Opening bell │ #25 │ 12th August

Report highlights.

Markets are under pressure from global events causing heightened volatility. Bitcoin might not have seen a significant challenge with the German government's sale of 40k coins, however this has offset any gains since Bitcoin hit it’s all-time-high in March. ETF holdings, accounting for new supply, means no additional increase. Ethereum's shift to an inflationary state due to Layer-2 adoption is increasing its supply. However, a large portion of ETH is being locked in smart contracts, which might reduce circulating supply and create upward price pressure by the end of the year.

Correlations

Global markets look for direction as correlations move sharply in tandem.

To put things simply, markets are grappling with the US election, UK riots, Middle East war escalation, Japanese central bank pivots, a cocktail of US economic data, rising US corporate defaults, and trillions in consumer credit card risk atop high interest rates—all while markets continue to trade near all-time highs. In a rare occurrence, the correlation between Bitcoin and every major asset, except gold, has moved in tandem. Market stress is rearing its ugly head this summer as a risk-off environment takes shape amid possible global macro shocks.

BTC 30-day rolling correlation

Tokenized assets 

Blockchains add over $1bn in tokenized government products this year.

It’s full steam ahead on the tokenized securities front, with government products increasing by nearly a billion dollars so far this year. BlackRock’s BUIDL accounts for just over half of this increase, but other products have also been gaining traction. Currently, BUIDL represents a massive 28% of the total Assets-under-Management, while Franklin Templeton’s BENJI stands at 22%. Two products by Ondo Finance, USDY and USDG, collectively hold a significant 25% share, placing them just above BENJI.

Bitcoin ETF AUM & flows 

Markets in balance but July dip enthusiasm nowhere to be found.

Bitcoin faced a significant test this summer when the German government offloaded 40,000 Bitcoins. Market participants initially bought the dip, but the upheaval in markets last week dampened the appetite for risk assets, leading to very little buying activity for Bitcoin. However, if one accounts for the surprise supply from Berlin, markets are effectively at net zero in terms of additions. Since Bitcoin's peak in March, ETFs have added just 40,000 coins, and prices are currently trading in a similar range as during the German sell-off.

Daily % change in number of Bitcoins in ETF holdings 

Ethereum ETF

Ethereum supply moving into smart contracts outpacing inflation by 7x.

Ethereum is grappling with a double-edged sword scenario: its increased efficiency due to Layer-2 adoption has turned it back into an inflationary asset since mid-April. Since then, the daily average supply increase is 0.003%, which, at this rate, means supply could surpass levels seen since the Merge in 2022 by the start of next year. If global markets shift back to a risk-on stance after a choppy summer, the total inflation might not be insurmountable, especially given the recent launch of ETFs. At current prices, this inflation would cost investors around $1.5-2 billion, assuming all other factors remain constant. However, the dynamics are not that straightforward. Ethereum supply is quickly moving into various smart contracts, reducing the available supply for sale at a much faster pace. Since the end of 2022, Ether supply in smart contracts has grown by an average of 0.02% daily. If this trend continues, over 42% of the supply will be locked into smart contracts by the end of the year from its current 39.7%. This implies that 3.8mn ETH could be removed from the market, far surpassing the 500k ETH increase due to inflation.

Ethereum supply since merge

% of Ether circulating supply locked in smart contract

Technical analysis

Bitcoin drawdown risk to 200-week moving average back at February levels.

Markets

Week-on-week BTC Open Interest see’s second largest drop since FTX collapse.

Perpetual. % change week-on-week in Bitcoin open interest (in BTC terms)

Derivative markets

Hourly funding rates recover but remain half July rate average.

Economic calendar

Key events this week: US CPI, GDP and Michigan Consumer Expectations.

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