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ETC Group Crypto Market Compass
Week 2, 2024

  • Cryptoasset performances were relatively mixed as there was a wider performance divergence among individual cryptoassets
  • Our in-house “Cryptoasset Sentiment Index” has declined and is signalling a slightly bearish sentiment
  • Bitcoin option traders brace for higher uncertainty before the ETF approvals with a clear increase in implied volatilities for options expiring this week (Chart-of-the-Week).
Crypto Market Compass | Week 2, 2024 | ETC Group

Chart of the Week

Bitcoin: Options Implied Volatility Term Structure Bitcoin_Volatility_Term_Structure_Latest
Source: Glassnode, ETC Group

Performance

Last week, cryptoasset performances were relatively mixed, as there was a wider performance divergence among individual cryptoassets. Bitcoin continued to be supported by the positive prospects for a spot Bitcoin ETF in the US while other cryptoassets underperformed after a flash crash last week.

Bitcoin sold off more than -10% last week after a speculative research note suggested that the SEC might reject the ETFs in January. We have covered the reasons for this sell-off in greater detail here.

The most recent information, however, does not suggest a significant shift in the likelihood that the spot Bitcoin ETFs will be approved in the US.

To the contrary, Bloomberg ETF analysts still expect an approval and even a trading launch this week.

Meanwhile, the BTC options market is also expecting heightened uncertainty this week, as options that expire this Friday are trading well above options with later expiries (Chart-of-the-Week). The implied volatility of 1-week at-the-money BTC options has reached the highest level since November 2022 when FTX collapsed.

At the time of writing, at-the-money options with expiry on Friday are trading at 99% implied volatility. There is a clear skew towards puts for Friday's options, so BTC option traders have bid up downside protections.

Despite the heightened uncertainty, the most likely scenario remains an approval of the spot Bitcoin ETFs in the US this week.

Cross Asset Performance (Week-to-Date) Cross_Asset_Week_to_Date_Performance
Source: Bloomberg, Coinmarketcap; performances in USD exept Bund Future
Top 10 Cryptoasset Performance (Week-to-Date) Crypto_Top_10_Week_to_Date_Performance
Source: Coinmarketcap

In general, among the top 10 crypto assets, Bitcoin, Ethereum, and BNB were the relative outperformers.

Altcoin outperformance vis-à-vis Bitcoin was very weak compared to the week prior, with none of our tracked altcoins managing to outperform Bitcoin on a weekly basis.

Sentiment

Our in-house Cryptoasset Sentiment Index has recently declined and currently signals a slightly bearish sentiment. At the moment , 8 out of 15 indicators are above their short-term trend.

Compared to last week, we saw major reversals to the downside in BTC funding rates and BTC implied volatilities. Note that an increase in implied volatility leads to adecrease in Cryptoasset Sentiment within our index.

The Crypto Fear & Greed Index still remains in "Greed" 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. That being said, the indicator remains slightly in positive territory overall.

Performance dispersion among cryptoassets has mostly moved sideways last week but still continues to be relatively high . 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 declined considerably compared to the week prior, with none of our tracked altcoins outperforming Bitcoin on a weekly basis. In general, low altcoin outperformance tends to be a sign of low risk appetite within cryptoasset markets.

Fund Flows

During the first 4 trading days of the year 2024 (02/01 - 05/01), we saw another week of significant net inflows into cryptoasset ETPs, despite the interim sell-off.

In aggregate, we saw net fund inflows in the amount of +190.5 mn USD (week ending Friday).

Bitcoin ETPs managed to attract the bulk of these inflows (+131.9 mn USD) while Ethereum ETPs also attracted a significant amount of funds (+33.9 mn USD).

Altcoin ex ETH ETPs and thematic & basket crypto ETPs also managed to attract net inflows of +9.0 mn USD and +15.7 mn USD, respectively, based on our calculations.

Meanwhile, the NAV discount of the biggest Bitcoin fund in the world - Grayscale Bitcoin Trust (GBTC) – narrowed again last week to around -5.6%. In other words, investors are assigning a probability of around 94.4% that the Trust will ultimately be converted into a Spot Bitcoin ETF which is up from the week prior.

Besides, the beta of global crypto hedge funds to Bitcoin over the last 20 trading 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

Overall, core on-chain data for Bitcoin remains relatively weak at the moment with active and new addresses still hovering near the lowest levels since May 2023.

The congestion in the Bitcoin mempool has started to ease more recently, with the total number of yet to be confirmed transactions declining to the lowest level since November 2023. Mean transaction fees have also been declining more recently and daily miner revenues have clearly normalized itself over the past.

