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Source: Grayscale; Compilation: Wuzhu, bitchain vision
summary
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In September 2024, the cryptocurrency market performed well as the Fed cut interest rates for the first time.
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While Bitcoin has outperformed the broader cryptocurrency market this year, the gains in September were led by other segments, especially AI-related tokens in the utilities and services cryptocurrency sector.
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Regulatory and political backgrounds seem to be improving: The SEC approved a listing application for spot Bitcoin ETP options, and other institutions are expected to follow suit, while the Bank of New York appears to offer cryptocurrency custody services.Meanwhile, former President Trump announced a new DeFi deal, with Vice President Harris making supportive comments on digital assets and blockchain technology.
The Fed starts rate cuts and various fundamental developments drive cryptocurrency rally widening in September 2024, with FTSE/Grayscale Crypto Industry Market Index (CSMI) setting its best monthly return since March(Figure 1).
Figure 1: Higher return on digital assets in September 2024
On September 18, the Federal Open Market Committee (FOMC) announced a 50 basis points (bp) rate cut, a drop exceeding expectations as inflation improved and the risk of downward decline in the U.S. labor market.[1] This move triggered a further decline in bond yields (higher short-term Treasury prices), weaker US dollar and higher gold prices (Figure 2).Meanwhile, stocks in the financial sector that can benefit from higher interest rates are underperforming the market.Macrostimulus measures from Chinese policymakers supported global stock markets later that month.Bitcoin’s 8% return is at a moderate level after risk-adjusting (i.e., taking into account volatility for each asset) while CSMI’s 18% gains rank at the top of risk-adjusting performance.
Figure 2: The Fed’s first rate cut is the main factor driving the market up
Our cryptocurrency sector framework highlights the breadth of the digital asset market gains in September.Bitcoin and Ethereum have performed poorly this month as the FTSE/Grayscale cryptocurrency sector index (Figure 3).The best-performing market sector was the Utilities and Services Cryptocurrency sector, with a 25% increase.The cryptocurrency sector includes many tokens related to artificial intelligence (AI) technology and benefits from a sharp rise in AI-related tokens Fetch.ai and Bittensor.Utilities and Services Cryptocurrency SectionSeveral assets in it appear on the latest Grayscale Research Top 20 list, includingChainlink, Bittensor, Helium, Lido DAO, Akash Network and UMA protocols.
Figure 3: Utilities and Services Crypto Industry Leads Other Market Segments
Ethereum (ETH) once again lags behind Bitcoin (BTC), with the ETH/BTC price ratio hitting a new cycle low in mid-September.However, Ethereum remains the leader in the cryptocurrency field of smart contract platforms on most key metrics [2], Grayscale Research believes thatEthereum may be able to beat competitors in a while, for many reasons (seeGrayscale Research Insights: Cryptocurrency Space in the Fourth Quarter of 2024).It is worth noting that since 2020, Ethereum has maintained at least 60% of the total market capitalization of the smart contract platform cryptocurrency sector despite competition from new entrants (Figure 4).
Figure 4: Ethereum still dominates the field of encryption for smart contract platforms
Net inflows in U.S.-listed spot Bitcoin exchange-traded products (ETPs) rebounded again, totaling +$1.3 billion for the month.According to our estimates, cumulative inflows have also hit a new high of +18.9 billion since the launch of these products on January 11, 2024.
In related news,The ability to trade listing options on spot Bitcoin ETP has made recent progress.In late September, the Securities and Exchange Commission (SEC) approved the application filed by Nasdaq — the first step in the multi-stage regulatory approval process.Other applications are expected to be approved later.[3] Although OCC and CFTC still need to provide their own approvals due to OCC’s jurisdiction over options and CFTC’s jurisdiction over Bitcoin, the initial approval of the SEC represents a positive step forward in the U.S. crypto ETP ecosystem.Similar to the approach taken by the spot Bitcoin ETP itself, Grayscale Research expects regulators to consider other issuers’ applications and take into account competitive factors to create a level playing field before final approval.In sharp contrast to the positive news of spot Bitcoin ETP, spot Ethereum ETP continued to experience moderate net outflows, and the SEC delayed its decision on related option products.[4]
Last month, institutions also made progress in adopting cryptocurrency custody services.Specifically, the Bank of New York (BNY) — the oldest bank in the United States, founded by Alexander Hamilton — will report to start for spot Bitcoin and Ethereum after receiving a “no objection” from the SEC’s comments on the program.Fang ETP provides hosting services.[5] Traditional financial services companies were previously banned from providing digital asset custody due to SEC Employee Accounting Notice (SAB) 121.[6] In a subsequent interview with Bloomberg, SEC Chairman Gensler seemed to suggest that New York banks would be allowed to host crypto assets other than Bitcoin and Ethereum, saying: “Although the actual negotiations involve two crypto assets, the structure itself is the structure itself.It doesn’t depend on what cryptocurrency is.”[7]
The crypto industry also continues to play an important role in the U.S. election.First, former President Trump announced the launch of World Liberty Financial, a new decentralized finance (DeFi) lending platform based on Aave technology.[8] Secondly, Vice President Harris said in a speech to donors that her administration will “encourage innovative technologies such as artificial intelligence and digital assets while protecting our consumers and investors.”[9]At an event, she said she would “re-commit to bringing nations to global leadership in areas that define the next century”, including “blockchain.”[10] Although no specific policy recommendations were made, we believe that Harris’ latest remarks are a step in the right direction.
Perhaps because of increased support for the industry from both parties, the correlation between Bitcoin price and Trump’s chances of winning on Polymarket has been recently broken (Figure 5; see our report for background informationPolymarket: Election-Year Breakthrough Application of Cryptocurrencies).
Figure 5: The correlation between Trump’s winning probability and Bitcoin price is disappearing
We continue to see elections as a major risk event in the cryptocurrency market, and from a macro perspective, a key consideration is whether the government is unified or divided: both parties have experienced huge budget deficits while controlling the White House and Congress.(For more information, please refer to our reportBiden and Trump’s Bitcoin and Macro Policy Issues).The elections could also bring possible changes to cryptocurrency regulation in the United States, as well as uncertainty about the potential impact of a massive tariff hike (Trump wins).
However, even if acknowledges the uncertainty of elections in the short term, Grayscale Research expects favorable macro contexts (such as the Fed rate cut and the economic “soft landing”) and various adoption trends (such as stablecoins and forecast markets) to go over timeSupport crypto assets.
References
[1] Source: Federal Reserve.
[2] Ethereum has the largest number of applications, the largest number of developers, the highest 30-day fee revenue and the largest number of smart contract locked value.When including the largest Ethereum Layer 2 network, it has a second only to Solana’s daily active users.For users, the Ethereum ecosystem is equivalent to the sum of the Ethereum mainnet, Arbitrum, Optimism, Polygon, zkSync, Metis, Base, Blast, Mantle, Scroll and Linea.Source: Dapp Radar, Electric Capital, Artemis, DeFi Llama.Data as of September 25, 2024.
[3] Source: Reuters.
[4] Source: Decrypt.
[5] Source: Bloomberg.
[6] SAB 121 requires regulated financial services companies to record digital assets on their balance sheets, making it economically unfeasible to provide custodial services.
[7] Source: Bloomberg.
[8] Source: New York Times, CryptoSlate.
[9] Source: Bloomberg.
[10] Source: White House.
