Market
We experienced another bullish week. The crypto market has dwarfed the equities market in performance. Solana rallied more than 50% last week, making its YTD return close to 500%. ETH is starting to catch up with BTC, returning 13.49% this week vs. BTC’s 7.34%.
Source: Koyfin, 11/11/2023
BTC price briefly touched $38,000 last Thursday before returning to around $37,000. At this price level, BTC is securely above the last resistance level of $32,700 observed in July 2023 and is ~12% away from the next resistance level of $41,300, last seen in June 2021.
ETH/BTC ratio is up 3% last week, bouncing back from the oversold territory. Another ~9% increase could help the ratio break the down trend since September last year.
Looking at the 30-day change in realized capital for BTC, ETH and stablecoins, we have approximately $10.3 billion increase for BTC, $3.2 billion for ETH and $1.5 billion for the top four stablecoins. This is similar in scale to the November 2020 level when the market was heading towards the DeFi summer. The market is demonstrating similar patterns as inflows to BTC lead to inflows to ETH and eventually stablecoins. The bullish sign to look for is the increase in stablecoin inflow, which marks fresh capital entering the crypto market. Nic Carter has gone on record saying stablecoin supply bottomed last week and will be up only from here.
So what will drive fresh capital to the crypto market? We see three sources of capital in the near term:
Spot ETFs to attract mainstream investors into BTC, and potentially ETH
The BTC spot ETF seems to be making progress on track for the January 10 approval deadline. What’s even more encouraging is Blackrock’s filing of an ETH spot ETF last week, indicating the TradFi giant’s confidence in a BTC spot ETF approval, as well as acknowledging ETH as the next crypto asset to introduce to mainstream investors. We now have 6 ETF spot ETF filings in the race with the deadline for SEC to make final decision in May 2024. ETHE’s discount has narrowed to ~13.94%, close to GBTC’s ~10.35% discount level, indicating market’s increasing confidence that ETH spot ETF is going to be approved after BTC’s.
Capital from FTX Claims recovery
Given the rise of the crypto market, the recovery value for FTX claims has climbed to 57% from as low as 15% from the beginning of the year. It is expected that FTX claim holders could eventually reach recovery in full, given the higher valuation of their Digital Asset portfolio (especially with the rally in Solana), high valuation of their Venture portfolio as indicated in the recent pricing of AI startup Anthropic, clawback from early withdrawals such as Bybit, and a real possibility of a FTX 2.0 reboot that sent the FTT token to a close to 200% rally last week. With around $9B FTX claims outstanding, mostly from crypto fund managers, we expect the recouped money to be put back to the crypto market.
Crypto venture and hedge funds funding coming back
It’s been a while since we saw a big venture fundraising announcement. Last week, SBI Holdings, a Japan-based financial firm, announced a $660M venture fund dedicated to the Web3 space. According to Messari’s FundRaising Data, there has been about $20 billion capital raised in the past year in the form of crypto-related ventures or hedge funds, and some of the capital can still be deployed.
Furthermore, we see L1 and L2 ecosystems ramping up efforts in ecosystem support for development of dApps on their network. Polygon just relaunched their Polygon Village on November 9, with more than $110 million Matic grant to support ecosystem growth. Mantle, an Ethereum L2 with a $2 billion treasury, has approved $60 million seed liquidity to create a RWA backed stablecoin on their network.
On the macro front, Powell has cautioned against premature easing misled by good CPI data. He also acknowledges tightening of financial conditions caused by high long-term interest rates. The 10-year rate has come down from a peak of 5% reached on October 19 to 4.65%. Whether this trend will continue will be an important indicator to watch as the Fed evaluates the needs for easing financial conditions. The hawkish comment from Powell has lowered the market’s expectation for a potential rate cut next year, the futures market is now indicating more than 50% chance of a rate cut in June 2024 rather than May, as indicated earlier this month.
DeFi Trends to Watch
With potential fresh capital entering the crypto market and macro environment pointing more toward easing than tightening in the coming year, where would the capital go? One sign that altcoin season might have arrived is the performance difference between large-cap digital assets vs. small-cap. The Market Vector small cap index has outperformed large-cap by almost 20% since the fake BTC spot ETF approval news.
Another sign of life in the crypto market is the pickup in trading volume for NFTs. Bitcoin Ordinals made a strong comeback last week, sending BTC transaction fees to a five month high.
As the risk appetite grows and capital rotates to alt coins, we expect marketplaces to benefit from the trend. The performance of DEXes and NFT marketplaces in the past month clearly shows the trend. Blue-chip names such as Uniswap, dYdX and Blur have maintained a dominant market share in their respective categories that we expect to continue. However, how the trading fees can accrue to the token holders would dictate how the market is evaluating the token value. Uniswap, for example, has lagged its peers despite strong trading volume growth because there is currently no mechanism to share trading fees with the token holder.
Despite the pickup in trading volume, we are still about one-fifth of the level seen in the DeFi summer. While most of the DEX token values are down around 90% from their ATH, we see upside potential as trading volume continues to grow.
Top 7d Gainers and Losers
Top 100 MCAP Winners
FTT Token (+188.50%)
Cronos (+62.62%)
Celestia (+61.23%)
Kaspa (+45.41%)
Blur (+43.62%)
Top 100 MCAP Losers
Maker (-3.77%)
Tether Gold (-2.88%)
Pax Gold (-2.54%)
Bitcoin Cash (-0.88%)
About Decentral Park
Decentral Park is a founder-led cryptoasset investment firm comprised of team members who’ve honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.
Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.