Market Commentary
Market Commentary: Standstill
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November 22, 2022

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Post-FTX, digital asset markets are at a standstill; while contagion uncertainty and the question of further downside remains, small owners of bitcoin have added to their positions at a record pace.

Key Takeaways

  • For now, the calm after the storm: crypto markets traded in a tight range last week, as participants await clues of further contagion.
  • This uncertainty related to whether there are “more dominos to fall” has led to a standstill as the market awaits any negative or positive catalysts to emerge.
  • Small owners of bitcoin have added to their position at a record pace, even greater than what occurred during the parabolic advance to $20,000 in late 2017; the group has certainly found this as an opportunity.

For now, the calm after the storm.

After falling from a November high of $21,470 to a low of $15,574 following the FTX news, bitcoin spent most of the business week within a tight range of $16,400 and $17,000, before declining to a Sunday close of $16,253.

Ether, after falling from a November high of $1,676, traded between around $1,200 and $1,300 in the five business days of last week, and declined to $1,141 by Sunday evening.

So, while there hasn’t been much of a bounce following the FTX decline, there hasn’t been much follow-through to the downside, either.

This standstill in market action comes as the participants await any further contagion.

On the positive side, several exchanges have begun to provide proof-of-reserves. While not a perfect mechanism, “merkle trees” can give users confidence that their holdings are accounted for as part of the larger exchange wallets. It’s likely that most exchanges will provide this information in the future.

Further, many of the main market makers and trading firms have reported some, but mostly insignificant, losses. Some firms have just a portion of their assets locked on FTX, while others were able to avoid the situation by diversifying trading platforms or withdrawing prior to the suspension. This is certainly a positive.

But the question still remains around the larger lending firms – particularly those that have either dealt with Alameda or have taken in altcoins as collateral this year. Of course, altcoins have faced the brunt of the selling pressure within digital assets – particularly since the FTX fallout. The value of this collateral has declined in rapid fashion alongside market prices.

So, where do we go from here?

For now, negative sentiment and uncertainty remain key thematics post-FTX. As we discussed last week, this is likely the largest awareness event in digital asset history – as a result, it may take some time for the conversation to shift away from the negatives and back to the positives.

But only time will tell. As we say, price has a knack for changing sentiment.

Near-term, contagion is the focus, with risk that can come in various degrees: uncertainty, panic, or most significantly, the unwinding of positions by firms in need of liquidation.

While bitcoin and ether usually experience a strong bounce off the lows, a standstill between buyers and sellers will likely continue until any catalysts emerge.

Either way, we know that this year’s bear market is a combination of two significant headwinds: an unusual amount of monetary tightening, and the unexpected collapses of larger firms within the industry.

Bitcoin and ether’s closing 2017/2018 highs of ~$19,000 and ~$1,400 remain key levels in the “big picture.” While much has occurred since then, a historic bear market now brings us below the previous peaks seen five years ago.

But from this, attractive valuations are presented, which have historically been great opportunities for long-term investors. In fact, small holders of bitcoin have added to their positions at a record pace, highlighting that many believe the long-term theses remains intact. We discuss on page two.

We wish all our readers a Happy Thanksgiving.

Attractive Valuations Yet Again

As we often discuss, bitcoin’s Market-Value-to-Realized Value multiple provides an understanding of the market price relative to the average cost basis of on-chain holders, often called the “fair value.”

According to data from Glassnode, an MVRV multiple of less than one has occurred very few times in bitcoin’s history, each of which has proven to be a great buying opportunity:

  • 2011, low MVRV of 0.39 on 10/19/2011
  • 2012, low MVRV of 0.84 on 2/15/2012
  • 2015, low MVRV of 0.55 on 1/14/2015
  • 2018, low MVRV of 0.70 on 12/16/2018
  • 2020, low MVRV of 0.85 on 3/12/2020

Bitcoin’s latest decline brings the MVRV multiple to 0.80  with a closing market price of $16,288 (Glassnode) versus an on-chain cost basis of $20,321.

Consider that market tops have had MVRV valuation multiples in the 3, 4, and even 5+ range, which was experienced in December ‘17 (4.8), April 2021 (3.9), and November 2021 (2.9).

While rough waters can remain, valuation remains attractive on an historical basis.

Small Owners Stack At Record Pace

Despite the uncertainty in the market, the amount of bitcoin held on-chain by small owners ( < 1 BTC) has hit record levels of 1,203,681 BTC. This includes only those that have moved their holdings from exchange to custody.

Not only is this a new high, but the increase is at a record pace: Over the last 30 days, this group added 82,055 bitcoin to their positions, 34,367 of which occurred just last week alone.

This 30-day uptick is 57% larger than the last greatest increase of 51,955 bitcoin added during the parabolic advance to $20,000 in 2017 (date 12/19/2017).

This growth in bitcoin held by small owners illustrates the high likelihood that adoption will continue despite recent events. Small owners of bitcoin have found this as an opportunity to ‘stack’ for the long term.

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

Stay tuned,

Joseph Orsini, CFA, CMT
Vice President of Research

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