Nonetheless, BTC miners continue to distribute their reserves and aggregate miner balances have declined to the lowest level since December 2022, according to data provided by Glassnode. The trend of those aggregate miner balances is clearly to the downside. Miners have increasingly sending BTC to exchanges as miner exchange transfers have recently spiked to the highest level since August 2023.

Nonetheless, overall exchange balances for Bitcoin continue to hover near 5-year lows. In fact, net exchange outflows have continued to be high with around -26.5k BTC in net outflows over the past 30 days according to the latest data provided by Glassnode.

The sell-off on Wednesday last week has not materially changed that which might explain why the sell-off has been relatively short-lived. There was generally no material spike in realized losses either despite the sell-off.

That being said, short-term Bitcoin holders, i.e. those with a holding period of 155 days or less, showed a ‘mini-capitulation' on Wednesday last week when the short-term holder spent output profit ratio (STH-SOPR) shortly declined to the lowest reading since October 2023.

However, it can generally be said that the short-term sell-off last week was mostly driven by activity on derivatives exchanges and not spot exchanges which we will cover in the next paragraph.

Futures, Options & Perpetuals

In the run-up to the price correction last week, we saw a sharp rise in both BTC futures basis rates and perpetual funding rates across various exchanges. For instance, the BTC 3-months annualized futures basis temporarily reached a rate of above 22% p.a. intra-day on Wednesday before reversing sharply. At the time of writing, the 3-months annualized basis rate is currently at around 14% p.a.

BTC funding rates also spiked to the highest levels last seen during the last bull market in 2021 before reversing sharply lower and eventually going negative after the sell-off. Current funding rates have visibly normalized as well and are trading mostly in positive territory at the time of writing.

The sharp spike in both basis rates and funding rates could have incentivized more derivatives traders to engage in the basis or perpetual swap trade, which is a likely cause for the interim sell-off last week.

In fact, we saw an increase in CME futures open interest to new all-time highs in BTC terms after the sell-off while open interest particularly on Binance declined due to an increase in long futures liquidations. This implies that futures traders on CME have increasingly put on short futures trades heading into the sell-off. CME's open interest dominance in Bitcoin futures has meanwhile reached around 32% with the second futures exchange Binance only accounting for 25% of open interest.

According to the latest data by Bloomberg, net non-commercial positioning in Bitcoin futures remains net negative with around -2221 contracts which amount to 11105 BTC in net short positioning by CME non-commercials.

Looking ahead, the likely approval of the spot Bitcoin ETFs is still the most important event in the short-term. In this context, BTC options also brace for heightened uncertainty this week with Friday's options trading at almost 100% implied volatility (Chart-of-the-Week).

The BTC options implied volatility term structure is clearly hump-shaped with later expiries showing a lower implied volatility. Implied volatilities have clearly picked in recent days with the implied volatility for 1-week options reaching the highest level since November 2022, when FTX collapsed.

That being said, any unwind in downside protections could continue to support Bitcoin after the ETF approval. In fact, most of the short-term BTC option open interest appears to be put option as there is a clear skew towards puts for Friday's options, so BTC option traders have bid up downside protections. More specifically, the 1-week 25-delta skew is currently at ~1.9% in favour of puts.

All in all, given this level of uncertainty, a rather cautious stance appears to be reasonable in the short-term.

Bottom Line

  • Cryptoasset performances were relatively mixed as there was a wider performance divergence among individual cryptoassets
  • Our in-house “Cryptoasset Sentiment Index” has declined and is signalling a slightly bearish sentiment
  • Bitcoin option traders brace for higher uncertainty before the ETF approvals with a clear increase in implied volatilities for options expiring this week (Chart-of-the-Week).

