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1. September “risk-off”? Crypto, equities and gold all dropped as USD and long-dated Treasuries found support

DeFi mania cooled in September with Ethereum (ETH) dropping -16% for the month, and many altcoins suffering even bigger drops.

While bitcoin (BTC) fared better it was still down (-8%), as was gold (-5%) and equities with the S&P 500 -4%. In contrast, the US dollar (+2%) caught a bid for the first time since the coronavirus shock in March, and long-dated US Treasuries were up modestly (+1%) (Table 1).

Table 1: Price Comparison: Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar (% Change)

Sources:, Google Finance

Should there be concern over the strong correlation between crypto and equities?

Bitcoin and crypto have traditionally been uncorrelated with other major asset classes, such as equities. This uncorrelated nature has been a major selling point in the argument that investor portfolios would be well served by adding even a small quantity of crypto.

Over the last several months a concern has emerged that crypto is correlating too closely with stocks and now behaving more like “digital equities” than “digital gold”.

Is the strong correlation between crypto and equities (especially tech stocks) the new normal (Figure 1)? Or are there reasons to believe that crypto will once again return to being uncorrelated with equities and other asset classes?

Figure 1: Since the start of 2020 crypto has been strongly correlated with equities

As argued on our October monthly webinar by Chief Strategy Officer and Head of Markets, Charlie McGarraugh:

a) crypto is not just a risk-on tech equity and differs fundamentally from the current dominant, centralized technology companies.

b) a major break higher in price inflation could break the current equities-bitcoin correlation.

In Charlie’s view the September down leg in gold and bitcoin is more about the inflation story that has been driving their outperformance over the past few months (eg gapping higher in July) needing more data confirmation (Figure 2). Looking ahead to the post-November US election period, there are good reasons to expect the US will engage in significant fiscal expansion that, combined with easy monetary policy, is likely to lead to increased price inflation.

Figure 2: Bitcoin, Silver, and 10y Inflation Swaps, YTD

Source: Bloomberg

Bitcoin above $10k forever?

Through September and into early October bitcoin has now set a record for its longest daily streak above $10k. As we are about to publish bitcoin’s remained above this psychologically important level for 77 days and counting.

Figure 2: Bitcoin has broken the 2017 record consecutive days above $10k and is now at 77 days >$10k

Why is $10k significant? Is this five-figure number somehow special, or just arbitrary?

Part of the answer in the significance of $10k lies in human nature and our comfort with round numbers (and especially 10-base numbers).

In other words, the significance of $10k is driven by market psychology. It is important because enough other people have mentally chosen to make it important. And market psychology is particularly important for assets such as bitcoin that currently lack a robust method of valuation.

Will bitcoin stay above $10k indefinitely?

Forecasting crypto prices is hard. Earlier this year in spring we saw a number of prominent people in crypto claim that bitcoin would soon pass 4-digit prices “forever” and be promptly proven wrong.

Whether bitcoin can remain above $10k forever remains to be seen, but in our view one of the strongest reasons to believe bitcoin may have permanently cleared the $10k hurdles is the fact that publicly traded entities are increasingly allocating portions of their treasury reserve assets to bitcoin.

As we publish we just learned that Square, led by bitcoin supporter and Twitter CEO Jack Dorsey, announced that it had joined the “bitcoin balance sheet club” with its purchase of 4,709 bitcoins (~$50m).

Ultimately, for bitcoin to fulfill its promise as a widely held global reserve asset it must at some point remain above $10k indefinitely.

At current prices bitcoin’s total market value is approximately ~$200 billion, which while significant is still well below the trillions of value respectively stored in gold, sovereign bond markets, and major reserve currencies.

To become a truly global reserve asset bitcoin will need to not only remain above $10k indefinitely, but will likely need to reliably hold a value in excess of $100k per coin, equating to a total market value well in excess of $1 trillion. Continued institutional and corporate adoption are arguably one of the most important indications that this valuation level can one day be achieved.

2. On-Chain Analysis

Each month we dive into on-chain data to explore interesting trends or movements on the Bitcoin network.

Looking at high level metrics, the main notable change is the decrease in market cap due to a drop in price in early September. We are seeing similar network activities as in August, nevertheless, there was a slight increase in daily payments and transactions, driven by users.

Table 2: Bitcoin network activity — September vs August


A strange spike in output volume explained

While looking at our Charts, a significant change in output volume caught our attention (Figure 3). After investigation, this increase turned out to be caused by a single hot wallet address moving the same funds around to consolidate and send bitcoin. Since May, it has sent and received around 90M BTC (~831billion USD), however most of those funds stayed within the same wallet. Our estimated volume chart, which aims at excluding the change in the volume to provide a better idea of the actual volume being sent, does not show this increase in volume.

This way of reusing the same address with a lot of funds in it is not without any risks. While security protocols such as multisignature and multi factor authentications are most likely in place, it becomes an obvious target for hackers. Some will remember when a hacker managed to steal 7000 BTC off Binance, who also uses a single hot wallet address, on May 7th 2019. From the Top 100 Rich List provided by BitInfoCharts, there are only two addresses that have sent more than 5000 transactions: Binance and this relatively recent address.

According to a few sources, this address belongs to the Ren Project, an open protocol providing access to inter-blockchain liquidity for all decentralized applications.

Figure 3: Recent increase in bitcoin daily output volume

Trending countries and continent

In the recent months we’ve seen interesting trends like Ecuador and Japan that increase their active visits in comparison to other countries, or Nigeria whose activity almost doubled in a few months, even if its activity has recently decreased.

We take a deeper look at the continent level (Figure 4a). Notably, from April to July, European activity has steadily decreased from 42% to 33%, in favor of an increase of 6% in African countries. In the last two months, trends seem to have stabilized. Europe remains the most active country in our web wallet, in front of Africa and North America. Continents have different populations and access to the internet; so we show how much an internet user interacts with our web wallet in comparison to other continents in Figure 4b with active web visits per continent per internet population. Asian users appear to be the least enthusiastic while North American is the continent where internet users are the most active in our wallet.

Figure 4a: Active web visits per continent

Figure 4b: Active web visits per continent per internet population

3. What we’re reading, hearing and watching


Beyond Crypto