November 07, 2023

October 2023 Market Commentary

Galaxy Asset Management

November 7, 2023

Market Commentary

Digital asset markets displayed resilience in October, with BTC posting an impressive +28.34% monthly gain, ETH appreciating +8.72%, and the Bloomberg Galaxy Crypto Index appreciating +20.10%. The surge in Bitcoin’s price was largely driven by the anticipation surrounding the potential approval of a spot BTC ETF.

The journey toward a spot Bitcoin ETF approval played out in classic crypto fashion, replete with head fakes, misinformation, and market volatility. October presented several key developments on the path to approval as there were several updates to spot BTC ETF filings by Invesco, BlackRock, and others, signaling ongoing progress with the SEC. Although the SEC has not yet granted approval, market sentiment strongly leans toward an imminent green light, with Bloomberg placing the odds of approval at 90% by January 10.

Bitcoin continues to demonstrate resilience in 2023, surging over 108.19% year-to-date, despite the broader macroeconomic landscape and unrest in the Middle East. Notably, Larry Fink's recent endorsement of crypto as a "flight to quality" highlighted its growing role in diversified portfolios. Further, CME Bitcoin futures saw a surge in open interest as institutional capital front-ran the ETF hype. This shift underscores the growing influence of institutional players in shaping the crypto market landscape.

While Bitcoin dominated the spotlight, the broader altcoin market struggled to keep pace. One exception was Solana, which enjoyed a remarkable +79.05% rise in October, coinciding with its annual Breakpoint conference in Amsterdam. At the conference, Solana Foundation's executive director, Dan Albert, made a significant announcement regarding the testnet launch of Firedancer. This scaling solution, which has been in development by Web3 firm Jump Crypto since August of last year, is poised to address Solana's historical issue of frequent blockchain outages and serve as a long-term solution.

October was also filled with several regulatory developments. To name a few:

The SEC decided not to appeal the Grayscale GBTC ruling, paving the way for a potential GBTC conversion to an ETF.
A judge also rejected the SEC’s motion to appeal against the Ripple ruling.
Several spot Ether ETFs were filed.
The outcome of Sam Bankman-Fried’s criminal trial resulted in his being found guilty on all charges.

As we navigate what some are calling the early stages of a new crypto bull market, uncertainties linger regarding SEC decisions and the influence of major industry players like Binance. The crypto market is poised for exciting times, with the potential for higher Bitcoin prices, fueled by ETF approval prospects and potential Fed interest rate cuts. As we move forward, vigilance and adaptability will be key.

Portfolio Considerations

The upcoming 4th halving, expected in April 2024, promises to be a significant marketing event for this predictably scarce asset. With the imminent possibility of a spot ETF approval in early 2024, the extent of its potential post-approval price increase remains a subject of speculation. The strength of initial inflows into approved ETFs will depend on several factors, such as the market environment and the wealth channel’s willingness to add the funds to their respective platforms. An intriguing question revolves around the amount of new capital eager to enter the Bitcoin market, yet currently lacking suitable avenues. Insights from a recent Galaxy Research report shed light on this phenomenon.

History reminds us that approval events can introduce heightened volatility. Recall the rapid rise of the first Bitcoin futures ETF around the market peak in 2021. It's also worth noting that GBTC's potential conversion to an ETF may exert sell pressure, as shareholders redeem their shares and Bitcoin is released into the open market.

Next, the ETH/BTC ratio faced continued pressure in October, ending the month at 0.052. However, ETF approval could possibly mark a cyclical bottom as smart money may shift their focus towards Ethereum as we await the potential approval of a spot Ether ETF.

Bitcoin's history of adding value to portfolios through lowly correlated returns remains a compelling aspect of its appeal. Notably, its correlation with equities recently declined, indicating a divergence from traditional markets. As we navigate this ever-evolving crypto landscape, remember that thoughtful diversification and prudent adaptation to market dynamics are key to success. The crypto market continues to mature, opening new opportunities and challenges for investors and institutions alike.

Institutional Adoption Highlights

Crypto Performance and Volatility Data