Appendix

Bitcoin Price vs Cryptoasset Sentiment Index Bitcoin_Price_vs_Crypto_Sentiment_Index
Source: Bloomberg, Coinmarketcap, Glassnode, NilssonHedge, alternative.me, ETC Group
Cryptoasset Sentiment Index Crypto_Sentiment_Index_Bar_Chart
Source: Bloomberg, Coinmarketcap, Glassnode, NilssonHedge, alternative.me, ETC Group; *multiplied by (-1)
Cryptoasset Sentiment Index Crypto_Market_Compass_Subcomponents
Source: Bloomberg, Coinmarketcap, Glassnode, NilssonHedge, alternative.me, ETC Group
TradFi Sentiment Indicators Crypto_Market_Compass_TradFi_Indicators
Source: Bloomberg, NilssonHedge, ETC Group
Crypto Sentiment Indicators Crypto_Market_Compass_Sentiment_Indicators
Source: Coinmarketcap, alternative.me, ETC Group
Crypto Options' Sentiment Indicators Crypto_Market_Compass_Option_Indicators
Source: Glassnode, ETC Group
Crypto Futures & Perpetuals' Sentiment Indicators Crypto_Market_Compass_Futures_Indicators
Source: Glassnode, ETC Group; *Cumulative daily absolute change in BTC OI multiplied by sign of BTC price change
Crypto On-Chain Indicators Crypto_Market_Compass_OnChain_Indicators
Source: Glassnode, ETC Group
Bitcoin vs Crypto Fear & Greed Index Bitcoin_Price_vs_Crypto_Fear_Greed
Source: alternative.me, Coinmarketcap, ETC Group
Bitcoin vs Global Crypto ETP Fund Flows BTC_vs_All_Crypto_ETP_Funds_Fund_Flows_Daily_long_PCT
Source: Bloomberg, ETC Group; Only ETPs & Grayscale Trusts
Global Crypto ETP Fund Flows All_Crypto_ETP_Funds_Fund_Flows_Daily_short
Source: Bloomberg, ETC Group; Only ETPs & Grayscale Trusts
Grayscale Bitcoin Trust's NAV Premium/Discount Bitcoin_GBTC_NAV_Premium
Source: Bloomberg, ETC Group
Bitcoin vs Crypto Hedge Fund Beta Bitcoin_Price_vs_Hedge_Fund_Beta
Source: Coinmarketcap, Bloomberg, NilssonHedge, ETC Group
Altseason Index Altseason_Index_short
Source: Coinmarketcap, ETC Group
Bitcoin vs Crypto Dispersion Index Crypto_Dispersion_vs_Bitcoin_short
Source: Coinmarketcap, ETC Group; Dispersion = (1 - Average Altcoin Correlation with Bitcoin)
BTC Net Exchange Volume by Size Bitcoin_Net_Exchange_Volume_by_Size
Source: Glassnode, ETC Group

AVIS IMPORTANT :

Cet article ne constitue ni un conseil en investissement ni une offre ou une sollicitation d'achat de produits financiers. Cet article est uniquement à des fins d'information générale, et il n'y a aucune assurance ou garantie explicite ou implicite quant à l'équité, l'exactitude, l'exhaustivité ou la justesse de cet article ou des opinions qui y sont contenues. Il est recommandé de ne pas se fier à l'équité, l'exactitude, l'exhaustivité ou la justesse de cet article ou des opinions qui y sont contenues. Veuillez noter que cet article n'est ni un conseil en investissement ni une offre ou une sollicitation d'acquérir des produits financiers ou des cryptomonnaies.

AVANT D'INVESTIR DANS LES CRYPTO ETP, LES INVESTISSEURS POTENTIELS DEVRAIENT PRENDRE EN COMPTE CE QUI SUIT :

Les investisseurs potentiels devraient rechercher des conseils indépendants et prendre en compte les informations pertinentes contenues dans le prospectus de base et les conditions finales des ETP, en particulier les facteurs de risque mentionnés dans ceux-ci. Le capital investi est à risque, et des pertes jusqu'à concurrence du montant investi sont possibles. Le produit est soumis à un risque intrinsèque de contrepartie à l'égard de l'émetteur des ETP et peut subir des pertes jusqu'à une perte totale si l'émetteur ne respecte pas ses obligations contractuelles. La structure juridique des ETP est équivalente à celle d'une dette. Les ETP sont traités comme d'autres instruments financiers.

À propos de ETC Group

ETC Group développe des instruments financiers innovants adossés à des actifs numériques, notamment l'ETC Group Physical Bitcoin (BTCE) et l'ETC Group Physical Ethereum (ZETH), qui sont cotés sur des échanges européens, comme le XETRA, Euronext, SIX, AQUIS UK et Wiener Börse.

ETC Group a lancé le premier produit négocié en bourse (exchange traded product- ETP) Bitcoin à compensation centralisée au monde en juin 2020 sur la Deutsche Börse XETRA, la plus grande plateforme de cotation d'ETF d'Europe.

ETC Group travaille en permanence à l'élargissement de sa gamme d'ETPs garantis par des crypto-monnaies, de qualité institutionnelle, offrant aux investisseurs la possibilité de s'exposer au Bitcoin, à l'Ethereum, au Cardano, au Solana et à d'autres actifs numériques populaires sur les principales bourses européennes.

Contact

Renseignements généraux info@etc-group.com
Investisseurs institutionnels institutional@etc-group.com
Demande de renseignements à la presse media@etc-group.com

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