- Cryptoassets outperformed traditional assets last week as they continued to be supported by the positive impact of the new US administration.
- Our in-house “Cryptoasset Sentiment Index” continues to signal a very bullish sentiment.
- The bitcoin supply shock that emanated from the Halving appears to be intensifying as measures of liquid supply have reached new year-to-date lows. The supply shock is even exacerbated by high ETF and corporate treasury demand for bitcoin.
Chart of the Week
Performance
Cryptoassets outperformed traditional assets last week as they continued to be supported by the positive impact of the new US administration.
While traditional assets were sold off across the board, cryptoassets like bitcoin managed to gain double-digit returns last week.
One of the key drivers is the ongoing bitcoin strategic reserve initiative in the US. In general, the narrative around the Strategic Bitcoin Reserve in the US has generally reached a fever pitch last week as the odds for a national Bitcoin reserve shortly jumped above 50% on Polymarket.
For instance, the state of Pennsylvania has introduced “Strategic Bitcoin Reserve” legislation recently.
Moverover, multiple cabinet picks support a Strategic Bitcoin Reserve, and it is expected that 10+ states will introduce Strategic Bitcoin Reserve legislation in the US over the coming months.
In general, a federal US national Bitcoin reserve would need a majority in the US congress to become law. However, smaller purchases could possibly even be enacted via executive order of the US president.
Outside of the US, there are also other rumours that imply that multiple countries are buying Bitcoin but haven't announced it, while 5+ countries are looking to pass Bitcoin Reserve laws. Besides, Polish presidential candidate Sławomir Mentzen also pledged to adopt a strategic Bitcoin reserve if elected.
This excitement has also shown up in multiple retail sentiment gauges such as the Google searches for “bitcoin” that have spiked to new cycles highs last week. Google searches for “memecoin” have even spiked to a new all-time high. Transaction volumes of transactions below 100k USD have also hit a new 3-year high which is also indicative of increased retail participation.
We had already reported last week that our Cryptoasset Sentiment Index had reached the highest level in 3 years.
It is therefore quite likely that we could see a temporary pull-back to “cleanse” the initial excitement following the US presidential election outcome.
That being said, our base case for bitcoin remains to approach 100k USD this year, and 200k USD in 2025.
This has also been highlighted in Matt Hougan's recent CIO memo.
In other words, any potential short-term drawdown in the price of bitcoin should be used to increase exposure before the most important stage of the bull market.
A major reason for this optimistic outlook is the ongoing supply shock that emanated from the Halving which appears to be intensifying. More specifically, measures of liquid and highly liquid bitcoin supply have continued to drift lower and have reached a new year-to-date low (Chart-of-the-Week).
The supply deficit induced by the Halving tends to be exacerbated by ongoing high net inflows into US spot Bitcoin ETFs: Over the past 5 trading days alone, US spot Bitcoin ETFs have experienced +18,955 in BTC-terms while the overall BTC supply has only grown by 2,256 over the same period.
In other words, weekly ETF purchases of bitcoin have outsized weekly production by a factor of 8.4 times.
Another factor which is contributing to this supply shock is continued corporate treasury adoption of Bitcoin. Last week, 3 new companies have announced to adopt bitcoin as corporate treasury asset. This also exacerbates the bitcoin supply shock since the global corporate treasury of bitcoins have grown by approximately 40% in 2024 while the supply has only grown by 0.8% this year. Michael Saylor's Microstrategy has most-likely also made new purchases more recently.
Another key driver for the recent rallye in cryptoassets is the decline in US regulatory uncertainty that has specifically buoyed cryptoassets like XRP and memecoins like DOGE. DOGE has also been supported by the positive associations of the newly established Department of Governmental Efficiency with the memecoin.
However, Ethereum has failed to outperform last week despite an acceleration in US spot ETF inflows. We think this ongoing underperformance is most likely related to relative on-chain capital flows which have favoured bitcoin and other cryptoassets relative to Ethereum. According to data provided by Artemis, -360 mn USD has flown out of Ethereum over the past 7 days.
On the macro side, there were not many important news except the US CPI release that came in at consensus expectations at around 2.6% for October 2024. However, Fed rate cut odds for December spiked significantly following the release from 59% to 82%.
In general, among the top 10 crypto assets, XRP, Dogecoin, and TRON were the relative outperformers.
The decline in US regulatory uncertainty has generally led to a sharp rallye in altcoins, especially in XRP.
Sentiment
Our in-house “Cryptoasset Sentiment Index” continues to signal a very bullish sentiment.
This implies that a short-term pull-back in prices continues to be likely.
At the moment, 10 out of 15 indicators are above their short-term trend.
Last week, there were significant reversals to the upside in both the BTC futures basis as well as Crypto Dispersion Index.
The Crypto Fear & Greed Index signals an “Extreme Greed” level of sentiment as of this morning.
Performance dispersion among cryptoassets has increased significantly to the highest level since April 2024. This signals that altcoins have become less correlated with the performance of Bitcoin.
Altcoin outperformance vis-à-vis Bitcoin has remained relatively high last week, with around 60% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. However, this was somewhat inconsistent with a strong underperformance of Ethereum vis-à-vis 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 continues to signal a positive risk appetite at the moment.
Meanwhile, sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) has continued to decline following the US election results last week as a Trump presidency has weighed on stocks, bonds and commodities. The index is currently signals a neutral cross asset risk appetite.
Fund Flows
Weekly fund flows into global crypto ETPs have continued to be very high last week.
Global crypto ETPs saw around +2,104.9 mn USD in weekly net inflows across all types of cryptoassets which is a slight acceleration compared to prior week's +1,963.6 mn USD in weekly net inflows.
