This report is for professional investors and information purposes only. Persons without professional investment experience should not rely on it. Not investment advice or a personal recommendation. Cryptoassets are high risk and volatile and you may lose all capital invested. See full risk information at the end of this document.
- Performance: Last week, major digital assets like Bitcoin and Ethereum underperformed risk assets like US equities amid a reversal in global crypto ETP flows, as both traditional and crypto markets continue to be affected by the trifecta of rising sovereign bond yields and tightening financial conditions, rising commodity prices amid geopolitical tensions, and increasing concerns over the AI trade. We still think bitcoin - the "canary in the liquidity coal mine" - may have already anticipated a large part of this tightening well in advance, which is now starting to affect other risk assets like US equities.
- Cryptoasset Sentiment Index:[1] The index has recently declined from euphoric levels but still signals a slightly bullish level of sentiment; with the bitcoin-S&P 500 correlation having turned negative, there may be a chance of a decoupling between bitcoin and the stock market, and a repricing of global growth expectations could lead to a positive repricing of monetary policy expectations that may provide a renewed tailwind for bitcoin and other major cryptoassets.
- Chart-of-the-Week: Major sovereign bond yields keep making new multi-decade highs almost daily - 10-year US Treasuries are trading close to the critical 5% mark, German Bund yields are at their highest level since 2011, French OAT yields at 2008 levels, and British Gilt yields at their highest since 2007 - with long-term yields driven higher by a combination of rising fiscal risks, rising rate hike expectations, and rising commodity prices (and inflation expectations); a continued rise may ultimately force major central banks to intervene and pivot back towards QE, especially if rising yields start affecting the stock market negatively, though outcomes may differ materially.
Chart of the Week
Performance
Last week, major digital assets like Bitcoin and Ethereum underperformed risk assets like US equities amid a reversal in global crypto ETP flows.
In general, traditional financial markets and crypto markets alike continue to be affected by the trifecta of rising sovereign bond yields and tightening financial conditions, rising commodity prices amid geopolitical tensions and increasing concerns over the AI trade.
As far as sovereign bond markets are concerned, 10-year US Treasury bonds are trading close to the critical 5% mark – the multi-year high made in October 2023. A break above that level would constitute a level that was last seen in July 2007 – i.e. almost 20 years ago.
Other major sovereign bond yields have continued to reach new multi-decade highs, almost daily. For instance, at the time of writing this report on Monday morning, German Bund yields are trading at their highest level since 2011, French OAT yields are trading at 2008 levels, and British Gilt yields are also trading at the highest level since 2007 (Chart-of-the-week).
From our point-of-view, long-term bond yields are driven higher by combination of rising fiscal risks, rising rate hike expectations, and rising commodity prices (and inflation expectations).
We think that a continued rise in sovereign bond yields may ultimately create a reason for major central banks to intervene in bond markets and provide liquidity again – i.e. pivot towards QE and easy monetary policy again – especially if these rising yields start affecting the stock market negatively.
That being said, the fact that the ECB just hiked rates by another 25 bps last week and also rising Fed rate hike odds after last week’s inflation print imply that pressure will continue to build for the time being. More specifically, Fed Funds Futures imply a 87% of a Fed rate hike this week.
The key to understand is that the rise in (real) yields has been tightening financial conditions process which is starting to affect traditional financial markets. One of our long-held theses at Bitwise is that Bitcoin has been the “canary in the liquidity coal mine” that anticipates changes in financial conditions both to the downside and upside. Therefore, we still think that bitcoin has already anticipated this tightening well in advance which is now affecting other risk assets like US equities. We have repeatedly flagged this downside risks for US equities in previous reports many times (e.g. here, here, and here).
We think this downside scenario for US equities is playing out that was essentially signalled by bitcoin’s drawdown and bear market in advance.
We also think that Chinese AI competition and token price deflation among closed US AI labs like Anthropic and OpenAI is just adding industry-specific downside risks for semiconductors, hyperscalers and ultimately the global stock market. There are also increasing question marks about the circularity and revenue sharing agreements between hyperscalers and US AI labs that appears to inflate income metrics among the major hyperscalers.
The fact that Anthropic and other industry leaders are calling for a slowdown in AI frontier model development due to safety concerns is also increasing uncertainty around future growth projections.
