Weekly: The Crypto Campaign

Mixed markets following a positive Bitcoin 2024 Conference but weaker economic data.

August 2, 2024

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Key takeaways

  • The Bitcoin 2024 Conference in Nashville on July 25-27 unveiled several new market narratives, while the US elections remain top of mind.
  • Jitters over US economic growth seem to be weighing on investor sentiment far more than optimism over potential Fed rate cuts later this year.
  • Spot ETH ETFs in the US have seen $1.5B in gross inflows, but a net $483M in outflows over their first seven trading days.
  • Large onchain movements on July 29 ignited concerns that $2 billion in previously-seized crypto that the US government reportedly moved to new wallets could be headed for the open market.

Written by

  • David Duong, CFA - Head of Institutional Research
  • David Han, Institutional Research Analyst

Market View

Bitcoin 2024 Conference. The Bitcoin 2024 Conference in Nashville on July 25-27 unveiled several new market narratives, leading to a BTC rally that briefly reached the $70,000 mark, the highest level in more than a month. (BTC last traded above $70,000 on Coinbase on June 11). In our view, the most substantial announcements were those supporting a potential US strategic bitcoin reserve. Two presidential candidates speaking at the event, former President Donald Trump and independent Robert F. Kennedy, both claimed they would support the formation of said reserve if they were elected into office.

On the legislative front, Senator Lummis (R-WY) similarly announced a bill at the conference to implement a 1 million BTC purchase program aiming to reduce the national debt. The Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act was formally introduced to the US Senate four days later on July 31, and seeks to diversify existing funds within the Federal Reserve System and Treasury department to purchase bitcoin.

Democrats are also seeking to strengthen relations with the crypto community after 28 party members (both sitting members of Congress and candidates) sent a letter to the Democratic National Committee (DNC) asking them to take a more “forward-looking approach to digital assets and blockchain technology.” They argued that crypto should be added to the party platform, pressed for a “pro-innovation” SEC chair, and requested a vice presidential candidate “sophisticated in digital-asset policy.” Democratic Representative Wiley Nickel (NC) also spoke at Bitcoin 2024, emphasizing his belief that crypto is an issue that should transcend party lines.

These developments represent a meaningful shift in the narrative for bitcoin in our view. Bitcoin received spot ETF approvals in the US less than eight months ago, and is now being seriously discussed for its utility as a possible national reserve asset in the context of growing national debt (which recently exceeded $35T). That said, the formation of such a reserve is an involved process, which for a start would require the Federal Reserve to adapt its broader monetary policy and reserve management strategies. Moreover, even if enacted, the Secretary of the Treasury would still be required to “establish a decentralized network of secure Bitcoin storage facilities distributed across the United States”. Proper analysis and buildout of such infrastructure – as well as the strategic purchasing methodology itself – could take years to construct, minimizing its direct impact on near term flows in our view.

Macro. Meanwhile, up until recently, macro has been less relevant for crypto performance, with prices showing little sensitivity to the massive bull steepening move in the US 2y10y yield curve over the course of July. But now, jitters over US economic growth seem to be weighing on investor sentiment far more than optimism over potential Fed rate cuts later this year. At its July 30-31 FOMC meeting, the Fed signaled rate cuts were coming. However, not only have market participants already priced in two 25bps cuts this year (in September and November), they recently added a third cut for December – as implied in Fed fund futures – due to concerns surrounding weaker economic data. Indeed, ISM manufacturing for July fell deeper into contractionary territory to an index reading of 46.8 points, below the Bloomberg median forecast of 48.8.

Disappointing earnings results from some members of the “Magnificent Seven” have also added to the rout in stocks, contributing to perceptions of tightening demand and contaminating the price action in crypto. This was combined with large onchain movements on July 29 that ignited concerns that $2 billion in previously-seized crypto that the US government reportedly moved to new wallets could be headed for the open market. As a result, BTC fully retraced its gains leading into the Bitcoin 2024 conference. Crypto markets continue to be choppy, in line with our outlook for the quarter.

ETH ETF Flows. Separately, spot ETH ETFs in the US have seen gross inflows of $1.5B, but netted $483M in outflows in their first seven business days. This was driven by $1.98B in withdrawals from Grayscale Ethereum Trust (ETHE). Note that the ETHE outflows have been declining day-to-day, which reinforces our belief that these outflows have been front loaded compared to what we saw with Grayscale Bitcoin Trust (GBTC) earlier in the year. Structural factors contributed to shares of GBTC that were locked and unable to be sold until later in the cycle, whereas no such impediments exist for ETHE. Moreover, several nuances may be factoring into still healthy but comparatively thinner inflows into the other funds to start. For example, ProShares’s spot ETH ETF did not launch alongside its peers, which may be limiting capital rotation out of its large ETH futures ETF, which was not the case for its bitcoin product.

