Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Summary: Heading into the final month of the year, the balances of Bitcoins and Ether on exchanges are at the lowest levels in years upon fear of contagion following the collapse of FTX. This may indicate less sell pressure, yet it appears that some long-term holders have lost faith in crypto. In addition, particularly more traditional traders opened Bitcoin short positions in November.
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, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.
Promptly next to the shocking collapse of the crypto exchange FTX, the crypto market reacted by withdrawing funds from exchanges in fear of contagion, in case other exchanges would be insolvent too. In numbers, nearly 2% of the total Bitcoin supply and over 2% of the total Ether supply left exchanges in November alone. In fact, Ethereum approaches an all-time low in terms of supply held on exchanges. Seeing that funds have flowed away from exchanges, potential sell pressure in the short-term will be more limited now than a month ago, simply because crypto taken off exchanges is less likely to be sold.
On the other hand, there may have been a flow from some long-term holders to exchanges, as the dormant circulation for Bitcoin and Ethereum has surged. The dormant circulation counts how many Bitcoins and Ether were moved after not being moved for at least 365 days prior to that. Since the funds have not been moved for at least 365 days, these wallets are often controlled by more long-term holders. In theory, the surge in the dormant circulation can be due to the outflow from exchanges, but it is also likely due to a flow in the opposite direction, namely from long-term holders to exchanges. The latter implies that some long-term holders have sold Bitcoin and Ether, likely because of fear that FTX will lead the crypto market to a total collapse. Yet, if this is the case, these Bitcoins and Ether have largely already been sold.
In the past couple of months, there has been a clear trend that wallets with a low balance are accumulating, whereas wealthy wallets are cutting their portfolio. This trend intensified greatly in November. The intensification may mainly be due to the outflow of exchanges, yet nothing indicates that the trend has reversed, so whales have likely not collectively started accumulating.
Once again, long-Bitcoin funds saw an inflow equal to $6.9mn into exchange-traded crypto products e.g., ETPs and mutual funds, whereas Ethereum encountered an outflow equal to $1mn. Interestingly, exchange-traded short Bitcoin products saw an inflow of $22.2mn. This indicates that particularly more traditional traders are presently short Bitcoin, as crypto-native traders often use perpetual futures and not exchange-traded products when shorting.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)