Portrait Web (1).jpg

Market Byte: An Expanded Crypto Rally

Zach B&W
Zach Pandl
Last Update 11/14/2023
  • Over the last month, the crypto rally has broadened beyond Bitcoin to include other market sectors, notably smart contract platforms—the best performing FTSE Grayscale Crypto Sector since mid-October.
  • The market is now discounting a more optimistic outlook, and active crypto traders appear to be positioned long, as futures open interest has picked up and the cost of leverage has increased. If the favorable news does not continue, there is a greater risk of disappointment.
  • Encouragingly, lower-than-expected inflation for October should allow the Fed to remain on hold. If real interest rates have peaked and we continue to see progress toward spot ETF approvals in the US market, we believe the recovery in crypto valuations can continue.

The crypto rally that started with Bitcoin has since broadened and is now reflected in most other market segments. In addition to optimism about spot Bitcoin ETF approval and demand for Bitcoin’s properties as a digital alternative to gold, recent market performance highlights a variety of other themes, including competition among smart contract platforms, progress on blockchain-native video game development, and tokenization efforts by TradFi firms.

Based on the FTSE Grayscale Crypto Sectors Index Series, aggregate crypto valuations rose 40% between October 15 and November 13 (Exhibit 1). Although the Currencies Crypto Sector had led the market in 2023 prior to October, it has since lagged as the market rebound extends beyond Bitcoin. Instead, over the last month the Smart Contract Crypto Sector has outperformed, supported by a surge in the price of the Solana (SOL) token and several other smart contract platform assets. In total, the aggregate market capitalization of the FTSE Grayscale Crypto Sector Index Series increased to $1.2 trillion from $890 billion as of October 15, 2023.

Exhibit 1: Smart Contract Platforms Sector Recent Outperformance 

Competition among smart contract platforms was a major theme in crypto markets in 2021, and has recently reemerged. In particular, SOL appreciated more than 150% since mid-October (Exhibit 2)[1], likely driven by the announcement of Firedancer at the annual Solana Breakpoint conference, a new validator client developed by Jump Crypto intended to improve the network’s reliability.  Among Layer 1 smart contract platforms, Solana has the third most daily active users[2] and the second most full-time developers[3], and many investors seem to consider the chain the strongest competitor to the market leader, Ethereum.

Exhibit 2: Solana Outpacing Rivals 

Other notable outperformers included Illuvium (ILV) and ImmutableX (IMX), components of the Consumer & Culture Crypto Sector. Illuvium has developed a suite of interoperable sci-fi games built on the ImmutableX blockchain; the project announced that its games will be released on the Epic Game Store on November 28.[4]

Separately, asset tokenization by TradFi institutions remained in focus among market participants. While much of this activity will take place on private/permissioned blockchains, it could have certain implications for crypto markets, as well. In particular, Chainlink developers expects that its Cross-Chain Interoperability Protocol (CCIP) may help connect these two ecosystems. Chainlink’s LINK token has gained 94% since October 15.[5]

After the runup in prices, active crypto traders now appear to be positioned fairly long. Bitcoin futures open interest has reached its highest level since the spring of 2022[6], and the cost of borrowing on both centralized and decentralized platforms surged on November 13 (Exhibit 3).[7] There have also been substantial inflows into global crypto Exchange Traded Products (ETPs) in recent weeks, including spot-based products outside the US market and futures-based products in the US. Since October 15, Grayscale Research estimates that crypto ETP net inflows have totalled about $990mn, dominated by inflows into Bitcoin products.[8]

Exhibit 3: Leverage more expensive on centralized and decentralized platforms

Crypto valuations now discount a more optimistic outlook, which means if the incoming news becomes less favorable, there is a greater risk of disappointment . Fortunately, the latest data continue to cut in a positive direction. For instance, consumer price inflation was lower than expected in October, which we would expect to raise the odds that the Federal Reserve is done tightening (bond yields declined sharply after the report). Fed rate hikes have weighed on crypto valuations, in our view, and the end to that process may help support a market recovery (Exhibit 4). We believe the recovery in crypto valuations can continue if real interest rates peak and we continue to see progress toward spot ETF approvals in the US market.

Exhibit 4: Lower real interest rates should support a crypto recovery


[1] Source: CoinTelegraph, Bloomberg.

[2] Source: Token Terminal.

[3] Source: Electric Capital Developer Report. Not including Layer 0 chains.

[4] Source: CoinTelegraph.

[5] Source: Coin Metrics.

[6] Source: Glassnode.

[7] Live data suggest that borrowing costs fell back on Tuesday, November 14.

[8] Source: Grayscale Research based on Bloomberg data as of November 13, 2023.

Important Information

Investments in digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in digital assets are not suitable for any investor that cannot afford loss of the entire investment.

All content is original and has been researched and produced by Grayscale Investments, LLC (“Grayscale”) unless otherwise stated herein. No part of this content may be reproduced in any form, or referred to in any other publication, without the express consent of Grayscale.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any investment in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. This content does not constitute an offer to sell or the solicitation of an offer to sell or buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this content to make an investment decision and any information contained herein should not be used as a basis for this purpose.

This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors.

Investors are not to construe this content as legal, tax or investment advice, and should consult their own advisors concerning an investment in digital assets. The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Grayscale’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Grayscale assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Grayscale has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Grayscale as to its accuracy, reliability, or completeness. You should not make any investment decisions based on these estimates and forward-looking statements.

There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the digital assets that we have chosen to analyze.





Related content