Grayscale September Market Report: BTC Outperforms the Market Amid Global Market Crash
The macro background is still full of challenges.Original Author: Grayscale
Original Compilation: Odaily Planet Daily
Recently, Grayscale released its September market report, with the key points as follows:
Bitcoin rose in September, while many traditional assets suffered significant losses, highlighting the diversification characteristics of cryptocurrencies. The pressure on global markets seems to stem from rising government bond yields and increasing oil prices.
As on-chain Bitcoin metrics improved this month, strong fundamentals played a key role. The market capitalization of stablecoins has stabilized after a decline last year, and the digital asset market continues to focus on the development of Layer 2 blockchains and the potential for spot Bitcoin ETFs to be approved in the U.S. market.
Despite encouraging signs within the cryptocurrency industry itself, the broader financial market backdrop may still be challenging. However, Bitcoin's recent stability suggests that its valuation may begin to recover once the macro backdrop improves.
BTC rose 4% in September, contrasting sharply with the significant losses of many traditional assets this month (Table 1). Cryptocurrencies are now more correlated with other markets, but they continue to provide a degree of diversification for investors in this challenging market environment.
Bitcoin (BTC) rose 4% in September, a stark contrast to the significant losses of many traditional assets during the month (Chart 1). Cryptocurrencies are now more correlated with other markets, but they continue to offer a degree of diversification (returns) for investors in this challenging market environment.
Chart 1: Bitcoin Provides Diversified Returns Amidst Global Market Contraction
The latest pressures on global assets seem to originate from the U.S. bond market (Chart 2), which may be related to actions by the Federal Reserve. At the mid-September meeting, the Fed hinted that it might raise interest rates again later this year, and the pace of rate cuts next year may be slower than previously expected. The Fed's new guidance has helped push up short-term bond yields and bolster the value of the dollar.
Chart 2: Rising Bond Yields Pressure Global Markets
However, a greater challenge facing the fixed income market may be the oversupply of long-term government bonds. In September, the yield on 30-year Treasury bonds rose nearly 50 basis points (bp), reaching its highest level since 2011. Long-term bonds (e.g., those with maturities over 10 years) are generally less sensitive to small changes in Fed rate guidance.
Conversely, the bond market seems to struggle to absorb the massive borrowing from the U.S. Treasury—resulting from the government's large budget deficit. While the budget deficit has been substantial for some time, past Fed purchases ("quantitative easing") absorbed some of the bond supply. Now, the Fed is shrinking its balance sheet ("quantitative tightening"), and more government borrowing is hitting the open market, putting upward pressure on interest rates (Chart 3).
Chart 3: Without Fed Quantitative Easing (QE), the Bond Market Struggles to Absorb U.S. Government Debt
Rising bond yields and increasing oil prices seem to have put pressure on the stock market and most other risk assets. The S&P 500 index fell nearly 5% in September, with sectors related to the health of the U.S. economy leading the decline—homebuilders, industrials, and companies tied to retail performance.
Bitcoin has largely remained unaffected by the decline of traditional assets and has outperformed most other large cryptocurrencies.
Although trading volume continued to decline this month, various on-chain metrics for Bitcoin improved: the number of funding addresses, active addresses, and transaction counts all increased (Chart 4). Given the progress of the spot Bitcoin ETF at the end of August, the rebound in on-chain activity may represent new investors entering the market before regulators potentially approve.
The rebound in Bitcoin's price may also be related to the news that the trustee of the cryptocurrency exchange Mt. Gox will delay repayments to creditors until October 2024—currently holding about 138,000 Bitcoins, worth $3.7 billion, this decision may reduce market selling pressure expectations.
Chart 4: Bitcoin On-Chain Activity Increased in September
Meanwhile, the price of ETH tokens slightly declined in September, with the ETH/BTC ratio falling to a one-year low. The price volatility of ETH is also very low: as of September 30, the 30-day annualized price volatility of ETH was only 25%, lower than BTC's volatility during the same period, which averaged around 60% since January 2022.
Unlike Bitcoin, the on-chain fundamentals of ETH have not changed much. Later in September, market attention focused on the potential approval of ETH futures ETFs, leading to a slight rebound in the ETH/BTC ratio.
Aside from BTC and ETH, a notable fundamental change in September was the stabilization of the market capitalization of stablecoins after a long decline. According to data from DeFiLlama, the total market capitalization stabilized around $124 billion, having nearly continuously declined over the past year; since mid-August, the circulation of DAI and True USD (TUSD) has significantly increased, while the supply of Tether (USDT) has seen slight growth since early September.
Chart 5: The Market Capitalization of Stablecoins Has Stabilized After Declining
The adoption of stablecoins seems to have driven the performance of Tron tokens to outperform other large-cap tokens. In September, the price of TRX rose by 15%; the total locked value (TVL) of stablecoins hosted on Tron surpassed that of any other blockchain, even exceeding Ethereum. A significant portion of the TVL comes from Tether (USDT), which is primarily hosted on Tron and currently accounts for an average of 35-40% of the network's daily transactions.
Tron's leading position in TVL is largely due to lower transaction fees, with the number of TRC-USDT transfers far exceeding that of ERC-USDT, with daily transaction volumes approximately 15 times higher (Chart 6). The strong adoption of USDT on Tron demonstrates the product-market fit of stablecoins and highlights their growing importance in the contemporary cryptocurrency ecosystem.
The symbiotic relationship between the success of USDT on Tron and the recent price increase of TRX may indicate that stablecoins are becoming an increasingly important part of the mechanisms of the modern cryptocurrency market.
Chart 6: Tether Activity on Tron Far Exceeds That on Ethereum
In addition to stablecoins, the cryptocurrency market continues to focus on the ongoing development of Layer 2 blockchains—Grayscale Research discussed this in a recent report.
Notably, the social media application friend.tech on BASE generated more total fees in September than the decentralized exchange Uniswap. From a price perspective, other strong-performing DeFi tokens include AAVE, CRV, and MKR, as well as the oracle protocol token LINK—benefiting mainly from recent collaborations with Swift and BASE.
Finally, Toncoin (TON) briefly surpassed TRX to become the tenth largest cryptocurrency by market capitalization. The project announced integration with the messaging application Telegram at the Token 2049 conference in Singapore (the TON project was initially launched by the founder of Telegram). While we are optimistic about the prospects of cryptocurrency integration with messaging applications, investors should consider factors such as asset liquidity when evaluating its valuation. Notably, a significant portion of TON's supply is held by a few large whales, and the token's trading volume is very low compared to its market capitalization. For example, according to The Tie, TON's market capitalization is over 200 times its monthly trading volume.
In our view, Bitcoin's resilience and the significant losses in traditional assets illustrate the diversification advantages of digital assets and the steady improvement of industry fundamentals. The next major catalyst for Bitcoin's price may come from the approval of spot ETFs. In a previous legal dispute with Grayscale, the SEC lost and needs to appeal for a rehearing by October 13; if the SEC drops the appeal, it will reconsider Grayscale's pending application (to convert the Grayscale Bitcoin Trust GBTC into a spot Bitcoin ETF), as well as other spot Bitcoin ETF applications currently under consideration.
Despite these encouraging signs, the broader financial market backdrop may still be challenging for the time being: the Fed is still tightening policy, government bond yields may still be seeking a new equilibrium, and the "soft landing" of the U.S. economy remains uncertain. However, Bitcoin's recent stability suggests that its valuation may begin to recover once the macro backdrop improves.
