By Matteo Greco, Research Analyst at the Listed Digital Assets and Fintech Investment Sector Fineqia International
Bitcoin (BTC) closed last week around $25,850, down 0.5% from last week’s closing price of $26,000. The market continues to follow the trend of low volumes and volatility that we observed in this third quarter. Over the past 11 weeks, the BTC price has fluctuated less than 0.75% in 8 weeks. The low volatility is confirmed when we look at BTC’s 30-day annualized volatility, which is still at one of the lowest levels on record, despite the strong swings observed during the second week of August that accompanied with a price drop of almost 11% for BTC.
Weekly trading volumes on centralized exchanges are at their lowest levels since late 2020, with a cumulative weekly volume of $9 billion. The volume ratio between spot and futures has increased slightly in recent weeks and reached the same level as in April this year. Low futures volume tends to correlate with lower volatility. The trend of low traffic is reflected on decentralized exchanges (DEXs), as the major DEXs reached a total volume of $22 billion in August, the lowest monthly volume since December 2020.
When analyzing the Bitcoin supply, the long-term holders ratio exceeded 75% of the total supply. Long-term holder refers to the portion of the Bitcoin supply that did not move for more than 155 days. Currently, 75.66% of the total supply, equivalent to 14.74 million BTC, is in the hands of long-term holders. Only 2.50 million BTC are held by short-term holders, the lowest figure since 2011.
Trading activity and market participation are typically lower in the third quarter because this quarter includes the months of July and August, which are historically the months with very low volumes. Moreover, the interest rate hikes implemented by central banks over the past eighteen months have contributed significantly to the drying up of liquidity in the financial markets and led to a move to de-risk investors. This affected the entire financial sector, with a stronger impact on the digital asset market, which has historically been the most volatile and risky market.
August inflation data for the US will be released on September 13. Expectations are for a slight increase in annual inflation, from 3.2% in July to 3.4%. However, the market does not expect any further increase in interest rates. It estimates a 93% probability that interest rates will not change at the next meeting of the Federal Open Market Committee (FOMC) and does not predict any further rate hike before the end of 2023.
The end of interest rate hikes, especially when combined with the approval of a Bitcoin Spot ETF, could be a major driver to bring new capital to the market and improve liquidity. Investors are showing increasing confidence in future approval of Spot ETFs. The Grayscale Bitcoin Trust (GBTC) discount is currently around 17%, the lowest level since early 2022. The Grayscale Ethereum Trust (ETHE) discount is also declining sharply and now stands at 26.50%, the smallest discount in the past 12 years. months. The data on ETHE seems particularly relevant, as Grayscale has not applied to convert any trust other than Bitcoin into an ETF. The sharp drop in the ETHE discount shows how investors not only believe that approval for a BTC Spot ETF is more likely than before, but also that once GBTC is converted into an ETF, other trusts will follow.