Summary: It seems that sophisticated long-term Bitcoins holders are acquiring more Bitcoins, whereas Ether was likely liquidated in August by long-term holders upon a surge in Ethereum’s price. Though, Ethereum saw an inflow compared to Bitcoin’s outflow in exchange-traded products.
In this new monthly publication series, we look at important indicators for the crypto markets both for short-term and long-term trends. Charts are found below each section.
Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum.
In the month of August, Bitcoin exchanges experienced a net withdrawal. Around 9% of the total supply is now left on exchanges in comparison to 12% at the beginning of the year. A lower exchange balance is usually associated with a decrease in potential selling pressure.
As a by-product, the lower exchange balance likely means that the ownership of many Bitcoins has moved from less to more sophisticated crypto holders since the latter often stores them away from exchanges. This is in line with our knowledge that particularly retail investors have left the crypto market this year. It suggests that long-term holders have been interested in acquiring Bitcoin at these prices, while they have not moved existing Bitcoins, as stressed by the moving average for dormant circulation. It may indicate that long-term holders are not willing to sell at this price.
On the other hand, Ether was net sent to exchanges in August. As a result, slightly more than 14% is held on exchanges. This is likely due to the surge of Ethereum in July and August, in which Ethereum surged by over 100% from its low in June, which has increased selling pressure. This is further stressed by the dormant circulation, which shows that more old Ether were moved in July and start-August. It has, though, decreased to the level prior to the notable price increase. Yet, this might likewise have been impacted by the upcoming Ethereum merge, in which event holders are arguably more comfortable in holding Ether on exchanges.
For the past months, both Bitcoin and Ethereum have been priced higher compared to their daily transacted volume. This means that the market values their utility higher, effectively meaning there is more room for a downward trajectory but less room for an upward trajectory when looking at this metric.
Although both Bitcoin and Ethereum constantly issue new coins, the supply that has been moved over the past 5 years continues to plunge. Speaking of a time horizon of 5 years, the average Bitcoin and Ethereum holder seems to be underwater on their investment in this period. Interestingly, the average Bitcoin holder is estimated to be down by 28.3%, whereas the average Ether holder is only down by 10.3%, following Ether’s surge in July and August.
The flow into exchange-traded crypto products e.g., ETPs and mutual funds has been pretty stable in dollar terms in August with a minor inflow. This was mainly the result of a great inflow into Ether, whereas there was an outflow from Bitcoin. This has presumably been due to the anticipation of the upcoming Ethereum merge.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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