ETC Group Crypto Market Compass
Week 3, 2024

Chart of the Week

Global Crypto ETP Fund Flows

Performance

Last week, cryptoasset performances saw a very large dispersion with a significant underperformance of Bitcoin, despite the spot Bitcoin ETF approvals in the US. One of the main reasons for this was that relatively high market expectations regarding the amount of Bitcoin ETF fund flows were significantly underwhelmed. Before the trading launch, Bloomberg ETF analysts had expected up to 4 bn USD in total US ETF inflows on the very first alone.

Although we saw the highest daily Bitcoin ETP inflow numbers ever recorded, the flows still fell short of even higher consensus expectations. In addition, the attention on the subject reached a climax with “bitcoin ETF” Google search queries reaching an all-time high. Excessively high Google search queries tend to be a contrarian sell signal. In hindsight, it appeared to be a “sell-the-news” type of event.

In addition, outflows from the biggest Bitcoin fund in the world, the Grayscale Bitcoin Trust accelerated over the past 2 trading days which somewhat counteracted the positive inflows into other products. This could be related to either the relatively higher fees (1.5%) or the fact that previous investors were able to finally redeem their shares with the conversion of the trust into an ETF.

Today, US financial markets are closed due to the Martin Luther King Jr. Memorial Day but the coming days will be very important with regards to the momentum of these fund flows. In general, fund flows tend to be very pro-cyclical with most of the buying happening at cyclical tops while least is bought at cyclical bottoms.

Given the recent price weakness in Bitcoin, it is quite likely that Bitcoin fund flows will level off somewhat as well. That being said, there is still some catch-up in flows to be expected as many major US financial institutions have deterred their clients from investing into these newly issued Bitcoin ETFs. Moreover, Bitcoin investments in IRAs that were previously invested into Grayscale's Bitcoin Trust need at least one week to switch to new spot Bitcoin ETFs which implies a certain time lag between sales in GBTC shares and new inflows into ETFs.

The key takeaway is that most of the “eligible” flows into Bitcoin ETFs won't happen overnight.

Before the recent trading launch last week, we had estimated that around 34 bn USD is likely going to be invested into Bitcoin ETFs with a cumulative price effect of approximately 87% over the medium term. Read the full report here.

Cross Asset Performance (Week-to-Date)

Top 10 Cryptoasset Performance (Week-to-Date)

In general, among the top 10 crypto assets, Ethereum, TRON, and Cardano were the relative outperformers.

Altcoin outperformance vis-à-vis Bitcoin accelerated significantly compared to the week prior, with 80% of our tracked altcoins managing to outperform Bitcoin on a weekly basis.

The majority of this outperformance happened just right before the US approval in the US which, counterintuitively, supported Ethereum and other altcoins more than Bitcoin.

Sentiment

Our in-house Cryptoasset Sentiment Index has recently declined and currently signals a slightly bearish sentiment. At the moment , only 4 out of 15 indicators are above their short-term trend.

Compared to last week, we saw major reversals to the downside in Crypto Fear & Greed Index and BTC 25-delta 1-month option skew.

Despite the recent decline, the Crypto Fear & Greed Index still remains in "Neutral" territory as of this morning.

Meanwhile, our own measure of Cross Asset Risk Appetite (CARA) has recently stabilized at lower levels after having decreased significantly heading into year-end. Overall this is still signalling a decline in risk appetite in traditional financial markets.

Performance dispersion among cryptoassets has recently increased considerably. In general, high-performance dispersion among cryptoassets implies that correlations among cryptoassets have decreased, which means that cryptoassets are trading more on coin-specific factors and that diversification among cryptoassets is high.

At the same time, altcoin outperformance has also increased considerably with the outperformance of Ethereum vis-à-vis Bitcoin. 80% of our tracked altcoins have outperformed Bitcoin on a weekly basis. In general, high altcoin outperformance tends to be a sign of increasing risk appetite within cryptoasset markets.

Fund Flows

Last week, there was clear focus on the spot Bitcoin ETF approval on Wednesday and subsequent trading launch on Thursday. In fact, Thursday saw the highest daily fund flows into Bitcoin ETPs ever recorded.

In aggregate, we saw weekly net fund inflows into all types of cryptoassets in the amount of +948.4 mn USD (week ending Friday) based on Bloomberg data.

Global Bitcoin ETPs managed to attract +894.4 mn USD in net inflows of which +833.1 mn were related to US spot Bitcoin ETFs. Among the spot Bitcoin ETFs, Blackrock's iShares Bitcoin Trust (IBIT) has emerged as the winner after 2 trading days with cumulative flows of +497.7 mn USD based on our calculations with Bloomberg data.