It is important to note though that the key causal reason for these downside risks in the stock market is the preceding tightening in financial conditions created by increasing rate hike expectations among major central banks.
In fact, we have flagged tighter monetary policy as the key risk for the global semiconductor cycle in one of our Bitcoin Macro Investor reports.
As highlighted in our previous Crypto Market Compass, the fact that the correlation between bitcoin and the S&P 500 has turned negative implies that there is a high chance of a decoupling between bitcoin and the stock market.
In fact, our latest Bitcoin Macro Investor report also highlights the observation that bitcoin has been trading more in line with monetary policy expectations and the stock market has been trading more in line with global growth expectations that are risk of a repricing.
Therefore, from a pure macro perspective, we expect that a decline in global growth expectations amid a repricing of the AI complex’s growth outlook may lead to a positive repricing of monetary policy expectations which may provide a renewed tailwind for bitcoin and other major cryptoassets. This represents one possible scenario; outcomes may differ materially and significant losses cannot be excluded.
In general, among the top 10 crypto assets TRON, Ethereum, and Monero were the relative outperformers. Ethereum outperformed bitcoin last week.
Bottom Line: Rising sovereign bond yields at multi-decade highs, driven by fiscal risks, rate hike expectations, and commodity-fuelled inflation, continue to tighten financial conditions and are now weighing on US equities - a downside scenario that bitcoin, as the "canary in the liquidity coal mine," had already anticipated through its earlier drawdown. AI-specific risks around Chinese competition, token price deflation, and circular hyperscaler revenue agreements add further pressure on semiconductors and the broader stock market. With the bitcoin–S&P 500 correlation turning negative, a repricing of global growth expectations could shift monetary policy expectations in a dovish direction, potentially providing a renewed tailwind for bitcoin and other major cryptoassets.
Sentiment
Our in-house “Cryptoasset Sentiment Index”[2] softened substantially although still sits in positive territory. This is in line with a reduction in Cross Asset Risk Appetite.
At the moment, 11 out of 15 indicators remain above their short-term trend.
The most notable driver was a sharp reversal in the Altseason Index, which fell from 90 to 45 as sentiment and cross asset risk appetite declined, despite strong net inflows into altcoin ETPs ex Ethereum. BTC put-call volume also flipped negative, alongside further compression in one-month implied volatility. Both point to a cautious outlook as Bitcoin continues to tread water.
The Crypto Fear & Greed Index decreased substantially, although still remains in "greed" territory. This is consistent with our decreasing Sentiment and CARA Index’s.
Performance dispersion increased slightly, albeit Altseason Index declined substantially, suggesting narratives are fickle amongst broader weak price performance.
When dispersion decreases, it may indicate that the market appears to be driven by a less diverse set of narratives which, in our analysis, has historically been associated with periods of decreasing risk appetite in prior market cycles.
Altcoin outperformance vis-à-vis Bitcoin decreased from 90% to 45% of the altcoins tracked in our index. This is consistent with declining Sentiment, Fear and Greed and CARA.
Sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) has decreased from 0.9 to 0.8 over the past week, signalling risk appetite has declined from less favourable macro conditions.
The CME Bitcoin Commercials Net Positioning metric captures the difference between long and short CME Bitcoin futures contracts. The reading has declined to –9.57% of open interest, suggesting traders have increased their short leverage amongst a less favourable macro backdrop, reversal in flows and coiled volatility.
Bottom Line: TradFi and crypto sentiment declined in tandem last week with traders increasingly positioning for downside protection. Altcoin outperformance declined as well despite substantial and positive net ETP inflows, suggesting the reversal was leverage driven alongside the broader risk complex.
Fund Flows
Global crypto ETPs experienced around -196.4 mn USD in net outflows last week, across all types of cryptoassets, after +1,248.0 mn USD in net inflows the previous week.
Global Bitcoin ETPs experienced net outflows of -434.3 mn USD last week, of which -482.4 mn USD in net outflows were related to US spot Bitcoin ETFs.
The Bitwise Bitcoin ETF (BITB) in the US experienced net inflows of +1.9 mn USD last week.
