Week by numbers
The last week has gone in a clear downward direction on the crypto market. The price of the largest cryptocurrency bitcoin (BTCUSD) fell by about seven percent, and the price of the second largest cryptocurrency ether (ETHUSD) by about five percent. The total market value of alt-coins in the TOP 10 by market value (TOTAL3–USDT-USDC-OTHERS) decreased by approximately 2.3 percent, and the total market value of alt-coins outside the TOP 10 by market value (OTHERS) by approximately 2.8 percent.
The best weekly performances of the token selection of the Kvarn X in a bearish week were Tron's TRX token (+5%), AAVE (+5%) and Maker's MKR token (+3%). Along with bitcoin, the biggest price declines of the week were made by Hedera’s HBAR (-9%), SUI (-8%) and Polygon's MATIC (-7%).
Due to Bitcoin dropping more than both ether and the rest of the market, the ETH/BTC ratio rose by about two percent, while bitcoin dominance, which describes bitcoin's share of the total market cap of the crypto market, fell by about one and a half percent.
Down week in the crypto market, with the prices of the biggest cryptocurrencies bitcoin and ether falling more than the usually more volatile smaller tokens, is not exactly typical. The causes of the phenomenon seen this week have been speculated to be the possible start of Mt. Gox repayments, as well as significant sales of seized bitcoins by German authorities. Both of these news would explain the downward pressure on bitcoin.
The explanations mentioned above may well be true. On the other hand, the phenomenon could also be explained by the fact that in previous weeks, smaller tokens weakened significantly against bitcoin, which can be seen in the attached graph as OTHERS/BTC ratio falling to oversold territory. The strengthening of the smaller tokens in the last week could therefore be explained simply as a natural mean reversion to the previous weeks. On the other hand, after this correction movement, it would look like that the smaller tokens would again be in a position to significantly weaken against bitcoin, if the general downward trend of the crypto market were to continue.
Alt-coins holding bitcoin steady?
As we discussed in our Kvarn X Pro weekly report last week, some clear segmentation can be observed in the crypto market over the past few months. Bitcoin, the largest cryptocurrency, has moved without a clear trend between just under $60,000 and just over $70,000. Just by looking at bitcoin price, one could interpret that the crypto market is in a consolidation phase after the steep upward movement of the first quarter.
However, the total market value of tokens outside the TOP 10 by market value (OTHERS) tells a slightly different story. The total value of the OTHERS category has been in a clear downward trend since March, and the combined market value of smaller tokens has fallen by almost a third during these three months.
What should one think of this discrepancy?
Our interpretation is that the clear weakening of the OTHERS category, while the bitcoin price is roughly holding its ground, indicates that the flow of capital within the crypto market is currently from small tokens to larger ones. The phenomenon is to some extent analogous to the stock market, where, despite the rise in the stock indices during the beginning of the year, the number of shares of the companies in an upward trend has decreased, and an ever smaller part of the largest companies has been responsible for the rise in the stock indices. Therefore, exchanging smaller tokens for bitcoins creates buying pressure for bitcoin, which helps to support its dollar price.
It might be worth keeping an eye on the OTHERS category, even if one’s own crypto investment would focus only on bitcoin. If the relative decline of smaller tokens against bitcoin continues, at some point a point they can be expected to become so undervalued relative to bitcoin that exchanging them for bitcoin is no longer an attractive way to reduce risk. In this case, if the general direction of the market is still downward, reducing the risk could start to happen more and more by selling bitcoin for dollars, which could cause the price of bitcoin to fall more strongly than it is currently.
This can be monitored, for example, through the development of the OTHERS/BTC ratio. Interestingly, this ratio is starting to approach the level of around 0.165 seen last summer, from where the smaller tokens started to significantly strengthen against bitcoin. It will be interesting to see if it would be the same if we end up at that level again in the coming months.
ETH ETF approval expected soon
License applications for the second largest cryptocurrency ether’s spot-based ETF ‘sare expected to receive final approval in soon. Many analysts, such as Bloomberg's Eric Balchunas, have estimated that the applications could be approved perhaps next week.
In May, the US Securities and Exchange Commission (SEC) approved the applicationssso called 19b-4 forms. Before the license is granted, the SEC still has to approve the so-called S-1 part of the applications, which is usually considered mostly a formality after the 19b-4 forms.
Many companies that have applied for a business license have been found to have updated their S-1 forms in recent weeks. This has generally been interpreted as a sign that the applicants are making the changes required by the Securities and Exchange Commission before approval.
The effect of the approval of Ether ETFs on the price of ether is something very interesting to watch. After the approval of the business licenses of funds similar to Bitcoin in early 2024, the price of bitcoin started to rise sharply. However, this happened in a situation where the market's expectations regarding the US central bank's rate cuts were perhaps at their most optimistic, and all risk-on assets more or less rocketed.
If the applications of ether ETF funds are really approved in the near future, it will happen in a very different market situation. The crypto market has shown more weakness than strength in recent months, and the prices of smaller alt-coins in particular have fallen steeply. On the other hand, an optimist could think that we would already start to be at a local bottom, and the ETH ETF could the necessary spark for the next movement upwards.
VanEck files for SOL ETF
If the approval of the ether ETF application was an expected event, a slightly more surprising turn in the field of cryptocurrency ETF funds was seen this week as the asset manager VanEck was reported to have filed an application for the ETF fund of Solana blockchain's native token SOL. This is the first ETF filing for SOL in the United States.
Many analysts have recently assessed the chances of VanEck's application being approved as quite low, and the consensus seems to be that new crypto ETF’s are not expected until 2025 at the earliest. However, VanEck has profiled as a first mover in the crypto sector, and we are not completely surprised that they submitted the application now. Among other things, VanEck submitted a license application for the ether spot ETF already in 2021, almost three years before the asset management giants BlackRock and Fidelity. VanEck has also aggressively engaged in fee competition for ETH ETFs, completely waiving the management fee until the end of 2024, or alternatively until 1.5 billion AUM has been reached.
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