negative on Sunday, indicating a bullish sentiment among traders in the perpetual futures market.

In general, when the funding rate is positive (negative), long (short) positions periodically pay short (long) positions, which is indicative of bullish (bearish) sentiment.

The BTC 3-months annualised basis maintained around 4.8% p.a. averaged across various futures exchanges last week. BTC option open interest increased by around +21.1k BTC. The put-call open interest ratio had spiked to 0.63.

The 1-month 25-delta skew for BTC flipped into positive territory throughout the week, ranging from a low of +3.4% to a high of +6.8%, before closing at +4.6%. The presence of a positive skew indicates some preference for upside protection, with bearish positioning slightly more pronounced than in prior weeks.

BTC option implied volatilities remained stagnant last week, while the 1-month realized volatility ended the week decreasing to 28.9%.

At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 41.49% p.a.

Bottom Line

Bitcoin and cryptoassets continued to underperform last week amid ongoing geopolitical tensions in the Middle East.
Our Cryptoasset Sentiment Index has continued to decline and now clearly signals a bearish market sentiment. However, a tactical buying signal has not been triggered, yet.
Chart of the Week: Bitcoin has held up quite well relative to other assets despite record high uncertainty – bitcoin’s realized volatility over the past 60 trading days is still significantly lower than for US large-cap equities

Appendix

Important information:

This article does not constitute investment advice, nor does it constitute an offer or solicitation to buy financial products. This article is for general informational purposes only, and there is no explicit or implicit assurance or guarantee regarding the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. It is advised not to rely on the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. Please note that this article is neither investment advice nor an offer or solicitation to acquire financial products or cryptocurrencies.

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About Bitwise

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