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Bitcoin’s Market Structure, Correlation to Gold, and Miner Revenue Mix

Jun 17, 2021 · 3 min read

By Ashwath Balakrishnan, and Jeremy Ong

Market Update

Crypto markets haven’t done anything notable today, with BTC and ETH up 1.5% each. Today’s edition looks into Bitcoin market structure, investor sentiment, and the network usage.

BTC and Gold’s Relationship

  • Back in 2019, BTC’s correlation to gold propelled the narrative that BTC is evolving into a safe haven asset. However, that relationship inverted in the second half of 2020 and it hasn’t recovered since.
  • Fed Chairman Jerome Powell insisted that current inflationary pressure is transitory, but the Fed also did raise its expectation of inflation for the year.
  • If BTC isn’t considered an inflation hedge — as gold is — by investors, then rising inflation could negatively impact BTC sentiment.

BTC Options OI Recovers; ETH OI Muted

  • Open interest for BTC and ETH options have been in decline since mid May. But, as noted yesterday, BTC options OI is starting to increase.
  • However, ETH open interest remains stagnant, indicating traders are trying to position themselves for a BTC move instead.
  • Given ETH/BTC’s decline in the last week and long-term holders starting to buy up BTC, the rotation from ETH and altcoins to BTC could be on.

The Options Market is Still Cautious

  • The 25% delta skew measures the implied volatility of an out-of-the-money call with a delta of 25% (or .25) against the implied volatility of an out-of-the-money put with a delta of 25%.
  • Implied volatility is a proxy for how cheap/expensive an option, so this metric measures the relationship between call and put pricing.
  • Over the past month, the skew has been in decline, which means puts are getting expensive (due to higher demand) relative to calls.
  • Watching whether this continues declining into negative territory (traders buying up puts in anticipation of downside) or flips back into positive territory (traders buying calls to speculate on upside) will serve as a strong indicator of sentiment.

Fees for Major Networks Plummet

  • Alongside price, usage of the top two blockchains also took a big hit as evidenced by miner revenue data.
  • The percentage of miner revenue contributed via transaction fees for Bitcoin and Ethereum have fallen sharply in the past month, as have active address and the daily transaction count.
  • Lower fees imply lower demand for block space, which is indicative of stalled user appetite. If this persists, it could signal a decline in these networks’ fundamentals.

Notable Tweets

Alchemix explains yesterday’s bug with alETH.

When the playing field is level, billionaires get rug pulled too.

All paths for yield eventually lead to DeFi.

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