Opening bell │ #28 │ 17th September

Report highlights:

1. Bitcoin dominance is approaching 60%. More significantly, the composition of the remaining cryptocurrency sector has barely changed in terms of percentage share over the past five years.
2. Ethereum ETFs have faced challenges to date; however, they might be poised for a turnaround as increased education on the supply dynamics of staking highlights the current market imbalance.
3. Bitcoin, despite experiencing sluggish price movement, continues to demonstrate promising demand from investors.

Market dynamics?

Bitcoin market dominance continues rise as ecosystem distribution remains stagnant.

Bitcoin’s market dominance has seen a significant rise recently, now standing at nearly 57%, while Ethereum holds 14% of the total crypto market. This current distribution reflects a dramatic shift from the end of 2017, when Ethereum’s market share was around 30%, with an equal share going to the wider crypto ecosystem excluding Bitcoin. Despite numerous developments over the years, Ethereum and the wider ecosystem have been unable to recover to those 2017 dominance levels. At present, the market dominance distribution excluding Bitcoin—focusing on Ethereum, stablecoins, and other cryptocurrencies—remains nearly identical to what it was at the beginning of the year. Even a longer view shows little change. Stablecoins have slightly increased their market share, now controlling around 20% of the market when considered alongside Ethereum and the rest of the crypto sector. This reflects a key shift in how market participants view and allocate capital within the crypto space. This data highlights the challenging sentiment around the broader crypto ecosystem, especially amid the backdrop of token unlocks, which place additional pressure on the market. The lack of retail participation has compounded these challenges, making it difficult for the wider crypto market to regain the traction it had.

Bitcoin market dominance (currently at 57%) vs ecosystem

Pretty even: market dominance between Ethereum, stablecoins and crypto

Market dynamics?

Ethereum supply delta blind spot as bearish fears engulf cryptocurrency.

For nearly three years now, Ethereum's price has been declining when measured against Bitcoin. Currently, the BTC/ETH pair is trading at a low not seen since 2021. However, it's premature to declare it game over for Ethereum, despite this prolonged downtrend.

On the institutional investor front, the launch of the Ethereum ETF has so far garnered little interest. Perhaps launching in the middle of summer was an ill omen to begin with. Yet, there are numerous other data points to consider.

For starters, despite Ethereum becoming inflationary since mid-April, the demand for ETH has shifted towards staking contracts. Since mid-April, 200,000 ETH has been rewarded from staking, but a staggering 7.8mnETH has moved into staking contracts. This supply imbalance should slightly benefit ETF investors, who receive no staking rewards.

If the cryptocurrency sector as a whole is to expand beyond its current size, investors will likely seek to diversify beyond merely holding Bitcoin. For now, Ethereum remains the most viable and readily available alternative.

On another note, open interest in Ethereum is still near its 2024 all-time high, showing an upward trend. This indicates sustained or even growing interest in Ethereum futures.

2024 Ethereum supply change from staking vs supply moved into staking (mn ETH)

Ethereum pereptual derivative open interest (mn ETH)

ETF

Can Ethereum ETF flows turn a corner to a record positive 2-week positive inflow?

Yes, the title might sound depressing, but Ethereum ETFs have yet to close two consecutive weeks with positive inflows. Since these ETFs began trading towards the end of July, the price of Ether has plummeted by a significant 30%. In comparison, Bitcoin has experienced only a 6% decline over the same period. The initial assumptions before the ETF launch suggested a potential allocation split of between 15-25% between BTC and ETH (OB#22 ). However, the current U.S. ETF split in total AuM is just 10% for ETH. Will it gain traction as we head into the final quarter towards initial projections?

US Ethereum ETF weekly inflows (mn USD)

Bitcoin ETF AUM & flows?

Price action lethargy amongst Bitcoin old timers, but steady the ship goes.

For many cryptocurrency investors who have been in the space since 2017, the current market dynamics are a bit of a downer. Where is the volatility? The new all-time highs? The wild swings that make for the best Reddit confessions of massive losses and divorces? If Bitcoin futures couldn’t tame Bitcoin, the launch of ETFs certainly has, for the most part.

In March, when Bitcoin reached its all-time high of just under $74k, the price opened that month at $61k. Fast forward six months, and Bitcoin is trading at $59k, which, for the seasoned crypto investors, might feel like the calmest bear market crypto has ever seen—if we’re to consider the prevailing downtrend this year as a bear market.

The reality, however, is that Bitcoin ETF investors have accumulated around 315,000 new coins, almost twice the amount of Bitcoin’s inflation this year, largely supported by the halving of the miner reward in April. Despite the downtrend in price, ETF investors have, absorbed all the new supply and more. In fact, ETF buyers have bought 1.93 BTC for every 1 mined.

ETF new Bitcoin accumulation (SANS GBTC starting point of 617k BTC)

ETF BTC purchase to BTC inflation ratio

Macro

Global liquidity on the rise as markets await dovish Fed.

At the end of June, the Global Liquidity Index (GLI) hit a four-year low but has since been in recovery, marking the largest consecutive and uninterrupted day-to-day increase since the COVID pandemic stimulus checks began arriving. This week, global markets are awaiting the Feds decision on whether to finally implement a rate cut, with expectations set on at least a 25 basis points reduction. The concern, however, is that if the Fed cuts rates by 50 basis points, this might signal not just an injection of liquidity but also fears among committee members of an impending severe economic downturn.

Global liqudity index

Economic calendar

Key events this week: US Federal Reserve interest rate decision, EU CPI.

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