The Turning Point for Crypto

GM Anon!

It’s been an absolute whirlwind of a week, filled with game-changing moments for crypto! From major election results to the latest Fed decision, the landscape is shifting fast. 

Let’s dive into what’s been happening and how these shifts could mean major moves for our favorite assets. Keep focused, stay in the game, and let’s make the most of this incredible momentum!

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TLDR 

• Trump’s victory seen as a bullish sign for crypto, with traders capitalizing on post-election momentum

• Fed cuts interest rates to support growth

• Polymarket activity highlights decentralized sentiment tracking

• BTC ETFs see massive inflows, with $1.38B added in one day, reflecting strong institutional interest

• Potential BTC supply shock looms, driven by record-high mining difficulty and increasing whale holdings

• ETH/BTC and ETH/SOL ratios hint at a possible ETH bullish reversal, signaling an altcoin rotation

• Ethereum’s upcoming 2025 upgrades and staking yields expected to draw more institutional interest

• Ethereum leads in DeFi and fee revenue, with ETH staking, tokenized funds, and real-world assets boosting its outlook

• DeFi tokens like AAVE and UNI rally post-election, hinting at renewed interest in decentralized finance projects

Elections & FED

This week was packed with major macro and financial events, and for those of us in the crypto space, the highlights were the U.S. election and the Fed’s interest rate decision.

Last week we ran a poll to see who users viewed as the more bullish candidate for crypto. These were results. Unbelievable. 

It’s time to get serious and plug into crypto, anon. Those with their finger on the pulse knew that Trump’s election would be a game-changer for the industry, and savvy traders capitalized on it, profiting heavily around the election. Now’s the time to immerse yourself in crypto Twitter—tune your algorithm to deliver only top-tier updates by engaging with posts from key figures in the space and filtering out non-crypto content. 

This approach will help you stay tuned into market sentiment. It’s crucial to keep personal ideology separate from what’s actually going to take your portfolio to the next level. Stay focused, keep your head in the game, and let’s keep pushing forward.

Polymarket played a significant role in this election, capturing sentiment around the race, and with Trump’s decisive victory, it was validated as a powerful social metric—especially in contrast to the mainstream narrative on the odds. 

We’re clearly shifting toward a more decentralized landscape, where narratives are no longer controlled by failing legacy media. On that note, take a look at how open interest on Polymarket surged leading up to the election.

Lastly, let’s take a look at some of Trump’s major positions on crypto. The tweet below does a good job covering most of the big points, but it misses one key rallying cry for the crypto community: the potential pardoning of Ross Ulbricht. Keep a snapshot of this list, and let’s watch how it unfolds over the coming months and years.

Moving onto the Fed, it lowered its benchmark interest rate by 25 basis points, adjusting it to a range between 4.5% and 4.75%. This follows a prior 50 basis point cut in September, marking the Fed's second rate reduction since 2020. 

This move aims to support economic growth as inflation pressures ease. The Fed’s current strategy focuses on maintaining economic momentum while addressing unemployment, with financial markets expecting additional rate cuts in the coming meetings. All good for crypto. 

However, it seems full-blown market mania will be slightly delayed.

Liquidity Update

According to the latest Capital Wars report, current liquidity conditions are under severe strain. The Treasury market has seen a spike in volatility, particularly through the MOVE index, indicating rising funding costs and collateral constraints.

Global liquidity, a key driver for asset prices, remains on a downtrend, impacting markets like BTC. Despite some mitigation from the Fed’s recent “Not-QE” measures, the liquidity outlook remains fragile, and the Fed and Treasury may need to inject substantial additional liquidity to stabilize markets, especially as funding needs to grow beyond $2T annually.

Such liquidity injections would likely have a powerful effect on crypto markets, driving significant price gains. This environment could present a ripe opportunity for further bullish momentum across the sector and take crypto to new highs coupled with all the positive sentiment. 