Screenshot 2024-08-01 at 6.19.31 PM

Seasonality. Looking ahead, seasonality hasn’t typically worked in crypto’s favor for the month of August, with bitcoin averaging a decline of 2.8% during this month over the last five years (-0.5% over the last ten years). August has often seen lower market activity in the past, as evidenced by a drop in BTC spot volumes by 19% in August vs June 2023, while BTC futures volumes were down 30% over the same period (across global centralized exchanges). Lower liquidity and trading volumes can lead to increased volatility. With fewer crypto specific narratives anticipated for the rest of the summer, it’s very possible that we may see the same lackluster behavior this year.

Crypto & Traditional Overview

(as of 4pm EDT, Aug 1)

Asset

Price

Mkt Cap

24 hour change

7 day change

BTC correlation

BTC

$63,474

$1.25T

-2.46%

-1.68%

100%

ETH

$3,130

$377B

-3.22%

+1.11%

80%

Gold (Spot)

$2,442

-

-0.21%

+3.30%

-27%

S&P 500

5446.68

-

-1.37%

+0.88%

0%

USDT

$1.00

$114.0B

-

-

-

USDC

$1.00

$33.4B

-

-

-

Asset

MTD flow (US$B)

YTD flow US$B)

AUM (US$B)

Assets held (BTC/ETH)

Spot BTC ETFs (US)

$0.0B

$18.5B

$59.8B

0.91M BTC

Spot ETH ETFs (US)

$0.0B

-$0.48B

$9.1B

2.76M ETH

Source: Bloomberg

Coinbase Exchange & CES Insights

It seems that we are back in a "bad news is bad news" macro environment as fears of a cooling economy grow. With a 25 basis point September rate cut fully priced into the market, traders are looking for good economic numbers to support their hopes for a soft landing and higher asset prices. 

Just over a week into the ETH ETF launch and things look to be going relatively well. Though the complex has seen net outflows of nearly $500M, the new issuers have seen gross inflows of nearly $1.5B. That's about 33% of what the new issuers saw their bitcoin products attract over a similar period. Admittedly, net flows will drive short term price action. But the traction that the newly issued products have achieved suggest that there is interest in holding ETH in traditional portfolios and bodes well for the medium and long term price trajectory.

Trading volumes on Coinbase platform (USD)

Screenshot 2024-08-01 at 4.05.30 PM

Trading volumes on Coinbase platform by asset

Screenshot 2024-08-01 at 4.05.36 PM

Financing Rates

8/1/2024

TradFi

CeFi

DeFi

Overnight

5.45%

5.00% - 10.75%

5.50%

USD - 1m

5.75%

5.25% - 11.00%

USD - 6m

6.25%

5.50% - 11.50%

BTC

1.50% - 5.00%

ETH

3.00% - 8.00%

1.57%

Notable Crypto News

Institutional

  • Circle’s private stock valued up to $5.25 billion on secondary market (The Block)

Regulation

  • Lummis Introduces Bitcoin Reserve Bill Aiming to Bolster US's Global Financial Standing (Decrypt)

General

  • Tether Nets $5B Profits This Year, Says Its US Debt Holdings Surpassed Germany's (Coindesk)

Coinbase

  • Chris Lehane, Paul Clement, and Christa Davies Join Coinbase’s Board of Directors (Coinbase Blog)

Views From Around the World

Europe

  • Slovenia issued the first EU sovereign digital bond, a EUR 30M note settled on BNP Paribas’ private tokenization platform built using the Canton blockchain (Gov)
  • Deutsche Telekom joins RWA-focused XDC as infrastructure provider in digital asset push (CoinDesk)
  • Unbound Fund announced a new opportunity to obtain Portuguese/EU citizenship by indirectly holding approximately €500,000 worth of Bitcoin (BitcoinNews)
  • Ferrari launching crypto payment system for European Market (BitcoinNews)
  • Crypto bank Sygnum posts first-half profit amid plans for MiCA-compliant EU expansion (The Block)
  • Fidelity International lists bitcoin ETP on London Stock Exchange (The Block)
  • England's law commission suggests new property classification for crypto assets (CoinTelegraph)

Asia

  • Franklin Templeton and SBI Plan Spot Bitcoin ETF Launch in Japan (CryptoNews)
  • Bitcoin could be considered for Hong Kong strategic financial reserves in the future (X)
  • JD, one of China's largest e-commerce groups, will issue Hong Kong dollar stablecoin on public blockchain (Coinspeaker)
  • Toyota explores ethereum's ERC-4337 to unlock on-chain automotive operations (Defiant)
  • India to release its crypto policy stance by September after stakeholder consultations (Coin Desk)

The Week Ahead

August 5

August 6

August 7

August 8

August 9

Notable Macro

US ISM Services

Notable Earnings

Cleanspark Inc

Crypto

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