Market Commentary
Market Commentary: Bitcoin's Dominance
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October 5, 2021

Bitcoin gained 25.6% in the third quarter of 2021, despite seasonal weakness in September and a monthly return of -7.6%. The price of bitcoin increased in 5 of the 9 months thus far in 2021 and ended the quarter with a year-to-date return of 49.8%.

In terms of price action, bitcoin gained 11.0% in the week ending Sunday, October 3, rallying from a low of ~$40,800 to a closing price of $48,464. Bitcoin has regained its 200D moving average of ~$45,000.

At time of writing, bitcoin has had a strong start to October, rallying above $50k on Tuesday, October 5.

This week, we discuss bitcoin’s dominance, stablecoin issuers as banks, spending at “no-cost”, and entities accumulating bitcoin.

Bitcoin’s Dominance

Bitcoin’s dominance explains the ratio of bitcoin’s market capitalization to that of the total crypto market. While bitcoin is the most valuable digital asset today, the addition of Ethereum, layer 1s, DeFi protocols, NFTs, and gaming has resulted in declining market share over the last six years.

For quick history, bitcoin’s dominance found support following the 2017 rally and altcoin season at around 35-40% in 2018, subsequently moving to a high of ~72% in 2019 and 2020. Prior to the bull rally in 2021, bitcoin’s dominance was 72% in January, and price hit an all-time-high of April 15 at $63,410. Altcoins have outperformed year-to-date, but bitcoin’s dominance has found a bottom at 40% yet again:

While it makes sense that different innovations within digital assets take incremental market share from bitcoin over time, bitcoin’s dominance is at a crucial inflection level. Will bitcoin push back towards a 70% market share, and if so, in what manner?  Only time will tell.

Stablecoin Issuers as Banks

Friday morning, news that stablecoin issuers will likely be regulated as banks crossed the tape, leading to an immediately bullish move in bitcoin’s price. With the many concerns around the reserves and backing of major stablecoins such as Tether, any regulation that supports the solvency and longevity of stablecoins is certainly a positive for bitcoin and digital asset markets.

Recommendations from the Biden administration will be included in the upcoming report by the President’s Working Group on Financial Markets, which should be published in late October.

“No cost”

Last week, President Joe Biden, Speaker Nancy Pelosi, and Press Secretary Jen Psaki claimed the $3.5 Trillion spending package comes at “no cost.” To most of us, $3.5 trillion is much larger than “zero”. Trillions are now everyday congressional vernacular, and the trajectory of spending has accelerated to a point where trillions are apparently, no cost. As always, the debt ceiling will be raised, more spending will occur in the coming years, and monetary inflation will continue to grow at a rapid pace. Fiscal austerity is an idea of the past, and MMT a growing philosophy among younger and now even older generations. This generational trend will likely continue over the next decade and beyond, and bitcoin’s fixed supply structure will become ever more attractive.

On-Chain: Entities With >1 BTC Continue to Accumulate

Assessing on-chain data, we see that supply held by entities with 1 to 1000 BTC hit an all-time-high on September 30, holding 8,600,000+ BTC in cold storage. This number increased by 59,500 BTC in the third quarter, or ~$2.5 billion using quarter-end prices.

Entities with greater than 1000 BTC purchased a net 196,000 BTC in the quarter, or $8.5 billion using quarter-end prices.

As always, please reach out with any questions or comments.

Stay Tuned,

Joseph Orsini, CFA
Director of Research

Investment advisory and management services are provided by Eaglebrook Advisors, Inc., a registered investment advisor. Information presented is for educational purposes only. Past performance is no indication of future results. Please see our Form ADV Disclosures and Privacy Policy in our website.
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