Nov 8, 2023

Bitcoin (BTC) inched closer to $36,000 in the last 24 hours, as the widening altcoin rally and risk-on sentiment in traditional markets lifted the total value of the crypto markets to a 16-month high.

Video transcript

Bitcoin is getting closer to 36,000 in the past 24 hours. And we're also seeing kind of a an increase in an alt coin rally uh some risk on sentiment in the traditional markets trad. Um And that's helping bring overall crypto valuations up to 16 month high. So uh almost a year and a half ago, we were at this level which is pre FTX. So joining us now to discuss the crypto markets is etc group head of research, Andre DRS. Welcome, Andre. Thank you and thanks for having me on the show. Good, good seeing you. So K 33 research notes that uh as Bitcoin's price stays, uh let's say in this kind of range between 34 and 36,000. Um We're seeing kind of the potential, let's say alt coin season that people are like, you know what II I kind of want a little bit more volatility here jumping into some alt coins. Is that what's really going on or is it that they're sort of catching up to this uh increase in value if you will in Bitcoin, that a on a, on a, on a Bitcoin denominated basis. They're trying to get back to where they were before. Yes, exactly. So I tend to take a bird's eye view on the market in general. Um Usually you can say out coin out performance is somewhat of a signal for increasing risk appetite in the market. And as you mentioned before, so general market cap has increased to 16 months high, right? But at the same time, we have seen a 17 month high in Bitcoin. So I think it's rather a catch up to what Bitcoin has done. Essentially, there are some discrepancies, especially with regards to the underperformance of Ethereum versus Bitcoin because here today, I think Ethereum has has underperformed by 50% points, which is quite incredible. But usually as I mentioned before, out, coin out performance is a sign of returning risk appetite to the market. And usually what you also see historically is alt coin out performance is mean reverting you. If you have a larger period of al coin underperformance, you tend to see some catch up. But we've seen just recently this catch up in in out cos I think um in the past week, the month before that, the quarter before that we didn't really see it. But I sometimes I think of it like uh the canon effect, maybe, you know, this concept of the French economist from the 18th century, he came up with the idea that if you have an increase in liquidity um in money supply in general, then that usually doesn't accrue to all players simultaneously. It usually arrives at the source closest to the money supply first, which is tends to be Bitcoin Ethereum because most trading payers are either against Bitcoin or Ethereum. You just mentioned the NFT markets, it's rather peripheral, right? These are peripheral markets out. Coins are tend to be peripheral markets as well. But this alt coin outperforms is somewhat a sign that liquidity is returning to the market as some other evidence like stable aggregate, Stablecoin market caps uh has have been increasing in the last two months. It's quite puzzling because I mean the fed is still tapering monetary policy right in the US, um tapering its balance sheet, reducing its balance sheet, reducing the liquidity and so on. There are the effects that have somewhat increased net liquidity, that effect. But I think in general it's quite puzzling but it may be related to other factors such as um that the People's Bank of China has been increasing liquidity recently and so on. So we can talk about this but it's quite interesting. So, so you kind you kind of brought up the the the Stablecoin issue uh because we are seeing a, as you said, an increase in uh market caps, but it's not all even right us, it's not us DC, it's US DT and and one can ask questions about where exactly is the source of us DC liquidity. But but essentially what you're saying is it goes from us. DT, let's be honest, that's mostly where this is coming from, goes from tether to Bitcoin, Bitcoin to the ALTs. Is that that kind of the, the flow that you're describing here? Um And as you mentioned, it's sort of counterintuitive because you have us DT is dollar based, dollar denominated while interest rates in the US are high and going higher or staying high for a while, which means that if you're, you, it wouldn't make sense to just buy tether with that, which doesn't earn interest necessarily or to take risk in crypto, which now has a higher hurdle rate. So something else might be at play is that kind of what you're get, you're getting out here? Exactly. So something else might be at play. The question is, where is the net supply, net increase in money supply coming from? And there are various possibilities such as, I mean, that's the technicality in the Feds balance sheets. We saw a decrease in reverse repos which usually leads to an increase in net liquidity. That might be one of the causes. But another one that I've mentioned just recently is the fact that China has been ejecting liquidity. The People's Bank of China has been ejecting liquidity in the past two months or so and you see this kind of return and it's not like there is this causal link from stablecoin market caps to Bitcoin Ethereum and then peripheral markets like alt coins or NFTS, right? It's rather tight lifts, all boards you tend to see it in aggregate stable coin market that includes, includes us DC and all kinds of Stablecoins, right? It's not just the substitution between these Stablecoins. It's more like aggregate stablecoins. Stablecoin market caps are lifting up BT C market cap obviously is lifting up and yeah, there might be a confluence of factors at play. But I think, yeah, liquidity is returning to the market. But that being said, it's interesting that um crypto assets, Bitcoin crypto asset markets have been decoupling from traditional financial markets, right? Because before that recent retracement of the 5% us 10 year yield, right? And the reversal in traditional equities, uh we saw that traditional financial markets like equities, the 500 NASDAQ treasuries have been significantly underperform crypto assets. And I think especially since mid October, when all the Gaza conflict started, geopolitical risk started to rise. I mean, the first price reaction was to be honest, some kind of price correction, crypto assets as well. But since then, we had a significant out performance, I think in excess of 30% of uh against traditional financial assets such as especially treasuries, right? So that kind of which is really interesting in my view as well. I mean, as you mentioned, it could be exogenous factors, some of the major players in this conflict, at least behind the scenes including Iran uh major play or some players in crypto as well. Uh They, they would, they notoriously playing Bitcoin. Uh and Hamas has been in the past linked to uh financing at least some of its activities uh using crypto uh one in particular. But I'll let Jenna continue. Yeah, I, I wanted to actually turn the conversation to institutional interest in the space. We've spoken so much about institutional interest in Bitcoin ahead of the spot. Bitcoin ETF. But this story caught my eye this morning, a regulated product that allows us investors to gain exposure to chain links link is trading at a 200% premium to spot prices. Of course, they're saying that this is suggesting institutional demand, prices of gray scale chain link trust have skyrocketed. What do you, what do you make of this? What do you make of institutions looking at alternatives to Bitcoin like link and seeing this demand? Yeah, I think it's true. I mean the nn A premium slash discount tends to fluctuate with fund inflows of laws. So if you see a very high N A premium on that chain link trust, it usually implies significant inflows, but they tend to be coincident with price action. Usually investors go into products like this um by most of the tops, but that's just the nature of the business. I I think at least at the bottom. Um But of course, we've recently seen a very large influx of money in that particular um vehicle but I think it's due to various factors. Like I think um chain link is very well positioned for that increasing demand and high frequency data, right? I think um one of their major clients is through inflation. Probably you have come across this, they they track the US consumer price index inflation on a real time basis on a daily basis. And they are for instance, one of their clients, right, of chain links clients. Um but this is just one example, maybe institutional investors are waking up and this is one of the only products right now to gain access, regulated access to, for instance, chain link. But it it also plays into that whole narrative that we just talked about, right? Alcohol and out performance, increasing risk, appetite, maybe some increase in liquidity, although the fat is still tapering and so on. But that might be the overall bird's eye view on that topic. But ETF S in general, yeah, I think TFS are still very etp exchange rated products are in general, very much concentrated on Bitcoin, at least on a global scale. And yeah, we can talk about this topic as well. But yeah. All right, Andre, we are all out of time. So we're going to have to leave it there, but we look forward to continuing the topic the next time you're on the show. All right. Thank you very much. Thank you. Have a great day. That was etc group head of research just before we go. I must note that Greece Gale and Coindesk are both owned by DC G.

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