December 08, 2023

November 2023 Market Commentary

Galaxy Asset Management

December 8, 2023

Market Commentary

The positive sentiment regarding digital asset markets continued in November, with BTC appreciating +9.21%, ETH gaining +12.88%, and the Bloomberg Galaxy Crypto Index increasing +18.25%. As the potential expectation of the approval of a spot BTC ETF nears, crypto markets are continuing to see greater investor interest, illustrated by crypto funds observing their 10th straight week of positive net flows.

As of November month end, bitcoin has appreciated +127.36% year-to-date. Of note, asset managers’ long positions in bitcoin futures reached the highest level ever recorded this month according to data published by the CME. In fact, CME bitcoin open interest surpassed Binance for the first time, indicating an increase in institutional adoption. Throughout the past month, MicroStrategy also continued to build on its bitcoin position. In November, the company helmed by Michael Saylor bought an additional 16,130 bitcoin at an average price of ~$36,000. After its November purchases, MicroStrategy now holds 174,530 bitcoin (nearly 1% of all bitcoin that will ever be put into circulation).

While bitcoin remains the most prominently discussed cryptocurrency, especially as traditional institutions continue to dominate the headlines with spot BTC ETF filings, the broader altcoin market also showed signs of promise in November. Solana continued to realize market appreciation, rising +38.5% over the course of the month as the cryptocurrency known for its throughput furthered its quest to solidify its position as a top-three Layer-1 blockchain alongside Bitcoin and Ethereum. A staking-focused Layer-2, Blast, also generated notoriety as it attracted over $600M in deposits in November in anticipation of its future launch.

Despite the positive price performance of many major cryptocurrencies, Binance and its co-founder Changpeng Zhao (“CZ”) took center stage amidst a settlement with the DOJ, Treasury, and CFTC. Following a long investigation, the world’s largest crypto exchange by volume was accused of several charges including operating as an unlicensed money transmitter, failing to have a sufficient anti-money laundering (“AML”) program, and violating U.S. sanctions. As part of a plea deal, CZ agreed to step down as Binance’s CEO and pay a $50M fine. Binance separately will pay a $4.3B fine, placing it among one of the top all-time U.S. corporate plea agreements. Markets initially reacted negatively to this news, with bitcoin retreating below $36,000. However, upon further dissemination, positive price trajectory returned. While to outsiders the downfall of CZ and the exorbitant fine levied on Binance may be regarded as just another indicator of the bad news that seems to follow crypto, industry insiders are likely to be supportive of this resolution as it eliminates one of the larger perceived risks.In essence, this indicates a positive trajectory for the industry, showcasing its maturation accompanied by increased regulatory oversight and guidance. It is important to note that Binance can continue to operate outside the U.S., maintaining its vital role in the crypto ecosystem as its volume still surpasses that of the next two exchanges combined.

In November, we also saw a multitude of regulatory actions that will have implications on markets in the months to come. To highlight several of the noteworthy headlines:

Tether froze wallets containing $225M of USDT, the largest freeze in history of the stablecoin, following a DOJ investigation linking the wallets to a pig butchering scam.
The Treasury Department penned a proposal, seeking Congress to grant the Treasury the authority to expand its crypto oversight abilities under the International Emergency Powers Act.
NYDFS released new guidance for listing and de-listing cryptocurrencies on exchanges.

Portfolio Considerations

On-chain data for bitcoin continues to paint a positive picture, with long-term holders refraining from profit-taking despite the recent price surge. In fact, 70% of all Bitcoin hasn’t moved in over a year. Exchange balances remain depleted, with a mere 2.3 million (out of 21 million total bitcoins ever available) for purchase. The scarcity of supply has placed bitcoin firmly in the hands of extremely long-term holders; however, it’s worth noting that more than 85% of Bitcoin addresses are currently in profit, indicating the potential for profit-taking if prices move higher.

The bitcoin rally has seen substantial interest from institutional traders, albeit with a degree of caution. Many institutional players have been eyeing the market since the $30k mark, but the allure of the high-rate environment has presented alternative trading opportunities outside of crypto. This cautious approach may be constructive, leaving room for greater institutional involvement in the future. Meanwhile, retail aggregators continue to fuel bitcoin's demand.

The Bitcoin halving event looms approximately 140 days away, set for April 2024. While this event may pose challenges for miners, its significance as a narrative event cannot be overstated. Comparing the current bitcoin price of over $41,000 as of 12/4/23 to the $7,000 range around the same time before the last halving in May of 2020 underscores its remarkable growth.

With a YTD gain of over 125%, bitcoin stands as one of the world's best-performing assets on a risk-adjusted basis. Its constructive outlook is bolstered by reducing overhangs (FTX and Binance), upcoming catalysts (spot ETFs and halving), resilient holders, and a supportive macroeconomic backdrop. As we approach 2024, bitcoin appears poised for a positive year ahead.

BlackRock's filing for a spot ETH ETF in November has raised expectations for Ethereum's performance. As the market cap of Ether now stands at 30% of bitcoin's, the SEC faces growing pressure to approve a spot ETH ETF. Ether’s potential to outperform bitcoin in the coming months has piqued the interest of many investors, as the ETH/BTC ratio sits at 0.054 as of today.

Altcoins, including Solana, present a captivating narrative for the year ahead as well. Solana experienced a spectacular two-month surge, catapulting from $20 to $60. With SOL's market cap currently at 10% of ETH's, there is room for growth in the coming year. SOL's staggering YTD gain of +500% cements its status as the best-performing large-cap asset of the year.

As we enter the most festive time of year, it appears that crypto markets will also be rewarding those who remained patient during the recent bear market and calamitous failures of industry stalwarts. Looking forward towards the remaining days of 2023 and the new year, crypto markets appear positive, however, as always with crypto, twists and turns may just be around the corner. Investors should welcome the market appreciation, while continuing to monitor their portfolios diligently.

Institutional Adoption Highlights

Crypto Performance and Volatility Data