Global Bitcoin ETPs saw net inflows totalling +1,528.5 mn USD last week, of which +1,670.9 mn USD in net inflows were related to US spot Bitcoin ETFs alone.
The Bitwise Bitcoin ETF (BITB) in the US also saw slightly negative net inflows, totalling -66.4 mn USD last week.
In Europe, the ETC Group Physical Bitcoin ETP (BTCE) also saw net outflows equivalent to -35.0 mn USD, while the ETC Group Core Bitcoin ETP (BTC1) had no significant flows in either direction (+/- 0 mn USD).
Outflows from the Grayscale Bitcoin Trust (GBTC) accelerated somewhat, with around -85.7 mn USD in net outflows last week. The iShares Bitcoin Trust (IBIT) continued to see very significant net inflows of +1,892.1 mn USD, which is even higher than last week.
Meanwhile, flows into global Ethereum ETPs accelerated significantly with around +632.3 mn USD in net inflows, after +131.4 mn USD in net inflows the week before.
US Ethereum spot ETFs also saw around +515.2 mn USD in net inflows in aggregate. The Grayscale Ethereum Trust (ETHE) continued to see net outflows of around -101.0 mn USD last week which were more than offset by higher net inflows into other ETFs.
The Bitwise Ethereum ETF (ETHW) in the US also saw decent net inflows of +45.5 mn USD last week.
In Europe, the ETC Group Physical Ethereum ETP (ZETH) also experienced positive net inflows of +2.0 mn USD while the ETC Group Ethereum Staking ETP (ET32) continued to attract capital with +0.7 mn USD in net inflows.
Altcoin ETPs ex Ethereum also saw positive net inflows with around +47.8 mn USD last week. The ETC Group Physical Solana ETP (ESOL) managed to attract +1.4 mn USD last week.
In contrast, investors repatriated capital from thematic & basket crypto ETPs with around -103.7 mn USD in net outflows on aggregate last week. The ETC Group MSCI Digital Assets Select 20 ETP (DA20) saw sticky AuM (+/- 0 mn USD).
Meanwhile, global crypto hedge funds significantly increased their market exposure to Bitcoin last week. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin increased to around 0.88 per yesterday's close.
On-Chain Data
In general, Bitcoin on-chain metrics have improved significantly last week.
Net buying volumes were very strong amid record daily net inflows into US spot Bitcoin ETFs.
For instance, Bitcoin spot intraday net buying volumes on exchanges have accelerated significantly. More specifically, over the past 7 days, bitcoin spot exchanges saw +543 mn USD in net buying volumes.
On the 11 th of November, the even increased to 2,720 mn USD on weekly basis – the highest amount of net buying on exchanges ever recorded.
This appears to be related to an increase in retail participation:
For instance, BTC Supply Delta has increased to the highest level since August due to increasing supply held by short-term holders. This tends to be indicative of increasing retail participation as the supply delta measures the change between supply held by short-term holders relative to long-term holders. Furthermore, bitcoin transaction volume under 100k USD hit a 3-year high which is also signalling increasing transactions by smaller investors.
Meanwhile, whales have become net distributors of bitcoin more recently, judging by BTC whale net exchange transfers. More specifically, BTC whales have sent +3.7k BTC to exchanges last week, signalling increasing selling pressure. Whales are defined as network entities that control at least 1,000 BTC.
BTC miners have also distributed some bitcoins and have sent around 2,049 BTC to exchanges – the highest amount since May 2024 - which has also exerted some selling pressure.
Short-term holders also continued to take profits as bitcoin reached new record all-time highs. Realized profits by short-term holders reached the highest level since March 2024 last week. Long-term holder realized profits also spiked to the highest level since July 2024.
All these factors imply increased downside risks in the short term amid elevated distributions by both short- and long-term holders.
Futures, Options & Perpetuals
Last week, BTC futures open interest reached a new all-time high in USD-terms with around 46.4 bn USD in open interest. Open interest on CME continued to make new all-time highs in both USD- and BTC-terms as well.
Meanwhile, BTC futures short liquidations remained elevated but did not reach the highs made on the 6th of November, one day after the US election again.
BTC perpetual funding rates also remained elevated at the highest level since March 2024 signalling elevated sentiment among BTC perpetual traders.
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 at the moment.
The BTC 3-months annualised basis also continued to drift higher to around 14.2% p.a.
Besides, BTC option open interest also increased to a new all-time high in USD-terms. This appears to be due to a significant increase in puts relative to calls as the put-call open interest ratio increased significantly. In fact, the BTC put-call open interest ratio reached the highest level since March 2024 last week.
Meanwhile, the 1-month 25-delta skew for BTC declined to the lowest level in 5 months last week, signalling an increased appetite for call options. At the time of writing, the 1-month skew is still significantly more biased towards call options, with a premium of around 8.7% p.a. for delta-equivalent calls.
BTC option implied volatilities drifted somewhat lower, despite the fact that 1-month realized volatility continued to increase. This is most likely due to the fact that the market continued to hover sideways last week after reaching the newest all-time highs.
At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 55.7% p.a.
Bottom Line
- Cryptoassets outperformed traditional assets last week as they continued to be supported by the positive impact of the new US administration.
- Our in-house “Cryptoasset Sentiment Index” continues to signal a very bullish sentiment.
- The bitcoin supply shock that emanated from the Halving appears to be intensifying as measures of liquid supply have reached new year-to-date lows. The supply shock is even exacerbated by high ETF and corporate treasury demand for bitcoin.
Appendix
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