Market Pulse - 23rd October 2023
Q4 seasonality kicks in already. BTC continues to lead the charge but there are plenty of bright spots found in the alt coin market.
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What We’re Seeing
Over the past few weeks, we’ve highlighted the growing possibility of Q4 shaping up to be the spring to crypto’s winter.
In what has been a cautious summer for crypto investors, seasonality appears to be kicking in just like clockwork. Just last week, we focussed on an inflection point for the market with global market capitalisation looking to break above key levels including long-term MAs and BTC above $30k.
So where do we stand today? Global MCAP remains within its $980B-$1.24T range but, in a significant upside move, we are now above the 200d MA - an indicator that has been a reliable resistance or support level. The skew is now positive.
Zooming out at headline market metrics, we may have seen the bottom of exchange volume at ~$10B daily. Why is this important? Declining liquidity is often met with lower prices and volume is now 2x from its summer lows.
For BTC, the incorrect reporting of an ISHARES Bitcoin spot ETF approval on Monday catalysed a 12% move in which BTC has printed 6 positive days out of 8 since the headline.
It was a classic short-covering move with a total of $136m shorts being liquidated on Monday alone. What’s interesting about this event is we saw a test case of BTC’s reaction to a spot ETF approval.
Despite being invalid, BTC’s continued move higher possibly reflects investors getting a wake-up call to missing an ETF-related move and not being ‘too cute’ with their entry. Further application amendments last week from large asset managers only drove the FOMO psychology further…
Short-term holders are becoming more constructive than they have been over the summer. SOPR, a measure of short-term investor profitability, has moved above 1 indicating sellers are selling at a profit vs. loss where 1 is often used as support in prolonged bullish conditions.
For perspective, October’s MTD performance (+13.3%) is already 2% above seasonality performance.
The recent moves higher in crypto are pretty ordinary through the lens of market liquidity too while growth tech takes a breather from being overextended relative to liquidity over the summer.
So much so that crypto has now broken out of its wedge vs. the NASDAQ…
And mechanistically we can look to recent stablecoin growth. We can see Tether mints of ~1B over the past week where new mints are often supportive of price…
This is slowing the rate of stablecoin supply decline we’ve been used to since April 2022. As we noted just last week, the signals for a positive stablecoin flow reversal were becoming clearer.
BTC’s 30D correlation to gold has flipped positive during a period of heightened geopolitical tension which typically leads harder assets to outperform.
Bitcoin’s relative strength in the market ticks higher and we see 54% as being the ultimate challenge area for the index - both technically and also when we consider the real macro drivers of Bitcoin’s relative strength.
Bitcoin Dominance - Idenityfing the Overlooked Driver
What most are failing to connect is Bitcoin’s dominance with the regional banking crisis.
To understand the stress dynamics, banks typically borrow short-term funds at lower interest rates and lend long-term at higher interest rates, earning a profit on the difference (net interest margin). This can be performed with a positive yield curve.
Inflation and rate hikes driving an inverted yield curve make this model unprofitable while depositors see higher yields on cash through other means (e.g. money market funds).
The US 10Y note has now surpassed 5% for the first time since 2007.
Regional banks are selling off once again as the yield curve remains inverted today and are approaching levels where central banks step in with liquidity facilities to restore confidence.
BTC dominance and S&P Regional Banking ETF (KRE; inverted) remain broadly synchronised with BTC still being considered a good hedge against banking stress.
Coming full circle, KRE’s floor being hit at ~36 should tie in with BTC’s dominance top.
Altcoins
This also aligns with the timeline for the ETH/BTC cross which has since declined 11%+ in October. The signal appears clear with 0.05 as key longer-term support over the coming weeks…
When BTC gets all the spotlight, ETH loves to remind who’s not far behind.
Altcoins have already signalled their intentions ahead of ETH with a breakout in Alt indices last week.
And these alt coin moves aren’t just concentrated in small or mid-cap names but also larger ecosystem assets like Solana which outperformed BTC by ~20% last week as news broke that FTX plans to return 90% of customer funds.
