Crypto Surges with Record Inflows Amid Shifting Sentiment and Global Macro Ties

Bitwise Weekly Crypto Market Compass – Week 45, 2024

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  • Last week, cryptoassets outperformed traditional assets like equities due to strong net inflows into global crypto ETPs that experienced the highest amount of weekly inflows since May 2024.
  • Our in-house “Cryptoasset Sentiment Index” currently signals a neutral sentiment. That being said, there was a significant reversal to the downside from bullish reading last week. The index reached the highest level since late March at some point last week.
  • Correlations of cryptoassets like Bitcoin to US presidential election odds have increased lately. However, “macro correlations” to traditional assets like US stocks or gold still remain higher. This implies that macro developments outside of the US election currently play a larger role for the development of Bitcoin and other cryptoassets.
Crypto Surges with Record Inflows Amid Shifting Sentiment and Global Macro Ties | Bitwise Weekly Crypto Market Compass | Bitwise

Chart of the Week

Correlations to the US election have increased but correlations to stocks & gold remain higher BTC Polymarket Odds SPX Gold Correlations
Source: Bloomberg, Bitwise Europe

Performance

Last week, cryptoassets outperformed traditional assets like equities due to strong net inflows into global crypto ETPs that experienced the highest amount of weekly inflows since May 2024.

However, there was a significant reversal to the downside throughout the week after Bitcoin briefly touched new all-time highs in multiple currencies, including the Euro. However, Bitcoin has not yet reached new all-time highs in the US Dollar. Market observers were quick to attribute this reversal in market prices to the reversal in US presential election odds that have also recently reversed in favour of Harris.

More specifically, Trump's odds of winning the presidency have declined from a high of 67% at the end of October to only 57% at the time of writing this report based on Polymarket betting odds. This is largely attributed to a decline in odds for key swing states like Pennsylvania, Michigan, and Wisconsin that have shown a Democratic lead in the early voting.

Looking at past sensitivities of crypto market performances to changes in betting odds, Trump is seen as the favoured election outcome for crypto markets as we have already demonstrated here.

Based on our latest estimates, if the US election was held today, a Trump victory would imply a performance of +10.1% and a Harris victory would imply a performance of -9.8% for Bitcoin (BTC). In other words, Bitcoin would likely reach new all-time highs if Trump became president.

Bitwise will cover the implications of the US elections for cryptoasset markets in more detail across many different channels. For instance, we will hold the monthly macro webinar on the 7th of November at 4 pm GMT / 5 pm CET. You can register here.

Correlations of cryptoassets like Bitcoin to US presidential election odds have increased lately. However, “macro correlations” to traditional assets like US stocks or gold still remain higher.

This implies that macro developments outside of the US election currently play a larger role for the development of Bitcoin and other cryptoassets (Chart-of-the-Week).

One of the major macro events last week was the significant disappointment in US jobs growth for the month of October. More specifically, US total non-farm payrolls increased only by +12k, significantly below consensus expectations of +100k.

The details of the report were quite weak:

  • Private payrolls (ex government jobs) were negative for the 1st time since Dec 2020 (-28k vs. +70k expected).
  • Manufacturing payrolls declined -46k jobs, down for the 3rd straight month.
  • The months of September and August were revised down by -31k and -81k jobs, respectively.
  • The unrounded unemployment rate actually increased from 4.05% to 4.14%, largely driven by permanent layoffs.

Looking ahead, the current payroll readings are still supported by excessive government payroll growth and high construction payrolls which both will likely cool over the coming months. This could continue to exert pressure on the US labour market.

US short-term yields were significantly lower after the report implying more rate cuts by the Fed which has also benefited Bitcoin and other cryptoassets to some extent.

However, in this context, it is important to highlight that long-term US Treasury yields have continued to trend higher despite the recent Fed rate cuts in September. In fact, US 10-year yields are already more than 70 bps higher after the first rate cut by the Fed in September which is unprecedented.

This will likely continue to pressure US housing via increased mortgage rates and less favourable financial conditions which increases US recession risks. This is probably one of the reasons why US equities have underperformed last week, too.

Another important macro event was the significant increase in sovereign bond swap spreads, especially those of France, UK, and the US. France's 10-year sovereign swap spreads have even increased to the highest level since 2012, during the Euro Debt Crisis.

In this context, especially Bitcoin can act as a potential hedge against sovereign default as demonstrated in our latest monthly report here since it is a counterparty risk-free and censorship-resistant asset. We are currently observing an increased performance sensitivity of Bitcoin to (Euro) sovereign risks.

These developments have also exerted upward pressure on sovereign bond yields globally.