In Europe, the Bitwise Physical Bitcoin ETP (BTCE) experienced no net inflows or outflows, as the Bitwise Core Bitcoin ETP (BTC1) experienced net inflows of around +4.3 mn USD.
The Grayscale Bitcoin Trust (GBTC) posted net outflows of -129.1 mn USD whereas the iShares Bitcoin Trust (IBIT) experienced net outflows of around -52.6 mn USD last week.
Meanwhile, global Ethereum ETPs experienced +142.5 mn USD in net inflows last week, of which US spot Ethereum ETFs recorded net inflows of around +141.9 mn USD on aggregate.
The Grayscale Ethereum Trust (ETHE) posted net outflows of -17.3 mn USD, whilst the iShares Ethereum Trust (ETHA) saw net inflows of +139.9 mn USD.
The Bitwise Ethereum ETF (ETHW) in the US experienced net inflows of +29.1 mn USD last week.
In Europe, the Bitwise Physical Ethereum ETP (ZETH) recorded net outflows of -0.7 mn USD, whilst the Bitwise Ethereum Staking ETP (ET32) saw net inflows of +1.9 mn USD.
Altcoin ETPs ex Ethereum also saw net inflows of +98.3 mn USD last week.
Thematic & basket crypto ETPs posted net outflows of -2.9 mn USD on aggregate last week. The Bitwise MSCI Digital Assets Select 20 ETP (DA20) recorded no net inflows or outflows last week.
Bottom Line: Last week marked a clear reversal in tone, with Bitcoin accounting for the entirety of the swing from +1248 mn USD to -196.4 mn USD. Ethereum experienced +141.9 mn USD of net inflows, with altcoin ETPs ex Ethereum adding a further +98.3 mn USD, suggesting rotation within the asset class rather than a wholesale retreat.
On-Chain Data
Bitcoin moved lower over the past week, touching the lower bound of its recent consolidation range as price retraced towards the True Market Mean near $76.6k. Importantly, the market has so far found support around this level, suggesting that the broader improvement in market structure remains intact despite the recent weakness.
The defence of the True Market Mean is particularly constructive. We view this level as the market midpoint and a key delineator between macro risk-on and risk-off conditions. Its transition from resistance into support therefore provides an important indication that the broader market structure remains positive. Beneath this, the Short-Term Holder cost basis near $72k and the 200-day moving average near $70k remain the next major measures of local market momentum.
The recent pullback has also brought Bitcoin into an important area of technical confluence. The 38.2% Fibonacci retracement from the $124.7k all-time high sits near $77.1k, closely aligning with the True Market Mean. Price finding support within this region therefore reinforces its significance as both an on-chain equilibrium level and a broader technical reference point.
| Fibonacci Level | Price |
|---|---|
| ATH | $124,715 |
| −23.6% | $95,282 |
| −38.2% | $77,074 |
| −50.0% | $62,357 |
| −61.8% | $47,641 |
| −78.6% | $26,689 |
Despite the recent decline, the broader pricing framework remains largely unchanged. The $83k region continues to represent the principal upside hurdle, where the +1σ deviation band around the Short-Term Holder cost basis, average ETF inflow cost basis and technical higher-high threshold converge. While our broader framework suggests that the transition towards a bull-market regime has already begun, a decisive reclaim of $83k would provide stronger technical confirmation that the previous bear-market structure has been broken.
One increasingly important feature of the current consolidation is the compression in volatility. At-the-money implied volatility remains historically subdued across the curve, with each major tenor sitting towards the lower end of its three-year distribution. The compression is particularly pronounced further out the curve, suggesting options markets continue to price relatively limited future movement.
| Tenor | ATM Implied Volatility | 3-Year Percentile |
|---|---|---|
| 1w | 35.5% | 19th |
| 1m | 35.4% | 12th |
| 3m | 38.1% | 8th |
| 6m | 39.1% | <1st |
Realised volatility tells a similar story at the front end. One-week realised volatility has fallen to exceptionally subdued levels, while two-week volatility also remains below its longer-term distribution. The comparatively elevated one-month reading still captures part of August’s sharp repricing and therefore somewhat overstates current conditions.
