Grayscale Report: Bitcoin Offers Diversified Returns, Spot ETF and Grayscale Decision to Be Next Market Catalyst

The second largest Bitcoin holding institution, Grayscale, has released a research report for September, mentioning the rise of Bitcoin during the month while many traditional assets suffered significant losses, highlighting the diversification characteristics of cryptocurrencies. However, challenges remain in the financial market due to the rise in U.S. government bond yields and oil prices. Grayscale is awaiting the approval of a Bitcoin spot ETF and a court ruling, which will be the next important catalyst for the market.

Bitcoin Shines Under the September Curse

Bitcoin rose by 4.1% in September, while most traditional assets suffered significant losses. In this challenging market environment, cryptocurrencies continue to provide investors with a certain level of diversification.

Bitcoin and Ethereum surged this morning, breaking free from the September curse, leading the stock market in a fourth-quarter rebound?

Rising U.S. Bond Yields Bring Pressure to Global Markets

A report from Grayscale pointed out that the latest pressure on global assets seems to come from the U.S. bond market. During the FOMC meeting in mid-September, the Federal Reserve indicated a possible rate hike later this year and a slower pace of rate cuts next year than previously expected. The Fed's updated guidance helps push up short-term bond yields and boost the value of the dollar.

However, a larger challenge facing the fixed-income market may be the surplus of long-term government bonds. The 30-year bond yield rose nearly 50 basis points in September, reaching the highest level since 2011. Long-term bonds are typically less sensitive to Fed rate changes. Instead, the bond market seems to be struggling to absorb the massive borrowing by the U.S. Treasury due to the government's huge budget deficit. While the budget deficit has remained high during this period, the Fed's previous purchases, or quantitative easing, have absorbed some of the bond supply. However, the Fed is now beginning to shrink its balance sheet, leading to more government borrowing impacting the open market and putting upward pressure on interest rates.

Bitcoin Less Affected by Traditional Asset Decline, On-Chain Metrics Improve

Bitcoin's trading volume continued to decline in September, but various on-chain metrics have improved: financing addresses, active addresses, and transaction volume have all increased. Grayscale attributes this to anticipation of a spot Bitcoin ETF and Mt. Gox, a cryptocurrency exchange, delaying repayment to creditors holding around 138,000 bitcoins worth about $3.7 billion until October 2024.

Ethereum's price slightly decreased compared to last month, with the ETH/BTC ratio hitting a one-year low. The price volatility of the second-largest cryptocurrency also dropped to extremely low levels. As of September 30, ETH's 30-day annualized price volatility was only 25%, while the average volatility since January 2022 was about 60%. Unlike Bitcoin, Ethereum's on-chain fundamentals have not changed much. At the end of September, market attention focused on the approval of an Ethereum futures ETF, with the ETH/BTC ratio slightly rebounding.

Stablecoin Market Stabilizes After Long-Term Decline

According to DeFi Llama data, the total market value of stablecoins has stabilized at around $124 billion after almost continuous decline over the past year. Since mid-August, the circulation of DAI and TUSD has significantly increased, while the supply of USDT has slightly grown since early September.

The adoption of stablecoins seems to have propelled Tron's TRX token to outperform other tokens recently. Over the past month, the TRX price has risen by 15%. The total locked value (TVL) of stablecoins hosted on Tron is higher than any other blockchain, even surpassing Ethereum. A significant portion of TVL comes from USDT, mostly hosted on Tron, currently accounting for 35-40% of the network's daily transactions.

Interestingly, Tron not only leads in TVL but also significantly surpasses Ethereum in the volume of USDT transfers, with daily trading volume about 15 times higher. The strong adoption of USDT on Tron demonstrates the suitability of stablecoins in the product market and underscores their growing importance in the cryptocurrency ecosystem. The success of USDT on Tron and the recent price increase of TRX may indicate that stablecoins are becoming an increasingly important gear in the modern cryptocurrency market mechanism.

Performance of Other Tokens

The cryptocurrency market continues to focus on the continued development of Layer 2 blockchains. The community media application friend.tech on BASE L2 collected more fees in September than the decentralized exchange Uniswap. Other tokens showing strong performance include DeFi tokens AAVE, CRV, and MKR, as well as oracle protocol token LINK.

Additionally, Toncoin TON briefly surpassed TRX to become the tenth largest cryptocurrency by market capitalization. The project announced integration with messaging app Telegram at the Singapore Token2049 conference. However, Grayscale reminds investors that while optimistic about the integration of cryptocurrencies and messaging apps, factors such as asset liquidity should be considered when evaluating their valuation. Most of TON's supply is held by a few large holders, and the token's trading volume is very low compared to its market cap.

Awaiting Approval of Bitcoin Spot ETF and Grayscale's Court Decision

Grayscale believes that Bitcoin's resilience and significant losses in traditional assets illustrate the diversification advantages of digital assets and the stable improvement of industry fundamentals. The next major catalyst for Bitcoin's price may come from the approval of a spot ETF. The SEC must seek a rehearing on the recent court ruling against Grayscale by October 13. If the SEC drops the appeal, it will reconsider Grayscale's application to convert GBTC to a spot ETF and other spot Bitcoin ETF applications currently under consideration.

Lastly, despite these encouraging signs, the broader financial market background may still be challenging: the Fed continues to tighten policy, U.S. bond yields may still be seeking a new balance, and the uncertainty of a "soft landing" for the U.S. economy. However, Bitcoin's recent stability suggests that once macro conditions improve, its valuation may begin to recover.