Weekly Update #9

Bitcoin Dominance Approaches 2023 Highs as Judge Blocks SEC's Request to Appeal in the Ripple Case

Major Crypto Developments for the week:

• Judge blocks SEC’s request to appeal in Ripple case

• Developer activity in crypto drops to lowest level since end of 2020

• Chart from NYDIG reveals Bitcoin is the best performing asset class of 2023

• Deadline for SEC to appeal Grayscale case decision is this Friday 10/13

• SBF trial underway in New York City

• AI start-up Anthropic to potentially raise, raising hope for FTX creditors for a fuller recovery

• 50M $ARB to be distributed as part of an incentive program to drive capital and activity to the Arbitrum ecosystem. Numerous projects have applied so far, with the governance snapshot ending on October 13^th

• Money market protocol Radiant Capital ($RDNT) has pushed back its Ethereum mainnet launch to October 15th

• Frax Finance ($FXS) to launch Frax v3, enabling users to access US t-bills on-chain

Bitcoin struggling at its 200 week/day moving averages as it remains the best performing asset class of 2023 

Bitcoin has once again struggled to reclaim both its 200-week and 200-day moving averages, amidst headwinds from rising US treasury yields and dollar, as well as recent geopolitical uncertainty.

Source: TradingView

However, despite this, the chart below from New York based Bitcoin investment firm NYDIG highlights that Bitcoin is the best performing asset class of 2023, returning 63.3% year to date. This performance has outpaced US large cap growth stocks at 28% on the year, US large cap stocks at 13%, bonds, commodities broadly, and REITs.

Source: NYDIG

Developer activity in crypto drops to lowest level since end of 2020

Another interesting chart that was released from Electric Capital and A16Z is shown below, displaying the number of active developers in crypto. According to their data sets, the number of active developers building publicly in crypto has dropped to 19,630, its lowest level since late 2020. This reflects trends we’ve highlighted in weekly updates for the last few months of “tourists” exiting the ecosystem throughout the bear market and only hard-core believers/builders/investors remaining in the industry.

Source: Electric Capital, A16Z

Judge blocks SEC’s request to appeal in Ripple case, Deadline for SEC to appeal Grayscale case decision is this Friday 10/13

One major development on the legal/regulatory front came the U.S. District Court for the Southern District of New York as Judge Torres denied the SEC’s motion for an interlocutory appeal to the ruling in the Ripple versus SEC case. This comes after the court’s ruling that Ripple’s sales of XRP did not violate securities laws, while sales of XRP to institutional investors were securities. Judge Torres also stated that the trial in the XRP lawsuit is now set to begin on April 23, 2024, marking continued developments of the 3+ year long litigation process. Meanwhile, another important date for the SEC comes this Friday the 13^th, as the 45 day window for the SEC to appeal the decision their loss against Grayscale in the firms lawsuit regarding the SEC’s denial of their ability to convert their Bitcoin closed trust ($GBTC) into a spot ETF. There is an array of potential outcomes by Friday as the SEC has the ability to decide to accept the decision and approve the conversion of GBTC into an ETF, deny under different reasoning, or provide next steps. The bottom line is that the market will have more clarity on how the resolution of the case will progress forward by the 13^th.

SBF trial underway in New York City, AI start-up Anthropic to potentially raise, raising hope for FTX creditors for a fuller recovery

While the SEC is fighting battles against Ripple and Grayscale, Sam Bankman Fried’s trial against the United States Federal Government has begun in New York City. There have been several eye-opening soundbites from the trial thus far, including statements from FTX co-CEO Gary Wang, who upon being asked by prosecutors “Did you commit financial crimes while working at FTX?”, stated “Yes”. On Tuesday Caroline Ellison, the CEO of Sam’s majority owned proprietary trading firm Alameda Research, which reportedly was funneled customer assets from FTX, will take the stand to testify against Bankman-Fried. Meanwhile, an interesting development for FTX creditors appears to be taking place as AI start-up Anthropic, who FTX invested $500 million in back in April of 2022, is rumored to be raising up to $4 billion in capital from Amazon. While it is unclear exactly what valuation FTX invested in the AI start-up at, this could potentially be a huge win for FTX creditors should the Anthropic capital raise go through. The DOJ views the outcome of FTX’s Anthropic investment is irrelevant to the trial, stating “The current value of the Anthropic shares could only go to the question of whether customers will ultimately be made whole, which is immaterial to whether the defendant committed the alleged fraud,”.

Bitcoin Relative Performance

One important metric to continue to monitor is Bitcoin’s market cap dominance. This metric looks at Bitcoin’s market capitalization as a percentage of the total crypto market capitalization. Often times market participants view Bitcoin’s dominance as a risk gauge for the crypto market. As with other traditional markets such as stocks, early stages of market cycles begin with capital concentrated into a small set of high quality assets, that as the cycle goes on, disperses into longer tail risker assets. This dispersion continues until there are no longer sufficient inflows to hold up the market across the board and the market implodes in on itself, causing a flood back to value/safety assets. The crypto market is no different, with major trends beginning with capital concentrated in Bitcoin, following by dispersion into Ethereum, and then eventually other altcoins. The cycle ends with capital flooding into high risk assets such as memecoins in 2021. Highlighted by Bitcoin dominance rising in the chart below, currently it appears that the crypto market is in a healthy concentration of capital into the core leading asset, which is of course Bitcoin.

Source: TradingView.

In addition to watching Bitcoin dominance, another gauge for risk taking behavior in the crypto markets is by looking at the ETH/BTC ratio, which compares Bitcoin’s performance relative to Ethereum as the #2 crypto asset by market capitalization. As shown in the chart below, ETH/BTC has been trending downward since the merge in September of 2022. Both of these metrics will be important to watch for a shift from a Bitcoin dominated market regime into higher risk taking. For now, with the exception of a select pocket of idiosyncratic outperformers, the altcoin market looks questionable.

Source: Glassnode

Note: The content in this weekly report has also been utilized in our weekly collaborative series with stock/crypto trading platform eToro.

Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.