Our bias remains to buy Bitcoin on dips.
1) Inflation will continue to trend lower in 2023, helping risk assets. While Bitcoin was able to capitalize on the drop in inflation initially, fatigue has settled into crypto assets after the Shanghai Ethereum upgrade.
2) Attention has temporarily moved to meme-coins and ordinals, but the uptrend should resume soon.
3) TVL (Total Value Locked) and Revenues are underperforming this year, which indicates that fundamentals remain weak for Ethereum and crypto. Exposure to Bitcoin (instead of the altcoin space) might be sufficient.
4) While TVL has increased by $8.5bn this year, 75% occurred due to staking, which carries a similar excitement as ‘fixed income’ investing and is the opposite of investing in the future growth of protocols.
5) One argument for why treasury bond yields have traded between 1-2% for several years was because nobody had any idea what to do with excess savings, and the same argument can now be made with Ethereum.
6) Ethereum has also experienced technical issues with the network having stopped finalizing blocks for over an hour. A similar issue occurred the day before, on Thursday, when finality paused for 25 minutes.
7) The 30-day realized volatility spread between Ethereum and Bitcoin continues to trade in the single digits.
8) In contrast, vol on Ethereum used to trade at a 20-40 vol point premium as Ethereum was used for NFTs, Layer2s etc. – this has all quieted down. The June 30 2023 at-the-money options trade at roughly the same implied vol levels of 48% and 46%.
9) The result is also that Ethereum has underperformed Bitcoin YtD, +50% vs. 62%.
10) Bitcoin might be breaking the recent downtrend and while there are no real upside catalysts, a tactical long might be worth implementing after the recent correction.
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