Research Summary
The report discusses the impact of interest rates, geopolitical tensions, and supply-demand imbalances on the US Treasury bond yields and the Federal Reserve’s policy stance. It also explores the relationship between crypto prices and the US Treasury yield curve, particularly Bitcoin and Ether. The report further delves into the potential approval of Bitcoin ETPs, the performance of the SPDR Gold Shares ETF, and the possible impact of a US government shutdown on SEC’s decisions. Lastly, it examines the trading volumes and market depth of Bitcoin and Ether.
Key Takeaways
Interest Rates and Crypto Prices
- Impact of Interest Rates: The report suggests that the Federal Reserve may halt rate hikes due to the tightening of US financial conditions. This could potentially lower the relevance of the November and December FOMC meetings for market performance in 4Q23.
- Correlation between Crypto Prices and Yield Curve: The report notes an inverse relationship between crypto prices and changes in the term structure of the US Treasury yield curve since mid-1Q23. However, the strength of this relationship varies for Bitcoin and Ether.
Bitcoin ETPs and Market Performance
- Potential Approval of Bitcoin ETPs: The report suggests that the potential approval of one or more spot Bitcoin ETPs has already been partially priced in, making it unclear how much more Bitcoin could outperform if a favorable SEC decision occurs.
- Impact of Bitcoin ETP Approvals: The report posits that the impact of one or more spot Bitcoin ETP approvals is not measured in flows alone. Many market players may interpret potential approvals as a shift in the US regulatory environment, which could support Bitcoin prices specifically and crypto prices more broadly.
SEC Decisions and Government Shutdown
- Timing of SEC Decisions: The report notes that the timing of the SEC’s spot Bitcoin ETP decisions is complicated by gridlock in the US House of Representatives over federal funding, which could trigger a government shutdown and lead to 90% of SEC staff being furloughed.
- Impact of Government Shutdown: The report suggests that a US government shutdown could potentially affect the SEC’s decision on the ARK-21Shares Bitcoin ETF application, which has a final deadline for SEC review of January 10, 2024.
Trading Volumes and Market Depth
- Trading Volumes: The report notes a decline in aggregate average daily spot and futures trading volumes for Bitcoin and Ether in September. However, stablecoin dominance has been ticking higher in the first two weeks of October, which may be a positive technical factor for digital assets in the near term.
- Market Depth: Despite the decline in volumes over the last three months, the report notes that there has not been a major reduction in overall market depth, suggesting that price formation in the market is still happening in an efficient and reliable way.
Actionable Insights
- Monitor Interest Rates: Keep an eye on the Federal Reserve’s policy stance and the impact of interest rates on the US Treasury bond yields and crypto prices.
- Assess the Impact of Bitcoin ETP Approvals: Evaluate the potential impact of the approval of one or more spot Bitcoin ETPs on Bitcoin and crypto prices.
- Consider the Impact of Government Shutdown: Consider the potential impact of a US government shutdown on the SEC’s decisions regarding Bitcoin ETPs.
- Analyze Trading Volumes and Market Depth: Analyze the trading volumes and market depth of Bitcoin and Ether to understand market trends and price formation.