Outside of the macro developments, we have seen very bullish news concerning real-world asset tokenization. For instance, Franklin Templeton has launched a tokenized money market fund on Ethereum's layer 2 Base called called FOBXX. Furthermore, the Swiss banking behemoth UBS has announced to launch of its first tokenized investment fund called uMINT.

At the time of writing, around 326 mn USD in real-world institutional funds have already been tokenized of which 78.5% have been tokenized on Ethereum, according to data provided by rwa.xyz.

Although, Ethereum has continued to underperform Bitcoin over the past week, these developments highlight that institutional investors continue to favour Ethereum's blockchain over other newer chains like Solana.

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, Dogecoin, Bitcoin, and TRON were the relative outperformers.

Nonetheless, overall altcoin outperformance vis-à-vis Bitcoin was still relatively low compared to last week, with only around 10% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. This was consistent with a continued underperformance of Ethereum vis-à-vis Bitcoin last week.

Sentiment

Our in-house “Cryptoasset Sentiment Index” currently signals a neutral sentiment. That being said, there was a significant reversal to the downside from bullish reading last week. The index reached the highest level since late March at some point last week.

At the moment, 9 out of 15 indicators are above their short-term trend.

Last week, there were significant reversals to the downside in the global crypto ETP fund flows and BTC futures long liquidations dominance.

The Crypto Fear & Greed Index still signals a “Greed” level of sentiment as of this morning.

Performance dispersion among cryptoassets increased slightly and continues to stay near 3-months highs. This signals that altcoins continue to be less correlated with the performance of Bitcoin.

Altcoin outperformance vis-à-vis Bitcoin continued to be relatively weak last week, with only around 10% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. Ethereum also underperformed Bitcoin significantly once again 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 underperformance still signals a decrease in 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 also declined last week. The index is currently signals a neutral cross asset risk appetite.

Fund Flows

Weekly fund flows into global crypto ETPs have accelerated significantly last week and reached their highest level since May 2024.

Global crypto ETPs saw around +2,130.7 mn USD in net inflows across all types of cryptoassets which is an acceleration compared to prior week's +832.3 mn USD in net inflows.

GlobalBitcoinETPs saw net inflows totalling +2,167.0 mn USD last week, of which +2,219.8 mn USD in net inflows were related to US spot Bitcoin ETFs alone.

The Bitwise Bitcoin ETF (BITB) in the US saw some minor net outflows, totalling -12.4 mn USD last week.

In Europe, the ETC Group Physical Bitcoin ETP (BTCE) also saw minor net outflows equivalent to -3.9 mn USD, while the ETC Group Core Bitcoin ETP (BTC1) also experienced slightly negative net outflows (-0.7 mn USD).

Outflows from the Grayscale Bitcoin Trust (GBTC) continued to be relatively high, with around -54.0 mn USD in net outflows last week. The iShares Bitcoin Trust (IBIT) continued to see massive net inflows of +2,218.9 mn USD.

Meanwhile, flows into global Ethereum ETPs continued to be relatively weak with around -18.4 mn USD in net outflows, after -62.2 mn USD in net outflows the week before.

However, US Ethereum spot ETFs saw around +13.0 mn USD in net inflows in aggregate. The Grayscale Ethereum Trust (ETHE) continued to see net outflows of around -62.4 mn USD last week which were more than offset by higher net inflows into other ETFs.

The Bitwise Ethereum ETF (ETHW) in the US saw minor net outflows of -3.6 mn USD last week.

In Europe, the ETC Group Physical Ethereum ETP (ZETH) also experienced small net outflows of -1.7 mn USD while the ETC Group Ethereum Staking ETP (ET32) experienced neither in- nor outflows.

Altcoin ETPs ex Ethereum also saw minor net inflows with around +6.8 mn USD last week.

Thematic & basket crypto ETPs continued to see net outflows this week with around -26.6 mn USD 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 slightly reduced their exposure to Bitcoin last week. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin decreased to around 0.77 per yesterday's close.

On-Chain Data

In general, Bitcoin on-chain metrics were relatively weak despite record weekly net inflows into US spot Bitcoin ETFs.

For instance, Bitcoin spot intraday net buying volumes on exchanges still have not yet accelerated meaningfully. More specifically, over the past 7 days, bitcoin spot exchanges saw -208 mn USD in net selling volumes. This implies that there is some ongoing distribution in the background.

In fact, short-term holders have taken the highest amounts of profits since April 2024 as bitcoin approached previous all-time highs. This has likely exerted renewed downside pressure on prices.

What is more is that bitcoin whales have sent the highest amount of BTC to exchanges since July with around 29k BTC in net transfers to exchanges. Whales are defined as network entities that control at least 1,000 BTC. This also exerted significant downside pressure on prices.

