Friday, June 21, 2024

the BTC lull, the SEC mess, an unusual CBDC trial, keep an eye on democratic values

“Time flies like an arrow. Fruit flies like a banana.” – Groucho Marx  ||

Happy first day of summer, everyone!! I hope you have a glorious weekend planned.

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IN THIS NEWSLETTER:

• The BTC lull, in charts

• The SEC mess

• An unusual CBDC trial

• Keep an eye on democratic values

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WHAT I’M WATCHING:

The BTC lull, in charts

The BTC market is, let’s face it, not that exciting these days. I’m not just talking about the lackluster price movement, with selling pressure (most likely from miners and perhaps official organizations) offsetting any ETF accumulation and macro tailwinds.

It’s also apparent in the asset’s volatility. According to data from Kaiko, BTC volatility is still languishing – it has been trending up from all-time lows late last year, but it is still well below pre-2023 levels.

(chart via Kaiko Research)

This matters for liquidity, since for many market makers and high-frequency traders, BTC’s volatility is a feature not a bug. They need higher volatility with which to make enough money to cover hedging and other costs. We know that large market makers have been coming back into the crypto ecosystem since the spot ETF launch earlier this year – but it doesn’t look like they have been doing so with enthusiasm just yet.

What will change this? Signs of more institutional demand. We will most likely get that as investment platforms complete their ETF onboarding, and as the mood picks up. But that’s not happening just yet. Another chart from Kaiko shows that net cumulative volume delta (CVD, a metric that tracks the difference between buy and sell volumes, often used as a demand indicator – negative suggests more activity in selling than buying) is weak on most major exchanges.

(chart via Kaiko Research)

And a recent report from Ecoinometrics shows that there’s not a lot of onchain activity, either – while most trading happens off-chain, onchain movements are a meaningful signal of actual investor interest, and right now they are telling us there isn’t much.

In the top left corner, you have the percentage of BTC active onchain over the past 30 days (the colour of the line represents the price). It’s now as low as before the spot ETF launches.

(chart via Ecoinometrics)

Earlier this week, I suggested that the impact of the basis trade on ETF inflows was not as large as some were suggesting. Nevertheless, it’s not insignificant, and explains why we were seeing inflows with little on-chain accumulation.

Here’s another way of looking at the lack of ETF demand stimulus: a chart that plots the change in onchain activity vs ETF inflows, with blue representing a drop in active BTC. Note that the chart does not suggest that there’s no onchain activity coming from the ETFS – it just shows that the onchain impact is much less than it was in the initial weeks after launch.

(chart via Ecoinometrics)

This is not surprising, but it does reinforce that we are now in a “lull” phase. Activity will probably wake up at some stage, and we could see a gentle pickup as more platforms offer the ETF. And, of course, we can expect a sharp jump should the price start to move.

On the plus side, these charts also show us that “retail” is not yet pouring in to the market. We are still far from the top.

The SEC mess

Bloomberg Intelligence has a piece out on the Terminal (which I don’t have access to, I’m going by screenshots posted on X) about the barrage of high-profile lawsuits against the SEC, and how the regulatory agency hasn’t been doing so well. Bloomberg’s head of market structure research Larry Tabb puts this down to: