Sam Martin

Ethereum and Bitcoin Price Action, Fundamentals Diverge: Markets Wrap

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                <li>Macro backdrop, on-chain fundamentals and regulatory outlook are making bitcoin an easy buy and hold</li>
                <li>It&#8217;s important to remember the environment we are in and not forget about the digital pet rock: bitcoin </li>
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<h3 class="wp-block-heading">Markets Wrap Highlights</h3>



<ul class="wp-block-list"><li>The macro backdrop is very favorable for bitcoin. </li><li>On-chain fundamentals look great for Bitcoin. </li><li>Regulators seem less concerned with bitcoin and more worried about stablecoins and other tokens that are function in similar ways to securities. </li></ul>



<p><strong>Latest in Macro:</strong></p>



<ul class="wp-block-list"><li>S&amp;P 500: 4,391, -.19%</li><li>NASDAQ: 14,579, -.51%</li><li>Gold: $1,757, +.05%</li><li>WTI Crude Oil: $79.52, +1.56%</li><li>10-Year Treasury: 1.61%, +.041%</li></ul>



<p><strong>Latest in Crypto:</strong></p>



<ul class="wp-block-list"><li>BTC: $54,378, +0.27%</li><li>ETH: $3,599, -.73%</li><li>ETH/BTC: .0662, -.69%</li><li>BTC.D: 43.88%, +.18%</li><li>DPI (DeFi Pulse Index): $341.62, +.66%</li></ul>



<h3 class="wp-block-heading">Macro Backdrop </h3>



<p>While other protocols such as Ethereum offer incredible innovation and interesting applications, it is important to remember the environment we are in and not forget about the digital pet rock: bitcoin. </p>



<p> &#8220;There is no ability for the Fed to tighten. They can&#8217;t. And the reason they can&#8217;t is because if you look at US treasury spending plus US entitlement payments, it&#8217;s over 100% of tax receipts. So the US&#8217; real interest expense is still more than 100% of tax receipts with tax receipts at all time highs and with bubbles in every freaking market. So if they tighten, they&#8217;re going to drive tax receipts lower, and then unless the Fed prints the difference the US will default on entitlements or treasuries.&#8221; &#8211; Luke Gromen, founder and president of <a href="https://fftt-llc.com" target="_blank" rel="noreferrer noopener">FFTT</a></p>



<p>The following chart shows real central bank rates, or the difference between nominal rates and the prevailing inflation rate:</p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="728" height="1024" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg" alt="" class="wp-image-9142" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=728 728w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=213 213w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=1091 1091w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=183 183w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=185 185w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=156 156w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=57 57w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=1284 1284w" sizes="(max-width: 728px) 100vw, 728px" /></figure>



<p>&#8220;The United States, with the global reserve currency, hollowed out its industrial base at a far faster pace than our peers, as we shut down domestic factories and opened them up abroad (to take advantage of cheaper labor).&#8221; &#8211; Lyn Alden, macroeconomist and <a href="https://www.lynalden.com/august-2021-newsletter/" target="_blank" rel="noreferrer noopener">equities strategist.</a> </p>



<p>One can easily spot the decoupling between productivity and wage growth in the 1970s when President Nixon announced the greenback would no longer be exchangeable for gold, thus giving birth to the petrodollar system. </p>



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="803" height="471" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png" alt="" class="wp-image-9143" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=803 803w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=445 445w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=373 373w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=80 80w" sizes="(max-width: 803px) 100vw, 803px" /><figcaption>Source: <a href="https://www.epi.org/productivity-pay-gap/" target="_blank" rel="noreferrer noopener">EPI</a></figcaption></figure>



<p>To summarize, we have increasing inequality within the US due to the lack of wage growth and increasing asset prices, combined with negative yielding debt instruments on a real basis and a whole lot of capital in the system with no where to hide. </p>



<p>Historically speaking, gold was the place to park your money in these environments. But in a digital era, Bitcoin has become a viable alternative. It&#8217;s worth noting that gold&#8217;s established history and the fact that it sits on central bankers balance sheets are two important factors worth considering. </p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="448" height="550" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg" alt="" class="wp-image-9146" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=448 448w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=244 244w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=209 209w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=213 213w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=178 178w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=65 65w" sizes="(max-width: 448px) 100vw, 448px" /><figcaption>Source: <a href="https://medium.com/@samikkurty/fiat-gold-and-bitcoin-comparison-e878fa2292bc" target="_blank" rel="noreferrer noopener">Medium</a></figcaption></figure></div>



<h3 class="wp-block-heading">Bitcoin Fundamentals</h3>



<p>Per JPMorgan, there are tentative signs that the previous shift away from gold into bitcoin seen during most of Q4 2020 and the beginning of 2021 has begun to re-emerge in recent weeks.</p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="500" height="398" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg" alt="" class="wp-image-9147" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=500 500w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=323 323w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=328 328w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=275 275w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=80 80w" sizes="(max-width: 500px) 100vw, 500px" /></figure></div>



<p>Long term holders (LTHs), or entities who have held onto their coins without moving them for 155 days or more, continue to accumulate. Over two million coins have aged into LTHs since the May correction.</p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg" alt="" class="wp-image-9148" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=1800 1800w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



<p>With every cycle, there are momentum traders/speculators who hop on board, but there are also a number of people who dive deep into bitcoin and decide they agree with the philosophical ideas behind its existence, thus creating more lifetime holders who do not plan to sell. This point is best illustrated by the chart below. Bitcoin UTXO (unspent transaction output) age distribution is a fancy way of saying &#8216;the last time bitcoins were moved&#8217;. </p>



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="1010" height="672" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png" alt="" class="wp-image-9149" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=1010 1010w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=80 80w" sizes="(max-width: 1010px) 100vw, 1010px" /></figure>



<p>We also see the number of bitcoin on exchanges such as Coinbase, Binance, etc., decreasing in a dramatic way since the crash in March of 2020. This indicates that retail investors are buying cold storage wallets and taking custody of their bitcoin. Often times, people who take the time to <a href="https://www.lopp.net/bitcoin-information/security.html" target="_blank" rel="noreferrer noopener">learn about self-custody</a> have no intentions of selling their bitcoin. </p>



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="700" height="393" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png" alt="" class="wp-image-9150" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=700 700w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=465 465w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=80 80w" sizes="(max-width: 700px) 100vw, 700px" /><figcaption>Source: Lyn Alden / Glassnode</figcaption></figure></div>



<p>Perpetual funding rates have eased on the highest volume exchanges over the last few days. This indicates that traders aren&#8217;t frantically attempting to take a long position. Emotions do not represent healthy moves, regardless of their direction. </p>



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="105" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png" alt="" class="wp-image-9153" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=1437 1437w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: https://app.laevitas.ch/dashboard/btc/derivs</figcaption></figure>



<p>Lastly, bitcoin is the only cryptocurrency that has been repeatedly stated as the least of regulators&#8217; concerns. In the past week, we saw Fed chairman Jerome Powell <a href="https://www.bloomberg.com/news/videos/2021-09-30/powell-says-fed-has-no-intention-to-ban-cryptocurrencies-video" target="_blank" rel="noreferrer noopener">clarify</a> that he does not want to ban the use of digital assets but that regulation on stablecoins is necessary. We have also seen Gary Gensler <a href="https://www.businessinsider.com/gary-gensler-sec-chair-crypto-cop-blockchain-regulation-2021-8" target="_blank" rel="noreferrer noopener">classify</a> bitcoin as a commodity. When compared to other digital assets, bitcoin undoubtedly carries the least amount of regulatory risk. </p>



<p>That&#8217;s all for this week, my friends. Have a great weekend!  </p>



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