Shorts: Being Wrong for the Right Reasons
The bullish momentum is high enough now that shorts are at risk of being stopped out by being wrong for the right reasons. Take Aptos which has 10% of its market capitalisation being unlocked in 19 days.
Shorts doubling down have only seen prices move up 22% over the past 3 days as opportunistic traders continue to scalp the vulnerable who short based on widely-spread consensus information.
This isn’t just isolated to Aptos either with similar dynamics occurring cross-sector to blue chip DeFi names like Aave too. Doubling down of shorts from here on out may help buoy prices in the near-term.
RxR’s Latest Thematic Research
Global Market Cap
$1.14T; Markets are up 8.6% last week, breaching 200d and 200w MA in what appears to be confirmation of prolonged bullish momentum.
DeFi
$44.2B; Positive impulse in the sector gaining $4B in market capitalisation since September. Sector making higher lows with investors putting in higher valuation floor YTD. Key break will be above $45B which hasn’t materialised since May 2023.
Trader Positioning
BTC; BTC OI weighted funding rates remained positive overall with shorts increasing their positioning over the weekend, driving higher upside vol from continued spot bids - supporting bullish momentum.
ETH; Same dynamic with ETH with traders taking a predominantly bullish stance.
Grayscale Trusts
GBTC; GBTC’s discount to NAV narrowed to just 11% as investors price in a higher likelhiood of a successful Grayscale spot Bitcoin ETF conversion. Further catalysed from Grayscale’s new spot ETF application last week.
ETHE discount narrowed to the lowest level since August 2022 at 22.3%.
BTC/USD Aggregate Order Books
Order books look heavier on the bid side. Heavier resistance up to ~$31.2k.
Miners
Miners continue their relentless commitment of resources to the network with hashrate climbing 72% YTD (433m TH/s).
Publicly traded miners faced a challenging September month with most dropping 10-40% (avg. 22.4%). An increasingly competitive landscape for miners means profit margins are becoming slimmer and may be in need of recapitalising leading into the halvening (where rewards are cut 50%) to avoid being financially squeezed.
Top losers centred around select L1 and L2 names. Clear performance dispersion within the market with money being rotated between names vs. net new inflows rising tides across the board.
Top 100 (7d %):
Bitcoin SV (+37.9%)
Chainlink (+32.8%)
Solana (+29.6%)
Aave (+29.1%)
Injective (+22.8%)
Bottom Top 100 MCAPs (7d %):
Trust Wallet (-10.5%)
Kalytn (-5.5%)
Conflux (-5.5%)
Sui (-4.9%)
Frax Share (-3.8%)
> How Wallets Are MEV Sleeping Giants [0xResearch]
> Overlooked Projects and Navigating Nuance in Crypto [Empire]
> Stratos - Valuing L1s and L2s, monetary premium and more [Token Terminal]
> Embedding Web3 Infrastructure Into Web2 Platforms [The Fintech Blueprint]
> Ethena - USDe Synthetic Dolar via Delta-Neutral Staked Ethereum Hedging [Epicenter]
> On Mobile Crypto Products [Mike Dudas]
> Avalanche TVL [Johnny TVL]
> Compressed NFTs on Solana [CNBC]
> Developer exposed potential security issue on the Lightning Network [The Block]
> Protocol Village: Hybrid Exchange GRVT to Build on Matter Labs' ZK Stack [Coindesk]
Key RxR Links:
> Republic Crypto
> Re7 Capital
> Republic Group
About RxR
RxR is a fund partnership between Republic Crypto and Re7 Capital that leverages Republic Crypto’s leading Web3 advisory, venture capital, enterprise-grade infrastructure and treasury management capabilities, with Re7 Capital’s DeFi expertise and technology.
About Republic Crypto
Republic Crypto is a leading Web3 advisory with full-stack solutions for launching digital assets through consulting, token design and minting, and issuance solutions.
About Re7 Capital
Re7 Capital is a DeFi firm specializing in blockchain yield-seeking strategies. Its analytics engine gathers real-time data from 200+ protocols across stablecoin and ETH liquidity pools.