Research Summary

The report discusses the recent performance of cryptocurrencies, particularly Bitcoin and Ether, in relation to macroeconomic indicators and market expectations. It also highlights the growing institutional interest in the crypto space, the potential approval of spot Bitcoin ETFs, and the increasing open interest on CME Bitcoin futures. The report further explores the rise in Bitcoin transaction fees, the growth of onchain activity on Solana, and the interest in scalable monolithic blockchains and the Cosmos SDK.

Key Takeaways

Correlation Between Bitcoin and US Equities

  • Decreasing Correlation: The correlation between daily Bitcoin returns and US equities, represented by the Nasdaq, has decreased from a local high of 35% in early October to 10% as of November 30. This decrease reflects the significant dislocation in Bitcoin versus stock performance during late October and early November.
  • Bitcoin’s Idiosyncratic Nature: Bitcoin returns appear to be relatively uncorrelated to most macro assets, reinforcing its idiosyncratic narrative. Its positive correlation to Ether returns has fallen to 76%.

Institutional Inflows and Bitcoin ETFs

  • Institutional Interest: New institutional inflows into the crypto space have mostly benefited Bitcoin. The Proshares Bitcoin Strategy ETF ($BITO) attracted net inflows of US$260M in November, setting a record high for assets under management at $1.44B.
  • Speculation on Spot Bitcoin ETF Approvals: Recent SEC discussions with BlackRock and Grayscale have fueled speculation about spot Bitcoin ETF approvals in the near term. The SEC likely doesn’t want to disadvantage any one ETF by giving others entry to the market first, potentially setting an approval date for early January.

Bitcoin Futures and Dominance

  • Open Interest on CME Bitcoin Futures: Open interest on CME Bitcoin futures has reached levels last seen in November 2021, currently at about $4.4B. The relative growth in Bitcoin futures open interest has notably outpaced that of Ether futures, signaling that the current trading regime remains focused on Bitcoin.
  • Bitcoin Dominance: Bitcoin dominance has consistently increased throughout 2023 from 41% to 53%, reflecting a shift from the growth of the crypto market through 2021, where Bitcoin dominance dropped from 67% to lows of 39%.

Bitcoin Transaction Fees and Solana’s Onchain Activity

  • Bitcoin Transaction Fees: Bitcoin transaction fees reached a 6-month high last week but have since seen a drop of approximately 50%. This is partly due to a gradual reduction in ordinal transaction activity over the past 10 days.
  • Growth in Solana’s Onchain Activity: Onchain activity on Solana continues to see significant growth across a number of metrics – daily active users, transaction counts, and DEX volumes. This growth has been driven in part by renewed interest in Solana’s scalability narrative and excitement around airdrops by leading ecosystem protocols.

Interest in Scalable Monolithic Blockchains and the Cosmos SDK

  • Scalable Monolithic Blockchains: The attention on Solana has sparked interest in other highly scalable monolithic blockchains. SEI’s v2 announcement of incorporating a parallelized EVM has positioned it, along with Monad, as the forerunners in EVM scalability via parallelization.
  • Interest in the Cosmos SDK: There has been increased interest in the flexibility of the Cosmos SDK for developing both modular blockchains and application-specific chains. The division of the ATOM community following its proposal 848 to set the maximum ATOM inflation rate to 10% is of particular note.

Actionable Insights

  • Monitor the Correlation Between Bitcoin and US Equities: The decreasing correlation between Bitcoin and US equities suggests that Bitcoin’s performance is becoming more independent of traditional markets. This could have implications for portfolio diversification strategies.
  • Keep an Eye on Institutional Inflows and Bitcoin ETFs: The growing institutional interest in Bitcoin and the potential approval of spot Bitcoin ETFs could significantly impact the crypto market. It’s important to stay updated on these developments.
  • Track Bitcoin Futures and Dominance: The increasing open interest on CME Bitcoin futures and Bitcoin’s growing dominance in the crypto market indicate a shift in market focus. These trends could influence investment decisions.
  • Watch Bitcoin Transaction Fees and Solana’s Onchain Activity: The fluctuations in Bitcoin transaction fees and the growth in Solana’s onchain activity provide insights into network usage and demand. These trends could affect the valuation of these assets.
  • Research the Potential of Scalable Monolithic Blockchains and the Cosmos SDK: The rising interest in scalable monolithic blockchains and the Cosmos SDK suggests potential growth in these areas. Understanding these technologies could provide opportunities for involvement in emerging blockchain projects.

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