BTC ETF & Supply Shock Incoming

BTC ETFs saw a massive $1.38B net inflow recorded on November 7. This spike brings total net assets in BTC spot ETFs to $78.5B, coinciding with BTC’s price surging. The data also shows a marked increase in ETF flows, reflecting growing institutional and retail interest in BTC as a mainstream asset.

Additionally, in case you missed it, we’re likely on the brink of a supply shock like we’ve never seen before.

BTC Metrics

The latest BTC difficulty adjustment, now at 101.65 trillion, represents an all-time high, indicating the most challenging mining conditions to date. This surge in difficulty reflects a growing hashrate as more miners compete to secure the network, driven by increasing confidence in BTC's long-term value and profitability. 

The heightened competition among miners is a response to rising prices, incentivizing them to allocate more resources to mining. However, this increase in difficulty also squeezes less efficient miners, potentially leading to market consolidation, where only the most energy-efficient and technologically advanced operations remain profitable.

Over the past year, whale holdings in BTC (addresses holding between 1,000 and 10,000 BTC) have seen a significant increase.

BTC's perpetual futures funding rates following the recent U.S. election have seen a visible uptick in positive funding rates, indicating that long positions are becoming increasingly dominant. This suggests a renewed bullish sentiment, as traders are more willing to pay a premium to hold long positions, anticipating upward price movement. Historically, sharp increases in funding rates often accompany strong price momentum, but also come with the risk of over-leveraging.

Following the election, open interest also surged to new highs, potentially driven by renewed optimism in pro-crypto policies and macroeconomic conditions favoring digital assets. This increase in open interest aligns with BTC’s upward price trend, suggesting that traders are positioning themselves for a continued bullish move.

ETH Pivot

While BTC and SOL have been dominant this cycle, recent metrics suggest ETH could be primed for a comeback. ETH/BTC has bounced off long-term support levels, signaling a possible reversal, and ETH’s dominance is stabilizing at historical support, hinting at renewed strength. With pro-crypto sentiment rising in regulatory circles and broader market negativity waning, now might be an ideal moment to rebalance portfolios with a focus on ETH’s potential upswing.

ETH Ratios

The recent bounce off the 0.034 support level on the ETH/BTC chart hints at the possibility of a trend reversal. This strong reaction from buyers at a critical support level suggests renewed interest in ETH, and if this momentum is sustained, it could mark the beginning of a larger move upward relative to BTC. While it’s too early to confirm a full reversal, the bounce is a promising signal. Watching the next few candles will be crucial to see if ETH can maintain this momentum and establish a trend shift.

The ETH/SOL chart shows a significant downtrend, with ETH consistently losing ground against SOL throughout the year. Recently, however, there appears to be a slight stabilization around the 12.22 level, suggesting potential support. The modest bounce from this level could indicate a pause in the trend, possibly setting up for a reversal if sustained buying interest emerges.

Many are aware of this relationship, but let’s go over it again. In the context of rising BTC dominance, this weak trend is actually nothing new. Historically, as BTC dominance climbs, ETH/BTC weakens, showing that capital flows into BTC during times of market uncertainty or "risk-off" sentiment. This is a well-established cycle, and each time BTC dominance peaks, it signals an ideal setup for ETH to outperform.

Right now, BTC dominance is hovering at elevated levels, while ETH/BTC is testing a key support zone. This alignment presents a high-confidence signal: as BTC dominance reaches its peak and begins to reverse, it’s time to shift into ETH. The market is primed for capital to rotate back toward altcoins, led by ETH. Once we see a break in BTC dominance, expect a strong upward movement in ETH.

Take note of the peaks (green lines) of the ETH/BTC (red) chart and how they occur after spikes in BTC dominance.

Bullish Signal?

This 7-day moving average of ETH exchange balance indicates a significant shift in Ethereum's flow on exchanges over the past three months. From mid-August to early November 2024, exchange balances saw fluctuations with occasional spikes above 50K ETH moving onto exchanges, often a sign of potential selling pressure.