Market sentiment was also negatively affected on account of recent sales by the government of Bhutan which is one of the biggest sovereign BTC miners and holders. Last week, the government of Bhutan sent around 935 BTC to Binance which has fuelled speculations over larger distributions.

At the time of writing, the government of Bhutan still controls around 13k BTC.

There is currently a debate about why significant net inflows into spot Bitcoin ETFs have so far failed to lead to new all-time highs. An important data point in this context is the fact that on-chain capital flows continue to be significantly higher than spot ETF flows.

For instance, over the past 7 days, spot selling volumes on bitcoin spot exchanges amounted to -3.9 bn USD compared to +2.1 bn USD in spot ETF flows. Put simply, on-chain capital flows generally still play a much larger role for performance than ETF flows.

On the bright side, the recent decline in prices has already led to a larger capitulation of “weak hands”. More specifically, short-term holders sent the highest amount of bitcoin in loss to exchanges since the August capitulation. This tends to be a signal for a tactical short-term bottom.

Futures, Options & Perpetuals

Last week, BTC futures open interest increased slightly but experienced a significant reversal throughout the week as well.

More specifically, BTC futures open interest decreased by around +5k BTC while perpetual open interest decreased by +3k BTC. Futures open interest had temporarily increased by +34k BTC on Wednesday before falling back to lower levels because of increasing liquidations.

BTC futures long liquidations increased to the highest level since early October, increasing by around 500 mn USD yesterday alone.

Meanwhile, BTC perpetual funding rates only declined slightly but continued to be very positive throughout the week.

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 reversed sharply lower after hitting the highest level since June 2024 of around 12%. Now, the BTC basis rate is currently back at around 9.8% p.a.

Besides, BTC option open interest also increased significantly last week due to the renewed built-up of positions ahead of the US elections on Tuesday this week. Meanwhile, the put-call open interest ratio declined somewhat, which implies that there is a net built-up in BTC call options positioning.

However, the 1-month 25-delta skews for BTC increased slightly last week, signalling an increased appetite for put options as well. That being said, the 1-month skew is still significantly more biased towards call options.

BTC option implied volatilities drifted significantly higher, despite the fact that 1-month realized volatility remained relatively flat. This is most likely due to the increase in short-dated options' volatilities ahead of the US election. There is currently a significant volatility premium in options expiring on Wednesday, after the election, compared to Tuesday (84.7% vs 44.7%).

Looks as if BTC options traders are more into buying protective puts than buying upside calls. Most BTC options open interest is at 65k USD with puts for options expiring 1 day after the election.

At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 61.5% p.a.

Bottom Line

  • Last week, cryptoassets outperformed traditional assets like equities due to strong net inflows into global crypto ETPs that experienced the highest amount of weekly inflows since May 2024.
  • Our in-house “Cryptoasset Sentiment Index” currently signals a neutral sentiment. That being said, there was a significant reversal to the downside from bullish reading last week. The index reached the highest level since late March at some point last week.
  • Correlations of cryptoassets like Bitcoin to US presidential election odds have increased lately. However, “macro correlations” to traditional assets like US stocks or gold still remain higher. This implies that macro developments outside of the US election currently play a larger role for the development of Bitcoin and other cryptoassets.

