Q3 2023.

KEY TAKEAWAYS

• The total market capitalization of digital assets experienced an 8.66% decline in Q3. In contrast, the total market capitalization of altcoins (all cryptocurrencies excluding Bitcoin, Ethereum, and stablecoins) remained relatively stable, with a modest gain of 0.5% in the same period.
• The trajectory of the digital assets market in Q4 2023 and 2024 hinges on three pivotal developments: the potential approval of a Bitcoin spot ETF by the SEC (with the final deadline set for March 2024), the upcoming Bitcoin Halving expected in April 2024, and the looming threats of financial stress due to bank failures and inflation.
• Inflation rates continued to decrease throughout Q3, prompting the Federal Reserve (FED) to announce its intent to maintain the existing interest rate levels in September. However, the FED also hinted at a potential 12th rate hike and the necessity to sustain higher interest rates for an extended period.
• This announcement precipitated a notable decline in both Nasdaq (-5.01%) and S&P 500 (-4.84%) in September. In contrast, the digital assets market displayed a positive performance over the same period in 2024, underscoring the growing trend of decoupling between digital assets and traditional financial markets.
• Institutional adoption of blockchain technology is rapidly gaining momentum, with the financial services sector at the forefront. Prominent institutions such as ABN AMRO, Citibank, HSBC, the London Stock Exchange Group, and JPMorgan are leading the way by launching new blockchain-based products.

FED INTEREST RATE POLICY Q3 2023

In its meeting on September 20 the Fed’s Federal Open Market Committee (FOMC) decided maintain its benchmark rate within a range of 5.25% to 5.5%. In his preceding press conference, FED chairman Jerome Powell indicated that the FED does not rule out the possibility of a 12th rate hike and reiterated its stance to keep interest rates “higher for longer”. This announcement caused a significant decrease of both Nasdaq (-5,01%) and S&P 500 (-4,84%) over September. According to the CME FedWatch Tool, the market is assigning a 31.5% chance that the FED will increase interest rates (rate hike) in its next meeting on November 1.

DIGITAL ASSETS: Q3 PERFORMANCE

Bitcoin (-11,54%) and Ethereum (-13,61%) showed a negative Q3 performance. Also, the total market cap of digital assets suffered a loss over Q3, with 8,66% decline. However, the total market cap of altcoins (all coins excluding Bitcoin, Ethereum and stablecoins) remained flat with a minor gain of 0,5% in Q3.

Correlation with traditional markets

Notably, the digital assets market displayed a positive performance in September 2024, in stark contrast to the significant corrections witnessed in Nasdaq and the S&P 500. This performance underscores the increasing disconnect between the digital assets market and traditional stock markets. Over the last two years, the 90-day average correlation with stock markets has plummeted to its lowest levels, emphasizing the growing autonomy of digital assets from traditional financial indicators.

BITCOIN AND ETHEREUM: TECHNICAL ANALYSIS

Bitcoin

Bitcoin exhibited a strong resurgence, rebounding from the $25,000 level in June and concluding Q2 with a price of $30,477. However, the first two weeks of July saw Bitcoin ascend to $31.8K, but for the remainder of Q3, it predominantly experienced a downward trajectory, ultimately closing Q3 at a price of $26,950, representing an 11.54% decline for the quarter.

By mid-August, Bitcoin dipped below the weekly EMA ribbon at $29.3K, triggering a substantial price decline. Notably, on August 17, due to unfounded rumors, Bitcoin rapidly dropped below the weekly 100 Moving Average and the weekly 200 Moving Average, settling at the $27.3K mark. In the ensuing days and weeks, Bitcoin’s value sank to the previous lows observed in the second quarter, approximately $25,000.

An intriguing observation is that, on the daily timeframe, Bitcoin’s SPOT prices slipped beneath the 200 Moving Average at $27.3K, while on the CME futures market, Bitcoin remained above the 200 Moving Average, which sits at around $25K.

Towards the conclusion of September and Q3, Bitcoin managed to stage a recovery, reaching $26,950. BTC has since risen above the 100 Exponential Moving Average (EMA) ribbon, approximately at $27.8K, and the 200 EMA, at around $27K. This indicates the potential for positive future price movements, provided these levels hold.

Furthermore, the Relative Strength Indicator (RSI) and Stoch RSI on a weekly timeframe point to bullish momentum. It’s noteworthy that a CME futures gap at a BTC price level of $35K remains open and may still be a target once BTC surpasses the $31,300 threshold with significant trading volume.

On a monthly timeframe, Bitcoin’s upward trend persists. Over the last 12 months, a “cup-and-handle” pattern has emerged, with a neckline situated around $31,000. The cup-and-handle pattern is a well-known bullish pattern with a high likelihood of breaking to the upside.

