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November 2023: Bitcoin’s Bull Run Continues

Research Team
Last Update 12/01/2023
  • Bitcoin’s price continued to rise in November and the crypto recovery broadened to a wider array of market segments.
  • Financial markets relaxed about certain macro risks, including the geopolitical conflict in the Middle East and the risk of a “hard landing” for the US economy.
  • The combination of “tight” token supply, easing macro risks, and the focus that the US presidential election will bring to excessive government borrowing may be positive for Bitcoin valuations in 2024.

After losing ground in 2022, Bitcoin has rebounded 130% in 2023, and is on track to be one of the best performing major assets of the year.[1] The crypto recovery continued in November as financial markets relaxed about a variety of macro risks. Within digital asset markets, this resulted in a shift in market leadership away from Bitcoin to an increasingly broad array of crypto market segments. Grayscale Research sees gradually improving crypto fundamentals and a relatively tight supply picture in major tokens (due to Bitcoin’s current ownership structure, for example). This may be consistent with rising crypto valuations in the year ahead, especially if the Federal Reserve has finished tightening and the US economy can avoid a “hard landing” (recession).

Over the last month, financial markets appeared to relax about a variety of tail risks, which helped previously underperforming assets to rebound. For instance, positive signs from the Middle East conflict seemed to reduce fears about a wider regional disruption, and assets related to Israel’s economy rebounded as a result (Exhibit 1). Similarly, long-maturity Treasury bonds rose in price (declined in yield) after the Treasury Department announced a smaller-than-expected increase in borrowing needs.[2] Consumer price inflation also continued to decline, raising hopes for eventual Fed rate cuts and a potential “soft landing” for the US economy. Bitcoin underperformed during the month on a volatility-adjusted basis (after outperforming since the end of August) but still managed a gain of 9% (Ether increased 13% in November).[3]

Exhibit 1: Reduction in tail risks contributed to asset market recovery in November

A broader crypto recovery

Until recently, Bitcoin had outperformed other crypto assets due to demand for its properties as a digital alternative to gold as well as optimism around spot Bitcoin ETF approval. However, crypto market leadership shifted in November as the rally broadened beyond Bitcoin.

Based on the FTSE Grayscale Crypto Sector Index Series, the best performing market segments last month were the Financials Crypto Sector, the Utilities & Services Crypto Sector, and the Consumer & Culture Crypto Sector (Exhibit 2). The Financials Crypto Sector Index was supported by a 131% gain in Thorchain’s RUNE token; the protocol runs the decentralized exchange ThorSwap which has recently seen an increase in trading activity.[4] For the Consumer & Culture Crypto Sector, the gain in November reflected increases in gaming-related tokens ImmutableX and Illuvium. Illuvium (up 119%) listed its eponymous game on the Epic Games Store on November 28th[5], while ImmutableX (up 87%), a Layer 2 blockchain on Ethereum for crypto gaming applications, announced a partnership with Ubisoft[6].

Exhibit 2: Financials and Consumer & Culture Crypto Sectors outperformed 

Aside from the latest price developments, there was renewed market focus around the intersection between crypto and artificial intelligence (AI) technologies following leadership turmoil at OpenAI. In our view, there may be synergies between public blockchain and AI technologies. Specifically, blockchains could combat or solve for potential societal risks posed by AI  such as the proliferation of deep fakes, bots, and misinformation. Additionally, decentralized computation protocols can counter centralized control over powerful AI models that hold sensitive personal information (for more detail see our background report The Convergence Between AI and Crypto). Major crypto projects that Grayscale Research considers related to the AI theme include Akash and Render (GPU sharing), Worldcoin (identity), and Bittensor (open-architecture AI development).

A range of crypto industry fundamentals have improved alongside the move higher in valuations. For instance, Bitcoin’s hash rate—a measure of the total amount of computing power securing the network—reached an all-time high in November (Exhibit 3). We attribute the trend to miners upgrading prior to next year’s Bitcoin halving[7], higher token prices (which allows older machines to operate profitably), and an oversupply of relatively new machines being operated by miner equipment manufacturers. We would also consider rising stablecoin activity to be an improving crypto fundamental. Over the last month, aggregate stablecoin market capitalization increased by $4bn and the amount of gas used on stablecoin transactions moved higher.[8]

Exhibit 3: Record high for Bitcoin hash rate

Fundamentals to drive Bitcoin’s price

After a stretch of significant gains, we would now characterize active crypto trader positioning as relatively “long”. Open interest for CME-listed Bitcoin futures reached a record high in November, for example, possibly pointing to rising institutional activity in the market (Exhibit 4). Meanwhile, crypto exchange traded products (ETPs)—including futures-based products in the US and spot-based products overseas—attracted another month of net inflows. Grayscale research estimates that global crypto ETP net inflows totalled $1.3bn in November and have reached $2.2bn for the year as a whole.

Exhibit 4: CME Bitcoin futures open interest at record high 

In terms of the short-term market outlook, “long” trader positioning implies that further price appreciation may be harder to come by. Major crypto token prices have appreciated significantly, and a more positive outlook is now priced in. Moreover, there are risks to the outlook that could derail this year’s positive trends. These include a “hard landing” (recession) for the US economy, a resumption of Fed rate increases or fewer-than-expected Fed rate cuts, and/or a long delay in regulatory approval of a spot Bitcoin ETF for the US market. Each of these risks could hold back the crypto recovery, at least over the near-term.

That being said, the central scenario for financial markets and the economy are likely to be positive for Bitcoin and other crypto assets, in our view. Bitcoin’s supply is relatively “tight” ahead of potential investor inflows into spot ETF products in the US. For example, according to Glassnode data, the share of Bitcoin’s supply held by short-term speculators reached a record low(Exhibit 5). Similarly, analysis from Grayscale Research also shows that a significant portion of Bitcoin is held by entities that may be slow to sell into an appreciated market (for more detail see Demystifying Bitcoin’s Ownership Landscape). Next year’s Bitcoin halving will also limit the growth of new token supply. This combination of inelastic Bitcoin supply and potential new investor inflows should be positive for valuations, in our view.

Exhibit 5: Larger share of Bitcoin supply held by long-term owners

More importantly than the technical backdrop, however, will be Bitcoin’s fundamental outlook. Bitcoin is a macro asset and considered by many to be a digital alternative to physical gold. Its price, therefore, is likely to be influenced by the factors that drive demand for digital gold, including Fed monetary policy, the health of the US economy, and the perceived soundness of fiat money systems. The market’s response to the election of Javier Milei is just the most recent example of the influence these kinds of factors can have. While the macro outlook is uncertain, a consensus of economists expects the Fed to cut rates next year and for the US economy to avoid recession.[9] There will also be a US presidential election next year, which we expect to bring focus on excessive government borrowing, Federal Reserve independence, and other issues which affect the longer-run value of the US Dollar. Grayscale Research expects that this combination would be positive for demand for physical and digital gold, and may be consistent with rising Bitcoin valuations.


[1] Source: Bloomberg

[2] Source: Barron’s

[3] Source: Bloomberg data.

[4] CoinTelegraph, Coin Gecko.

[5] CoinTelegraph, Coin Gecko.

[6] ImmutableX, Coin Gecko.

[7] Every four years the Bitcoin mining block reward declined by half. The next scheduled halving will occur around April 2024.

[8] Source: Defi Llama, Glassnode.

[9] Source: Bloomberg.


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