| Window | Realised Volatility | 3-Year Percentile |
|---|---|---|
| 1w | 17.2% | 2nd |
| 2w | 30.1% | 21st |
| 1m | 47.8% | 68th |
| 3m | 37.4% | 21st |
| 6m | 38.2% | 20th |
Price compression is also becoming increasingly evident across intermediate horizons. The 60-day and 90-day trading ranges now sit towards the lower end of their historical distributions, while the 30-day range remains closer to its median. This suggests that the market is not yet experiencing extreme compression across every timeframe, but broader price movement has narrowed materially as Bitcoin consolidates.
| Window | Historical Percentile |
|---|---|
| 30D | 55.9% |
| 60D | 26.7% |
| 90D | 24.3% |
Taken together, the volatility structure points to increasingly coiled market conditions. Front-end realised volatility is exceptionally subdued, implied volatility remains historically compressed and medium-term trading ranges have narrowed materially. Historically, similar periods of volatility suppression have often preceded renewed expansion, although these measures provide little information regarding the eventual direction of the move.
Importantly, Bitcoin can still sustain a meaningful drawdown without materially damaging the constructive market structure. A deeper retracement towards the Short-Term Holder cost basis and 200-day moving average around $70k-$72k would remain consistent with constructive risk-on conditions if these levels were successfully defended. In fact, a retest and confirmation of this region as support could represent a healthy structural development, allowing market equilibrium levels to converge further towards price following the speed of August’s advance.
While our broader framework continues to indicate that point to a possible transition towards a bull-market regime may be underway, the evidence is not yet conclusive and remains conditional and it is important to consider a broad assess distribution of potential outcomes rather than place undue emphasis on the base case. The successful defence of the True Market Mean can be interpreted as a constructive development, although a decisive reclaim of move above $83k would likely be needed to provide stronger upside confirmation. Conversely, the $70k-$72k area remains the next major structural support zone to monitor should consolidation deepen.
Nevertheless, in a more severe tail-risk scenario, the Realised Price near $53k and 200-week moving average near $65k remain useful reference points for assessing where downside could extend. Price has already traded through this broader bear-market valuation channel during the recent cycle low, and we do not expect this region to be revisited under normal market conditions. However, retaining awareness of these levels remains prudent when considering the full distribution of potential outcomes.
Futures, Options & Perpetuals
Over the past week, BTC perpetual futures open interest remained broadly unchanged, suggesting that a meaningful build-up in leveraged futures positioning remains absent. This indicates that recent price action is not being driven by a fresh expansion in perpetual leverage. CME futures open interest declined by around 2k BTC versus the prior week, pointing to a modest reduction in institutionally oriented futures positioning.
Liquidations remained broadly in line with the previous week, with approximately $2.2bn in combined long and short liquidations. This remains considerably below the roughly $3bn liquidated on 19 August alone, suggesting that the recent consolidation has continued without another significant forced deleveraging event.
Despite relatively stable aggregate open interest, positioning remains concentrated around several important price levels. A sizeable cluster sits near $76k to the downside, while a more moderate concentration is positioned around $83k-$84k to the upside. Notably, these areas closely align with our established pricing framework: the True Market Mean sits near $77k, while the $83k region coincides with both the technical higher-high threshold and ETF cost basis. This convergence between futures positioning, on-chain pricing measures and technical structure reinforces the importance of these regions as key market inflection points.
Perpetual funding rates, measured on a seven-day moving average, ended the week positive at approximately 5% annualised, rising modestly from 4.4% a week earlier. Futures positioning therefore remains long-biased, although funding is now broadly comparable with yields available across longer-dated US Treasuries. This suggests that the cost of maintaining leveraged long exposure is no longer especially elevated relative to prevailing cash-market yields, consistent with relatively balanced speculative conditions.
Across options markets, BTC open interest on major exchanges remained broadly flat, consistent with the limited change observed across futures positioning. The put-to-call open interest ratio across major crypto-native exchanges also held steady at 0.56, suggesting little change in relative positioning. By contrast, the equivalent ratio across IBIT options rose slightly to 0.73, indicating a greater relative concentration of put positioning across institutionally oriented venues and a modest shift towards more defensive exposure.