Bitcoin Dominance

Bitcoin dominance, which compares BTC’s market cap to the total market cap of all other digital assets, has maintained a consistent upward trajectory over recent months, surpassing a significant milestone of 48% in early June. The Bitcoin dominance may further increase if it breaches the weekly 200 EMA, currently around 51%, which could establish a target of 57% or higher.

Ethereum

Ethereum essentially mirrored the price movements of Bitcoin throughout the third quarter. A high correlation coefficient of 0.98 indicates an almost one-to-one relationship between ETH and BTC. On the weekly timeframe, ETH initially dipped below the 100 and 200 Moving Averages. However, during the last week of the quarter, ETH managed to reclaim the weekly 200 Moving Average, situated at $1,675.

Volatility

Both Bitcoin and Ethereum are presently experiencing notably low levels of volatility, and market trading volume has also decreased. These conditions suggest that smaller investors are currently influencing price movements, while larger investors are maintaining their existing positions. An extended period of low volatility and reduced trading volume often signals an impending significant market shift.

POTENTIAL CATALYSTS OF THE DIGITAL ASSETS MARKETS

There are three major catalysts to watch that will have a significant influence on a potential positive upside in the financial performance of the digital assets market in Q4 2023 and 2024:

1. the approval of a Bitcoin ETF.
2. the Bitcoin halving (April 2024).

For a detailed analysis of catalysts 1 and 2 and its potential financial performance impact click here.

CATALYST 1: BITCOIN ETF APPROVAL

In our previous quarterly update, we summarized all large institutional investors that have filed for an approval of a spot Bitcoin exchange-traded fund (ETF) at the US Securities and Exchange Commission (SEC). A spot Bitcoin ETF is an exchange-traded fund that invests directly in Bitcoin. This allows investors to trade shares of the fund on stock exchanges, making it easier to invest in Bitcoin.

Unlike futures and other derivatives, a spot Bitcoin ETF needs to be collateralized with actual Bitcoins. This means that if a spot Bitcoin ETF were to hit the market, it would give thousands of institutions a compliant way to hold Bitcoin in their portfolios. Analysts at Bloomberg have increased the likelihood of a spot Bitcoin ETF launch to 75% before the end of Q4, and 95% before the end of 2024. A full overview of all Bitcoin spot ETF institutional issuers and deadlines:

Expectation

The SEC has a total of 240 days from when it first begins its review of the applications to make a final decision to approve or deny the Bitcoin ETF requests. SEC staff have traditionally used every possible comment and review period to delay making final decisions until those 240 days have elapsed and did not make a decision on the 1^st deadline dates of all requests. Also, the 2^nd deadline for the 21Shares & ARK request did not result in a decision. It is therefore our expectation that the SEC will not decide on any request before the final deadline, which are all in Q1 2024 (1 in January 2024, 7 in March 2024 and 1 in April 2024).

CATALYST 2: BITCOIN HALVING

The next Bitcoin halving is expected around April 2024. This event is more than just a routine occurrence; it’s a pivotal moment in the world of digital assets. Learn more about what the Bitcoin halving is, why it matters, and what to expect click here.

• ABN AMRO registers first digital bond on public blockchain
• Citi expands digital asset services with bond custody, tokenized deposits
• Deutsche Bank to hold crypto for institutional clients
• HSBC collaborates with crypto custody provider Fireblocks to explore cryptocurrency custody solutions
• JPMorgan is exploring blockchain-based deposit token for payments and settlements
• London Stock Exchange Group (LSEG) explores blockchain for cross-asset digital ‘ecosystem’

• Ethereum ahead of Cardano, Solana in ESG rankings, Bitcoin fell behind due to Energy Consumption: Report
• Polygon proposed upgrading MATIC token to multipurpose token “POL” as part of “Polygon 2.0”
• Microsoft partners with Axelar on blockchain interoperability solutions
• Chainlink launches Cross-Chain Interoperability Protocol (CCIP), connecting Blockchains to Bank Chains

In terms of performance, Q3 exhibited negative trends, with Bitcoin and Ethereum emerging as front-runners while altcoins maintained a relatively stagnant performance. Notably, while Nasdaq and S&P experienced significant declines in September, the digital assets market demonstrated a positive performance in September, showcasing a growing detachment from traditional financial markets.

Looking ahead to the digital assets market in Q4 2023 and 2024, several key developments are expected to exert significant influence:

1. The eagerly anticipated approval of a Bitcoin ETF, with final deadlines for all institutional requests set for Q1 2024.
2. The upcoming Bitcoin halving event scheduled for April 2024.
3. Heightened stress on the financial system resulting from potential bank failures and inflation concerns.

Simultaneously, the adoption of blockchain technology is rapidly gaining momentum, with the financial services industry at the forefront of this transformative wave.