Notably, in late October, there was a sharp drop, where over 75K ETH moved off exchanges—a strong indication of accumulation or reduced selling pressure. This outflow suggests investors may be moving their ETH to cold storage, potentially signaling increased long-term holding sentiment or anticipation of future gains.

The recent reversal, shown in early November with balances starting to rise again, could indicate short-term traders re-entering exchanges. Though the major trend is that ETH is being pulled off exchanges.

Major Upgrades, ETFs and Yield

1. Upcoming Ethereum Upgrades in 2025

Ethereum's upcoming Prague/Electra (Pectra) upgrade, slated for 2025, is set to advance the network’s performance significantly. Building on the improvements from the Dencun upgrade in 2024, Pectra will focus on enhancing scalability, reducing transaction fees, and tackling network congestion. These updates aim to make Ethereum more efficient and secure. 

2. Staking Yields and Income Opportunities

With Ethereum's shift to a proof-of-stake mechanism, users can now earn annual staking rewards ranging from 4% to 6%, creating a reliable income stream for token holders. Recently, the launch of spot ETH ETFs has initiated discussions around integrating staking yield features directly into these products. Such an integration would enable ETF investors to gain from Ethereum’s staking rewards without the need to manage the staking process themselves, potentially drawing more traditional finance investors into the Ethereum ecosystem by blending income opportunities with crypto exposure.

Take note, that ETH has been inflationary for the majority of this year, but will likely enter a deflationary state when activity heats up. 

Also, note that the amount of ETH locked for staking has been steadily increasing since the Merge, with liquid staking now being the primary use of staked ETH.

3. Market Sentiment and Institutional Interest

Spot ETH ETFs have garnered moderate interest, with a total net asset value of around $6.7B, led by the Grayscale Ethereum Trust (ETHE) with over $4B. Integrating staking yields into these ETFs could boost their appeal by combining income with growth potential, attracting a broader investor base. Staking-enabled ETFs would offer exposure to Ethereum’s 4-6% staking yields without requiring investors to manage or secure ETH, making it accessible for traditional and institutional investors seeking yield-generating assets. Increased ETH staking through ETFs would also reduce supply, potentially lifting prices. Analysts predict that staking-enabled ETFs could draw in significant institutional capital, potentially injecting hundreds of millions into Ethereum’s ecosystem as demand for yield-bearing products rises amid high inflation.

4. Current Performance of Ethereum ETFs

ETH ETFs have faced challenges, with cumulative outflows nearing $490 million across multiple funds. The Grayscale Ethereum Trust alone saw over $3 billion in redemptions, indicating investor caution in the current market. While inflows from Fidelity ($26.9 million on Nov 6) and BlackRock ($49.6 million on Oct 31) show occasional interest, they haven’t offset the outflows. This performance reflects hesitancy, likely due to regulatory uncertainty. However, adding staking yields to these ETFs could shift the trend, enhancing their appeal by providing both growth and income potential.

Lastly, following Donald Trump's victory DeFi tokens rallied significantly. AAVE surged over 24%, while UNI gained 30% in 24 hours. Other notable DeFi projects like Maker, Compound, and Lido also saw increases of 11%, 12%, and 17%, respectively. Concerning AAVE, this momentum was partially driven by speculation around Aave's proposed partnership with the Trump-linked World Liberty Financial project, which plans to integrate with Aave V3 and share a portion of its transaction fees and governance tokens with AaveDAO.

DeFi Metrics & Fees

Lastly, lending on major protocols like Aave is gaining upward momentum, signaling renewed activity and interest in DeFi markets.

Over the past year, Ethereum's revenue has far outpaced all other chains, generating $2.567B in fees, significantly more than any competitor. Tether and BTC follow, with $1.711B and $1.317B in annual fees, respectively.

Ethereum remains the dominant platform for the most profitable protocols, consistently filling the top rankings in terms of TVL and growth.

That’s it for today! We hope this issue brought you some fresh perspectives. Until next time, anon.