Appendix

Bitcoin Price vs Cryptoasset Sentiment Index Bitcoin Price vs Crypto Sentiment Index
Source: Bloomberg, Coinmarketcap, Glassnode, NilssonHedge, alternative.me, Bitwise Europe
Cryptoasset Sentiment Index Crypto Sentiment Index Bar Chart
Source: Bloomberg, Coinmarketcap, Glassnode, NilssonHedge, alternative.me, Bitwise Europe; *multiplied by (-1)
Cryptoasset Sentiment Index Crypto Market Compass Subcomponents
Source: Bloomberg, Coinmarketcap, Glassnode, NilssonHedge, alternative.me, Bitwise Europe
TradFi Sentiment Indicators Crypto Market Compass TradFi Indicators
Source: Bloomberg, NilssonHedge, Bitwise Europe
Crypto Sentiment Indicators Crypto Market Compass Sentiment Indicators
Source: Coinmarketcap, alternative.me, Bitwise Europe
Crypto Options' Sentiment Indicators Crypto Market Compass Option Indicators
Source: Glassnode, Bitwise Europe
Crypto Futures & Perpetuals' Sentiment Indicators Crypto Market Compass Futures Indicators
Source: Glassnode, Bitwise Europe; *Inverted
Crypto On-Chain Indicators Crypto Market Compass OnChain Indicators
Source: Glassnode, Bitwise Europe
Bitcoin vs Crypto Fear & Greed Index Bitcoin Price vs Crypto Fear Greed
Source: alternative.me, Coinmarketcap, Bitwise Europe
Bitcoin vs Global Crypto ETP Fund Flows BTC vs All Crypto ETP Funds Fund Flows Daily long PCT
Source: Bloomberg, Bitwise Europe; ETPs only, data subject to change
Global Crypto ETP Fund Flows All Crypto ETP Funds Fund Flows Daily short
Source: Bloomberg, Bitwise Europe; ETPs only; data subject to change
US Spot Bitcoin ETF Fund Flows US Spot Bitcoin ETF Funds Fund Flows Daily since launch
Source: Bloomberg, Bitwise Europe; data subject to change
US Spot Bitcoin ETFs: Flows since launch US Spot Bitcoin ETF Fund Flows since launch
Source: Bloomberg, Fund flows since traiding launch on 11/01/24; data subject to change
US Spot Bitcoin ETFs: 5-days flow US Spot Bitcoin ETF Fund Flows 5d
Source: Bloomber; data subject to change
US Bitcoin ETFs: Net Fund Flows since 11th Jan mn USD US Spot Bitcoin ETF Table
Source: Bloomberg, Bitwise Europe; data as of 01-11-2024
US Sport Ethereum ETF Fund Flows US Spot Ethereum ETF Funds Fund Flows Daily since launch
Source: Bloomberg, Bitwise Europe; data subject to change
US Sport Ethereum ETFs: Flows since launch US Spot Ethereum ETF Fund Flows since launch
Source: Bloomberg, Fund flows since trading launch on 23/07/24; data subject on change
US Sport Ethereum ETFs: 5-days flow US Spot Ethereum ETF Fund Flows 5d
Source: Bloomberg; data subject on change
US Ethereum ETFs: Net Fund Flows since 23rd July US Spot Ethereum ETF Table
Source: Bloomberg, Bitwise Europe; data as of 01-11-2024
Bitcoin vs Crypto Hedge Fund Beta Bitcoin Price vs Hedge Fund Beta
Source: Glassnode, Bloomberg, NilssonHedge, Bitwise Europe
Altseason Index Altseason Index short
Source: Coinmetrics, Bitwise Europe
Bitcoin vs Crypto Dispersion Index Crypto Dispersion vs Bitcoin short
Source: Coinmarketcap, Bitwise Europe; Dispersion = (1 - Average Altcoin Correlation with Bitcoin)
Bitcoin Price vs Futures Basis Rate BTC 3m Basis
Source: Glassnode, Bitwise Europe; data as of 2024-11-03
Ethereum Price vs Futures Basis Rate ETH 3m Basis
Source: Glassnode, Bitwise Europe; data as of 2024-11-03
BTC Net Exchange Volume by Size Bitcoin Net Exchange Volume by Size
Source: Glassnode, Bitwise Europe

Important information:

This article does not constitute investment advice, nor does it constitute an offer or solicitation to buy financial products. This article is for general informational purposes only, and there is no explicit or implicit assurance or guarantee regarding the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. It is advised not to rely on the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. Please note that this article is neither investment advice nor an offer or solicitation to acquire financial products or cryptocurrencies.

Before investing in crypto ETPs, potentional investors should consider the following:

Potential investors should seek independent advice and consider relevant information contained in the base prospectus and the final terms for the ETPs, especially the risk factors mentioned therein. The invested capital is at risk, and losses up to the amount invested are possible. The product is subject to inherent counterparty risk with respect to the issuer of the ETPs and may incur losses up to a total loss if the issuer fails to fulfill its contractual obligations. The legal structure of ETPs is equivalent to that of a debt security. ETPs are treated like other securities.

About Bitwise

Bitwise is one of the world’s leading crypto specialist asset managers. Thousands of financial advisors, family offices, and institutional investors across the globe have partnered with us to understand and access the opportunities in crypto. Since 2017, Bitwise has established a track record of excellence managing a broad suite of index and active solutions across ETPs, separately managed accounts, private funds, and hedge fund strategies—spanning both the U.S. and Europe.

In Europe, for the past four years Bitwise (previously ETC Group) has developed an extensive and innovative suite of crypto ETPs, including Europe’s largest and most liquid bitcoin ETP.

This family of crypto ETPs is domiciled in Germany and approved by BaFin. We exclusively partner with reputable entities from the traditional financial industry, ensuring that 100% of the assets are securely stored offline (cold storage) through regulated custodians.

Our European products comprise a collection of carefully designed financial instruments that seamlessly integrate into any professional portfolio, providing comprehensive exposure to crypto as an asset class. Access is straightforward via major European stock exchanges, with primary listings on Xetra, the most liquid exchange for ETF trading in Europe.

Retail investors benefit from easy access through numerous DIY/online brokers, coupled with our robust and secure physical ETP structure, which includes a redemption feature.

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