8DC Market Update: Crypto Kicks Off a Strong Q4
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
[A version of this post was written in mid-November.]
As we’re approaching the Thanksgiving Holiday here in the US, we’re grateful for some green shoots in token prices after a long crypto winter! We wanted to provide a quick market update given the rapid rise this past month and offer some thoughts on where we go from here.
Bitcoin continues leading the charge.
An uptick in BTC price is always exciting, but even more notable is the macro backdrop from which this move is happening. The bond market has been in shambles, geopolitical threats abound, and the US has increased their national debt by over $2T since the summer. Bitcoin is proving its status as a “flight to quality” and has rallied 35% since the end of Q3.
All of this bodes well for a continued uptrend in crypto as we believe the macro environment of monetary debasement continues on a grand scale in the coming years. We’ve been pounding the pavement for higher BTC prices all year. Here’s a quote from our Q1 Market Update post, when BTC price was around $20K:
We expect to see volatility in 2023. In previous four year cycles, Year 3 is typically an accumulation period… Historically, Year 3 has also seen retests of Year 2 highs which in this case is around ~$46K BTC.
Here’s a look at the Year 3 candle through the end of Q3…
We’re now sitting at around $37k, within striking distance of $46K, and if we see an ETF approval within the coming months we’re expecting a possibility of breaking through $40k.
BTC Long-Term Holders
Bitcoin price is moving up, but bitcoins themselves aren’t moving from investors wallets. This impacts supply and sell pressure on the asset. As shown in the chart below, long-term holders of Bitcoin (>155 days) have reached an all-time high showing that the vast majority of Bitcoin holders are waiting for much higher prices. Bitcoin is already the scarcest asset known to man; add to that the upcoming halving and the fact that only ~25% of the Bitcoin network is actually available to trade, and you have more dollars chasing fewer and fewer bitcoins. You do the math.
Liquidity is on its way back to crypto.
This image of money flows in crypto has become quite popular; we generally subscribe to this thesis. This happens over a full multi-year cycle, and in mini-segments within the broader cycle.
The result of this is that during crypto winters, when very little new money is coming in, you largely have this washing machine of the same money and the same users just trading back and forth between Bitcoin, Ethereum and Altcoins.
You can see the “washing machine effect” by looking at the Total Crypto Market Cap over the last year. For the most part no new money has come in, and we’ve just been sloshing around the $1T mark. However, notice how we broke out within the last few weeks signaling that new money is finally coming back to crypto.
Zooming out and looking at previous breakouts compared to where we are now, we can see a possible breakout and extension from $1T to over $10T Market Cap over this next cycle.
We also see signs of this new liquidity, largely coming from institutions, with CME surpassing Binance in BTC Futures volumes.
Further evidence can be seen by looking at the market cap of stablecoins. It’s been down only this whole year, and we’re finally starting to see an uptick suggesting new liquidity is finally flowing back into crypto.
Signs of life in Altcoins.
In this Q4 move across the crypto markets, not only have we seen the Bitcoin move up, but many of the other coins move as well. Here’s some highlights of a few of the moves we’ve watched quarter to date…
ETH up over 20% QTD.
Many have been frustrated by the lagging performance of Ethereum this year. Many have been too ready to dance on ETH’s grave or think it’s too early to have ETH exposure with Bitcoin’s dominance. Many BTC Maxis were doing victory laps celebrating that there would only be a Bitcoin spot ETF. Don’t look now, but Blackrock just filed for a spot Ethereum ETF and sent ETH rocketing to $2100.
ETH just broke out of its 18 month ascending triangle (which has over 4K as a target in the medium term).
SOL up over 150% QTD.
This has been one of the strongest performing coins of 2023 with YTD returns of 430%. VanEck US did an analysis on Solana, and with their modeling, they could see price hitting as high as $3k by 2030. Hyperbolic? Probably, but the fact that institutions are providing price targets for SOL is noteworthy in and of itself.
MATIC up over 65% QTD.
Polygon has seen strength in both price and adoption as an Ethereum L2. Its suite of Ethereum-based scaling solutions allows developers to move computation and data storage off Ethereum and into low-fee, high-speed development environments, which many companies are finding attractive as they look to implement blockchain technology. DraftKings was one of the recent companies to use Polygon for their offerings, here’s a list of of other top tier brands building on Polygon:
MPL up over 100% QTD.
Maple is a smaller market cap coin in the real-world asset space. In the summer they did a VC token funding round to continue to expand. Since then they’ve launched a cash management tool for on-chain access to US Treasuries, and continue to see the adoption of institutional capital participating in DeFi. Total Volume Locked in their pools has 10x’d off 2023 lows, and 2x’d since the summer.
Overall, it’s great to see further signs of life in the crypto space. This is where things get exciting! Obviously this is still crypto, so buckle up for volatility on the way, but as always, we believe this crypto journey is just getting started.
~ 8DC Team
