Total Market Cap $394.4 BN (-0.10%)
24 Hour Volume $91.6 BN (+8.27%)
BTC Dominance 61.7% (+0.65%)
Bitcoin remained buoyed above $13K and will look for a foothold at the $13,100 levels to challenge upwards of $13,300. Market cap at $394B, with $BTC dominance 61.6%. Stablecoin volume remain ~55% of overall traded volumes
$BTC hash rate is slumping. Analysts are anticipating Bitcoin’s second-largest negative difficulty adjustment of the year following the end of Sichuan’s rainy season.
Institutional investors across German speaking Europe continue to allocate digital assets into their portfolios and the number that plan to allocate continues to jump.
Weekly Deep Dive With Arca Finance
Bitcoin Sucked the Life Out of the Digital Assets Market
Whether you’ve followed digital assets for years, or just peek in periodically, you know that last week was all about Bitcoin. From Paypal adding support for Bitcoin, to Paul Tudor Jones reiterating his strong belief in the #1 cryptocurrency, to JP Morgan pulling a crazy Ivan with positive research on Bitcoin… it is no surprise that Bitcoin led all digital assets last week in both price and interest.
Frequent readers of That’s Our Two Satoshis know that we love Bitcoin, but we also think Bitcoin is in a completely different category (cryptocurrency) than the majority of other digital assets (platforms, asset-backed tokens, and pass-thru tokens). There is of course a structural commonality between all blockchain-based digital assets, which is what makes this an asset class, but in every other way each asset is vastly different. Bitcoin is decentralized, has no leader, and competes as money on a global scale, while most other digital assets are closer to growth assets belonging to closed ecosystems of centralized companies or projects. As such, in a perfectly rational world, Bitcoin’s strong price action might not matter much to the rest of the digital assets ecosystem, as it is on an island unto itself. But there exists a rotation of capital in digital assets that is more powerful than anything seen in other asset classes.
In the traditional investing world, rotation of capital exists too, but it is quite different. If market conditions change in ways that make equities more attractive, you might see a natural rotation of capital out of fixed income and into equities, and you might also see cash being put to work, indicating new buying power. At the sector and individual asset level, you might also see rotations from growth stocks into value stocks, or from cyclicals into non-cyclicals. But it is rare that these moves suck the life out of other areas of the market.
The rotation of capital into Bitcoin these past weeks absolutely sucked the life out of the rest of the market.
To start with, there is a very odd and out-dated term in digital assets called “Bitcoin Dominance”, which measures the percentage of Bitcoin’s market cap relative to the overall size of publicly traded digital assets. This term perhaps made sense in the early days, when there were only a handful of digital assets, most of which were knockoff forms of money, but of course makes less and less sense as this asset class matures and evolves. It would be akin to measuring “Government Bond Dominance” as a way to indicate overall movements in the fixed income market, despite certain types of fixed income securities like converts and bank loans having nothing to do with govies.
There have been plenty of instances where Bitcoin has outperformed other digital assets. But as our friends at Cumberland pointed out, typically this happens when everything is rising and Bitcoin just rises more, or more often, when the entire market is falling and Bitcoin falls less as a flight to safety.
“This week, we’re seeing a much-discussed but seldom seen event in digital assets: a “BTC-up, everything else down” move. BTC dominance has rallied from 60% to open the week to about 61.7% right now. A move of that size is not unheard-of -- in fact, we see one that size every month or so. What is rare is that BTC is up while other digital assets are down. Normally a BTC.D move happens when there are large delta moves and one asset outpaces others. The move lower in BTC.D through this summer was largely a function of ETH and ERC20 tokens rallying, with BTC just rallying more slowly. The move higher in BTC.D last spring was while everything collapsed, as non-BTC tokens traded with much higher betas. We’d be counting on eagle-eyed readers to remind me of the last time we’ve seen BTC deltas separate from the pack in exactly this way.”
Bitcoin is seeing a lot of new inflows. From corporate Treasury departments, to family offices, to macro investors, this new influx of capital is, for the most part, only flowing into Bitcoin. And this makes sense given that Bitcoin is in a totally separate class of its own that attracts a wide array of different investor types. However, the decline in other digital assets suggests that native digital assets investors are also selling anything and everything they own for the opportunity to own more Bitcoin. Again using the Government bond example, this would make more sense if this was a flight to quality rally, but that would most likely occur during periods of market weakness, not periods of euphoria.
It’s highly unlikely that this dynamic will hold for longer periods of time. As institutional investors continue to invest in venture capital funds and fundamentally based research-driven hedge funds, the need to benchmark versus Bitcoin will subside, as will the ability for funds to sell everything into Bitcoin. Until then, retail and trade-oriented investors may continue to chase Bitcoin at the expense of other tokens.
How is Bitcoin Affecting Traditional Finance?
