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Monthly Market Review - October 2023

This update will look at the new market regime that Bitcoin has now entered and how we are positioning for it. We will also provide a short update on FTX.

Bitcoin

Ethereum

Price (1 October 2023)

$26’967

$1’671

Price (31 October 2023)

$34’667

$1’816

% Return

28.55%

8.6%

After months of consolidation and decreasing liquidity, the digital asset market finally sprung to life after a flat first half of October. From the 15th to the 24th of October, there was a small jump, then a slow, steady rise of Bitcoin from $27’000 to $31’000. During the night of the 23rd of October, there was an explosive move of 8% in 25 minutes, with the first 5% coming in two minutes. After this, the price settled around $34’5000, which has been consolidating since. Interestingly, this move was primarily focused on Bitcoin, with the rest of the market returning significantly less over the month.

 

The exact cause of the move is hard to pinpoint, but it appears that a combination of spot ETF news (and potentially BTC being a safe-haven asset during global uncertainty) caused the initial gradual price rise and reduction in liquidity, while significant liquidations caused the explosive move in the low liquidity market.

 

Regardless of the reasons, the rise has had two effects on the market. Firstly, Bitcoin has grown its dominance in the market at the expense of Ethereum and other assets. This is expected as, typically, in a bear / very early bull market, new money flows to the lowest-risk asset, Bitcoin, and then it heads further along the risk curve. Monitoring which asset new flows head to gives us an indication of where we are in the market. During early November, we have seen other assets, primarily Solana and Ripple, catch up with Bitcoin.

 

Secondly, the BTC basis rate has flipped positive compared to the treasury yield for the first time since May 2022.


 

As a brief reminder, the futures' basis is calculated by looking at the difference between the current spot rate and a future price (in this case, the three-month future). This now exceeds the 3-month US Treasury Yield for the first time in 18 months. This is a good indicator of how  bullish the market is on Bitcoin, as when the basis is positive, the market is pricing in a rise of Bitcoin compared to USD over the next quarter. A large premium means the market believes a large move is coming in three months. As one can see, the market still has a way to go until it is in a full, frothy bull market, but the signs of recovery are finally on the way.

 

Regarding FTX and its collapse, which occurred almost one year to the day, Sam Bankman-Fried was found guilty on all accounts of fraud and other serious charges. The jury decided in less than a day of deliberating, indicating how easy it was to find him guilty. His sentencing is expected after another court case in March where, regardless of the outcome, he will be going to jail for a long time, possibly life. The case in March relates to the political donations he gave in the US, so we expect much media attention around it. Beyond justice being served, there have been very positive movements in the secondary FTX claims market. The claims are now trading at $0.50 on the dollar, up from $0.06 when the story first broke a year ago. This price should continue to rise over the next year as more assets are found and claims start to be paid out.


Performance

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