Note that some fund flows data for US major issuers are still lacking in the abovementioned numbers due to T+2 settlement.

Meanwhile, these positive inflows were generally counteracted by significant net outflows from the Grayscale Bitcoin Trust (GBTC). Over the past 2 trading days, Grayscale's fund outflows amounted to -579.1 mn USD. These outflows have accelerated over the past 2 trading days which has negatively affected overall market sentiment.

Apart from Bitcoin, we saw comparatively small flows into other cryptoassets last week.

Ethereum ETPs managed to attract +34.1 mn USD in fund flows, while other altcoin ETPs ex Ethereum managed to attract +5.6 mn USD.

Thematic & basket crypto ETPs also managed to attract net inflows of +14.3 mn USD, based on our calculations.

Besides, the beta of global crypto hedge funds to Bitcoin over the last 20 trading still remains low at approximately 0.8, implying that global crypto hedge funds still remain under-exposed to Bitcoin market risks. It appears as if crypto hedge funds are still waiting on the sidelines for new catalysts.

On-Chain Data

A major focus within the on-chain space was the question of how the newly issued Bitcoin ETFs will affect net exchange flows during the week.

In general, we mostly saw net exchange inflows across crypto exchanges since the ETF approvals and only more recently, on Saturday and Sunday, we saw net exchange outflows across all exchanges. In this context, net exchange outflows generally imply buying interest as coins are sent off exchange into so-called “cold wallets”.

In this context, an important cause for the post-approval sell-off last week was the fact that the amount of coins sent by short-term holders to exchanges accelerated and reached a new all-time high of 5.02 bn USD one day after the trading launch.

Short-term holders are those investors with a holding period of 155 days or less. This has certainly contributed to the recent downside pressure and appears as if short-term investors were indeed “selling the news” of the approval.

On a positive note, long-term holders have not been sending significant amounts of coins to exchanges, which implies that the recent sell-off likely won't be very protracted.

However, a main risk for the market remains continuing outflows from Grayscale's Bitcoin Trust (GBTC) and the associated distribution of coins on exchanges. Over the past 3 days, Grayscale's wallet addresses, have distributed around 4k BTC that have been sent to multiple addresses according to data provided by Arkham Intel. This still falls short of approximately 13k BTC that have flown out of the GBTC ETF over the past 2 days alone.

At the time of writing, GTBC still holds 617k BTC in assets-under-management and is by far the biggest Bitcoin entity globally. This will most certainly be a main focus of the market over the coming weeks.

The market remains generally in a profit-position and even short-term holders' unrealized profits are still relatively high. Besides, realized losses still remain relatively low. In other words, despite the most recent sell-off, the market has not experienced a significant capitulation yet.

Futures, Options & Perpetuals

Recent excesses in BTC futures and perpetual markets are still cleansing out as both basis rates and funding rates are normalizing.

BTC futures open interest has remained fairly constant in BTC-terms during the ETF week, while perpetual open interest mostly declined. In contrast, BTC option open interest has increased considerably during the ETF week, albeit from low levels.

The futures basis rate has continued to decline and is now slightly below 10% p.a. In this context, we briefly saw backwardation in the nearest bitcoin futures contracts last week after the sell-off which tends to be a contrarian buy signal. However, perpetual funding rates still remain firmly positive across various exchanges.

On the option side, we saw a significant increase in BTC 25-delta 1-month skew which implies that option traders have been bidding up downside protections. The skew has almost reached levels that imply one-sided positioning and seller exhaustion which would also be a contrarian buy signal but we are likely not there, yet. One of the reasons is that the BTC put-call open interest ratio remains relatively low and we haven't seen a significant spike in relative put-call volume ratios despite the sell-off.

Bottom Line

Appendix

Bitcoin Price vs Cryptoasset Sentiment Index

Cryptoasset Sentiment Index

Cryptoasset Sentiment Index

TradFi Sentiment Indicators

Crypto Sentiment Indicators

Crypto Options' Sentiment Indicators

Crypto Futures & Perpetuals' Sentiment Indicators

Crypto On-Chain Indicators

Bitcoin vs Crypto Fear & Greed Index

Bitcoin vs Global Crypto ETP Fund Flows

Global Crypto ETP Fund Flows

Grayscale Bitcoin Trust's NAV Premium/Discount

Bitcoin vs Crypto Hedge Fund Beta

Altseason Index

Bitcoin vs Crypto Dispersion Index

BTC Net Exchange Volume by Size