Market Commentary
Market Commentary: Signs
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August 16, 2022

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Bitcoin and ether continue their rally off mid-June lows; the two outperformed following the lower-than-expected CPI print, a sign of what’s to come as the environment normalizes.

Key Takeaways:

  • Inflation decelerates, and bitcoin and ether outperform – this, a sign of what’s to come as the market environment normalizes. We discuss the mid-June “macro turn” as supportive for a crypto rally
  • OFAC sanctions Tornado Cash, an open-source code; we discuss the implications and the first major test of “censorship-resistance”
  • Ether’s continued outperformance brings the ETH/BTC pair to year-to-date highs, we offer some takeaways
  • Long-term bitcoin holders unfazed by recent ether outperformance; supply held for 5+ years hits all-time high


Another week of renewed risk appetite has led to now four straight weeks of positive equity performance, six straight weeks of positive ether performance, and four of six weeks of positive bitcoin performance.

Last week’s gains were supported by the CPI print for the month of July, which offered a tangible piece of evidence that runaway inflation is on a path towards deceleration. On a month over month basis, US prices changed a flat 0.0% versus a 0.2% estimate, while gained 8.5% in the year versus 8.7% estimated.

With the market’s main stress factor showing signs of alleviation, risk assets rallied on the day, and bitcoin and ether outperformed equities (bitcoin +3.3%, ether +8.6%, S&P 500 +2.1%, Nasdaq Composite +2.9%).

This serves as an example of what we’ve discussed throughout much of this year: the likelihood of digital assets outperforming when “market conditions warrant.” These conditions may now be presenting themselves, as illustrated below:

Since the peaks in inflation expectations, commodity prices, the costs of borrowing, and expectations of financial tightening, stocks and crypto have bottomed and bitcoin and ether have outperformed.

With this, prices have quickly returned to key levels seen earlier this Summer:

  • The Nasdaq Composite and the S&P 500 have returned to levels seen during the May 4th FOMC meeting
  • Ether has retraced and even gained 27.6% since June 11th, the day before the Celsius news
  • Bitcoin, while overshadowed by Ethereum’s upcoming Merge, has outperformed equities since its low on June 18

While the perils of being bearish for too long have been illustrated over the last six weeks, opportunities remain for long-term investors with bitcoin and ether 64.1% and 59.6% off their all-time highs.

In this week’s episode of “crypto is not dead,” world-renowned asset manager Blackrock has partnered with Coinbase to offer clients a private trust. The fundamentals continue to improve despite price weakness.


Last week, the Treasury’s Office of Foreign Assets (OFAC) sanctioned crypto application “Tornado Cash” and 44 Ethereum addresses that have utilized this application by adding them to the Specially Designated Nationals and Blocked Persons List (SDN).

This is the first-of-its-kind given that Tornado Cash is a smart-contract (and not a business or entity) that provides a means of privacy for Ethereum users.

While some users are bad actors, not all are, and as a result, this could have implications for “internet privacy.” OFAC’s sanctioning of code, rather than the bad actors themselves, would be like shutting down PayPal, Venmo, or Zelle, because some may use it to launder. We can all agree that bad actors should be penalized, but where is the line drawn in the future? To be determined.


Ethereum’s significant outperformance since news of its Merge date (which is now slated for September 15-16, depending on block times), has led to year-to-date highs in its relative strength against bitcoin.

The ETH/BTC pair, which is a proxy for ether’s performance relative to bitcoin, has reached 0.081 on August 13th versus it’s 2021 closing price of 0.079. This outperformance has a few takeaways:

  • Ether is more cyclical in nature, and as a result, often outperforms on the upside, while underperforms on the downside. Ethereum’s beta to bitcoin over the last year is 1.13 (Bloomberg, daily data)
  • Crypto-specific narratives are now in-play, with ether’s outperformance very much tied to the upcoming Merge
  • Short-term periods of out-or-under performance should not change long-term theses: nothing has changed for bitcoin, it’s just been overshadowed
  • Bitcoin’s relative performance to ether can “catch-up” over the next month or so as participants digest ether’s rally and prepare for any volatility headed into the Merge.


Neither the long, drawn-out bear market or ether’s recent outperformance has been enough to sway long-term bitcoin investors.

The percentage of supply that has been held for longer than one (65.7%), three (38.4%), and five-years (24.3%) hit new all-time highs last week.

We add drawdown bands (which mark the high to the low of major 70+% drawdowns) to illustrate adoption through tumultuous times.

These “up and to the right” trends since inception highlights bitcoin’s continued success as an emerging store of value: its users continue to hold the asset for longer and longer periods of time.

The fundamentals continue to strengthen despite price weakness.

Click here to download full report. As always, please reach out with any questions or comments.

Stay tuned,

Joseph Orsini, CFA
Vice President of Research

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