Cryptocurrency markets grew $8 billion last week, fueled by altcoins. After data showed signs of the economy recovering quicker than expected, traditional markets surged throughout the week. We take a look at both markets and discuss potential catalysts. In addition, we assess Bitcoin on a macro basis and further explain why it’s still the best performing asset class.
Global cryptocurrency markets added $8 billion in value during the last week. Global market capitalization hovered around $273 billion on Friday. For a second week in a row, various altcoins produced larger gains than Bitcoin. As the chart shows below, Cardano was the market outlier, surging nearly +31%. Cardano has been on investor radar for a while now. For the second week in a row, Cardano has been the market’s best performer. Last week it was reported that Cardano’s proof-of-stake upgrade was fueling the rally. The “Shelley” protocol will essentially upgrade the network to a distributed protocol opposed to the current centralized network. On a recent podcast, the co-founder of Cardano mentioned that the protocol would witness the upgrade by July 7.
Aside from Cardano, many other altcoins saw double digit returns over the last 7 days. With this being said, Bitcoin dominance dropped throughout the week, now sitting around 64.7%. Over the last month, Bitcoin dominance has fallen about -2.5%.
Bitcoin Catalysts To Watch
Supply & Demand – In a recent report by Bloomberg, it was outlined that Grayscale Investments is buying up substantial Bitcoin supply. For those unfamiliar, Grayscale is the largest digital asset manager. Visionary Financial recently reported that Grayscale was seeing significant interest from institutional investors, mainly around Bitcoin and Ethereum. According to Bloomberg, Grayscale is absorbing significant Bitcoin supply. With the asset manager absorbing the most supply ever, many investors believe this is a clear sign of increasing demand. As of now, this continues to be a theory. Bitcoin has dropped ~ $400 since the $10,000 test, signaling reduced demand since the 3rd halving.
Bitcoin Hash Rate – Bitcoins hash rate continues to be on watch post halving. Right before the 3rd halving, Bitcoin was testing the 1 year high in terms of hash rate. Following the 3rd halving, Bitcoins hash rate dropped significantly, which signaled inefficiencies under the new revenue model for miners. The drop took Bitcoins hash rate all the way to December 2019 lows. Since then, we’ve seen a reversal which could be a positive sign. Historically speaking, BTC price and hash rate are correlated. We still believe BTC has to surge above the 1 year hash rate resistance to trigger the next bull run. This is a fundamental we continue to watch. The figure below shows the up to date hash rate on the 1 year chart.
Bitcoin has seen +34% growth year to date. This puts it at the best performing asset despite the historical stock market recovery this year. On a year to date basis, we take a look at Bitcoin Vs traditional markets below. In addition to comparing Bitcoin to stocks, U.S. sectors, and major indexes, we also compare Bitcoin to commodities since Bitcoin is technically a commodity under the commodity exchange act.
Bitcoin Vs Traditional Markets Year To Date
Bitcoin Vs Large Stocks Year To Date
Bitcoin Vs U.S Sectors Year To Date
Bitcoin Vs Commodities Year To Date
When we study traditional markets inside out, it’s evident that Bitcoin has been the best performing asset class YTD. Investors continue to have the ability of de-risking their investment portfolios with Bitcoin allocations.
Stock markets saw their 3rd consequence week of gains as investor sentiment is heading north. Data showed that the U.S created 2.5 million jobs last month which was much better than analyst expectations. In addition, unemployment dipped to 13.3% which was lower than expected. Indicators are pointing to a potential “faster than expected recovery” for the economy, which is aiding investor sentiment. The employment data is surely laying the foundation for a recovery. Despite the positive numbers, a recovery to pre-crisis levels still seems like a longshot. In terms of the market, the S&P 500 nearly erased its losses for the year.
The data from last week showed that the labor markets are potentially recovering faster than expected. With this in mind, investors see a scenario where the second quarter drawdown could be better than expected. Nevertheless, it’s nearly impossible to judge a recovery off one report. For example, we have no idea how the financial relief affected data in May. Moving forward, if stimulus dries up in the market, how will this affect unemployment? In addition, a lot of these firms are essentially forced to keep workers for 8 weeks based on the payroll protection requirements. Will these companies keep these employees after wage assistance matures? The stock market continues to pre-maturely assess the overall recovery.
We still believe there’s a long way to go which will spark increasing volatility in traditional markets. As of now it’s obvious that investors are reallocating into riskier allocations. A simple measure of this behavior is Treasury Yields. Last week, yields hit 11 month highs as investors flocked away into riskier assets. With Bitcoin being more “speculative” in nature, many argue that this can benefit Bitcoin as well.
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