Away from digital assets, Bitcoin is affecting the rest of the financial world as well. To start with, there are a number of publicly traded companies that have, intentionally or unintentionally, marketed themselves as “Bitcoin companies”. Who needs a Bitcoin ETF when these existing stocks basically track the price of Bitcoin already? From Bitcoin mining companies like Hut 8 (HUT), to crypto merchant banks like Galaxy Digital (GLXY) and traditional banks like Silvergate (SI), to the recent corporate actions by Microstrategy (MSTR), most of these stocks have basically become BTC tracking stocks, whether that is their core business or not. As Square (SQ) and Paypal (PYPL) enter the market, it will be interesting to see if Bitcoin’s price action begins to dominate these companies’ narratives as well. Further, the upcoming Coinbase IPO should be interesting, as Coinbase has a very diversified business line, but the market may completely ignore that in favor of simply watching Bitcoin’s price.
Stocks of companies with exposure to Bitcoin have become Bitcoin tracking stocks
Source: Bloomberg, TradingView
While it remains to be seen whether or not it is a good thing for companies to be associated with Bitcoin, we know definitively that traditional finance companies that have not evolved are being punished. Perhaps we need a “Traditional Bank Dominance Index” to help visualize the massive decline of traditional banks at the expense of FinTech and digital assets.
Will Bitcoin’s rise and the subsequent growth of FinTech companies like Square and PayPal be enough to move digital assets into the mainstream? We’ve long argued that investment bankers are missing one of the biggest opportunities in history by not introducing digital assets to their clients. While investment banks can’t profit on Bitcoin itself since they lack the infrastructure to trade it, they do care about missing out on lost fees. When direct listings threatened their IPO businesses, they responded by starting consulting arms to help companies with direct listing processes. Similarly, these new corporate treasury Bitcoin purchases will threaten their stock buyback fees and their M&A fees (as cash is being used to buy Bitcoin instead of making acquisitions). When companies like Square ($80 bn market cap) and PayPal ($230 bn market cap) become unbankable, it’s inevitable that investment banks will find a way to insert themselves into this growing revenue stream.
Source: Twitter / @otisa502 and The Economist
Will Bitcoin’s rise and the subsequent growth of FinTech companies like Square and PayPal be enough to move digital assets into the mainstream? We’ve long argued that investment bankers are missing one of the biggest opportunities in history by not introducing digital assets to their clients. While investment banks can’t profit on Bitcoin itself since they lack the infrastructure to trade it, they do care about missing out on lost fees. When direct listings threatened their IPO businesses, they responded by starting consulting arms to help companies with direct listing processes. Similarly, these new corporate treasury Bitcoin purchases will threaten their stock buyback fees and their M&A fees (as cash is being used to buy Bitcoin instead of making acquisitions). When companies like Square ($80 bn market cap) and PayPal ($230 bn market cap) become un-bankable, it’s inevitable that investment banks will find a way to insert themselves into this growing revenue stream.
Alts and DeFi watch:
Harvest Finance weathering attack that sends token crashing more than 65% with ~$25M siphoned from the protocol on Monday. UNISWAP (the suspected outlet by those exploiting the Harvest failure) increased its traded volumes over 1200% during the same period.
Harvest provided some bitcoin addresses of the attacker and said that there is a "significant amount of personally identifiable information on the attacker, who is well-known in the crypto community." But Harvest is "not interested in doxxing the attacker." Instead, it has put a $100,000 bounty for the first person or team to reach out to the attacker. Harvest has also asked exchanges like Binance, Coinbase, and Huobi to block the attacker's addresses.
Balancer is an automated market maker that provides users with financial building blocks on which users can build DeFi products and services. Developed by Balancer Labs, the protocol is the third-largest decentralized exchange (DEX) on Ethereum by monthly volume. Balancer Labs's head of growth Jeremy Musighi said the team will continue to focus on Ethereum-based development in addition to its NEAR-focused work.
Decentralized exchanges Uniswap and Curve Finance saw massive spikes in trading volume above $2 billion each on Monday. The huge volumes were the result of a flash loan exploit used to drain Harvest Finance of $25 million in just minutes. Liquidity providers for the exchanges earned more than $5 million in fees from the exchange activity.
Launched last month, the alliance seeks to unite leaders of the DeFi sector by forming a global cooperative consortium focused on innovation, risk management, and liquidity strategies. New members include decentralized finance (DeFi) notables Aave, Balancer, BlockScience, DyDx, Ocean Ventures, Outlier Ventures, Quantstamp, and SuperRare, with the organization now spanning 16 firms in total. It now includes four of the 20-largest DeFi protocols by locked capital.
DeFi’s interest was widespread and its impact was significant on Ethereum's network. From high transaction fees to miners becoming more profitable, DeFi was bringing in a serious level of attention to Ethereum, and it possibly played a huge role during Ether’s price pump to $489. However, the excitement was very short-lived. Bad DeFi tokens drowned the euphoric nature of these applications, and with Ethereum’s price plummeting on the charts, the hype was beginning to fade away.
Enter Notional, a new protocol that lets users lend and borrow crypto at fixed rates. After 10 months in stealth, the platform launches in beta on Ethereum today. The startup also announced Monday a $1.3 million funding round from a total of eight investors, including Coinbase Ventures, 1confirmation and Polychain.