Research Summary
The report by Cumberland discusses the recent volatility in the crypto markets, particularly the underperformance of altcoins compared to Bitcoin (BTC) and Ethereum (ETH). It also highlights the challenges faced by crypto fund managers and the potential opportunities in the market.
Key Takeaways
June’s Crypto Market Performance
- Bitcoin and Ethereum’s Performance: Despite a challenging June where BTC and ETH both lost around 8%, they are still up about 50% on the year. The report suggests that a drawdown after a sharp rally is expected and that BTC and ETH holders seem largely unstressed.
- Altcoins Underperform: Altcoins have underperformed BTC and ETH, losing significantly more in June, typically between 20 and 30%. They also underperformed during the rally, indicating a concerning state within a correlated asset class.
Challenges for Crypto Fund Managers
- Difficulty in Outperforming the Benchmark: The report highlights that it’s extremely hard for crypto fund managers to outperform the benchmark (BTC) right now. This is due to the availability of ETFs, which make the benchmark widely available for about 25 bps.
- Shift in Trading Strategies: Many traders have shifted strategies to options, where they can stay in BTC and ETH markets but trade with leverage. There has been significant volume going through in calls, even in the midst of this month’s downtick.
Capital Flow in Crypto
- Capital Flow into BTC and ETH: The report notes that more capital is being unlocked for crypto, but it is mostly flowing into BTC. It is expected to flow into ETH once the ETF launches.
- Lack of Capital Flow into Altcoins: Despite crypto becoming more mainstream, it is unclear if more capital is being unlocked for assets outside of BTC and ETH. The report suggests that BTC and ETH are special because they’re on the right side of a meaningful moat.
Actionable Insights
- Monitor Altcoin Performance: Given the underperformance of altcoins compared to BTC and ETH, it would be prudent to closely monitor their performance and market trends.
- Consider the Impact of ETFs: With the expected launch of an ETH ETF, it’s important to consider the potential impact this could have on the market, particularly in terms of capital flow.
- Assess Trading Strategies: Given the shift in trading strategies to options, it may be beneficial to assess the potential risks and rewards of this approach.