The 25-delta skew has normalised materially across the term structure following last week’s pronounced upside bias. Short-dated skew has returned towards neutral, with one-month positioning now sitting close to the centre of its three-year distribution. Further out, three- and six-month skew remain modestly positive and above their longer-term averages, indicating some continued preference for downside protection without signalling an overtly defensive stance.
| Tenor | Current Value | 3-Year Percentile | 3-Year Mean | 3-Year Median |
|---|---|---|---|---|
| 1w | −0.0028 | 31st | +0.0402 | +0.0402 |
| 1m | +0.0213 | 52nd | +0.0282 | +0.0163 |
| 3m | +0.0130 | 64th | +0.0031 | −0.0274 |
| 6m | +0.0199 | 70th | −0.0151 | −0.0479 |
Overall, the options market appears considerably more balanced. The strong upside bias evident last week has faded, but this has not been replaced by a meaningful downside bias. Instead, pricing across the curve suggests a broadly neutral near-term outlook, with only a modest preference for downside protection further out.
Total gamma exposure has recovered sharply following the extreme negative dislocation seen in early September. The latest daily reading stands at approximately +$4.3bn, while the seven-day moving average has now turned positive at around +$0.9bn, up from roughly -$1.8bn a week earlier. This suggests the broader gamma regime has begun to normalise, with positive gamma potentially exerting a more stabilising influence on price as dealer hedging becomes increasingly countercyclical.
At the strike level, positive and negative gamma concentrations are tightly interwoven around current price, creating a relatively congested and directionally undefined positioning environment. Negative gamma remains concentrated near $77k, $78k, $82k and $85k, while positive gamma sits around $75k, $76k, $80k and $81k. This mixture of stabilising and amplifying exposures is consistent with the current consolidation, with neither side of the options structure exerting a clear directional influence. A decisive move beyond this tightly clustered region could therefore produce a more reflexive expansion in volatility.
On balance, derivatives positioning remains relatively balanced, with little evidence of a renewed build-up in leverage. Futures open interest is broadly flat and CME positioning has softened modestly, while funding remains positive but broadly in line with prevailing US Treasury yields. Options positioning is similarly neutral overall, although IBIT markets have adopted a somewhat more defensive bias. Meanwhile, 25-delta skew has normalised across the curve and aggregate gamma has returned to positive territory on a seven-day basis. However, tightly interwoven positive and negative gamma concentrations around spot suggest that consolidation could give way to a sharper volatility expansion if price breaks decisively from the current range.
Bottom Line
- Performance: Last week, major digital assets like Bitcoin and Ethereum underperformed risk assets like US equities amid a reversal in global crypto ETP flows, as both traditional and crypto markets continue to be affected by the trifecta of rising sovereign bond yields and tightening financial conditions, rising commodity prices amid geopolitical tensions, and increasing concerns over the AI trade. We still think bitcoin - the "canary in the liquidity coal mine" - may have already anticipated a large part of this tightening well in advance, which is now starting to affect other risk assets like US equities. However, past correlations are not indicative of future performance and significant downside risks remain.
- Cryptoasset Sentiment Index:[3] The index has recently declined from euphoric levels but still signals a slightly bullish level of sentiment; with the bitcoin-S&P 500 correlation having turned negative, there may be a chance of a decoupling between bitcoin and the stock market, and a repricing of global growth expectations could lead to a positive repricing of monetary policy expectations that may provide a renewed tailwind for bitcoin and other major cryptoassets.
- Chart-of-the-Week: Major sovereign bond yields keep making new multi-decade highs almost daily - 10-year US Treasuries are trading close to the critical 5% mark, German Bund yields are at their highest level since 2011, French OAT yields at 2008 levels, and British Gilt yields at their highest since 2007 - with long-term yields driven higher by a combination of rising fiscal risks, rising rate hike expectations, and rising commodity prices (and inflation expectations); a continued rise may ultimately force major central banks to intervene and pivot back towards QE, especially if rising yields start affecting the stock market negatively, though outcomes may differ materially.
Appendix
Data subject to change
Combined positioning = futures and options in % of Ol
Notes
[1], [2], [3] The Cryptoasset Sentiment Index is a composite indicator consisting of 15 different sub-indicators covering sentiment, on-chain, derivatives, flows developments as well as sentiment in traditional financial markets. A 90-day rolling z-score is used to standardise and aggregate these sub-indicators.
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