September 2023: Bitcoin Outperforms amidst Global Market Rout

Research Team
Last Update 10/01/2023
  • Bitcoin gained in September while many traditional assets suffered meaningful losses, underscoring crypto’s diversification properties. The pressure on global markets seemed to stem from rising government bond yields and higher oil prices.
  • Strong fundamentals played a key role as Bitcoin’s on-chain metrics improved during the month. Stablecoin market capitalization steadied after declining over the last year and digital asset markets remained focused on developments around Layer 2 blockchains and the potential for spot Bitcoin ETF approval in the US market.
  • Despite encouraging signs for the crypto industry itself, the broader financial market backdrop may remain challenging for the time being. However, Bitcoin’s recent stability suggests that its valuation could begin to recover once the macro backdrop improves.

Bitcoin (BTC) gained 4% in September, and the increase was a notable contrast to the meaningful losses for many traditional assets during the month (Exhibit 1). Cryptocurrencies are now more correlated with other markets, but they have continued to provide investors with a degree of diversification through this challenging market environment.

Exhibit 1: Bitcoin providing diversification benefits amidst global market drawdown

The latest pressure on global assets seemed to emanate from the US bond market (Exhibit 2). Part of this can be explained by the Federal Reserve. At its mid-September meeting, the central bank signaled that it will likely raise overnight interest rates one more time later this year, and that it may lower rates next year more slowly than previously expected. The Fed’s refreshed guidance helped to push up short-maturity bond yields and lifted the value of the Dollar.

Exhibit 2: Higher bond yields weighing on global markets

The bigger challenge for the fixed income market, however, may be a surplus of long-maturity government bonds. The yield on the 30-year Treasury bond rose nearly 50 basis points (bp) in September, reaching the highest level since 2011.[1] Long-maturity bonds (e.g. those with more than ten years remaining maturity) are typically less sensitive to small changes in the Fed’s rate guidance. Instead, the bond market appears to be struggling to absorb heavy borrowing from the US Treasury–the result of substantial government budget deficits. Although budget deficits have been large for a while, in the past Fed buying (“quantitative easing”) has absorbed a portion of the bond supply. Now that the Fed is shrinking its balance sheet (“quantitative tightening”), more government borrowing is hitting the public markets, putting upward pressure on interest rates (Exhibit 3).[2]

Exhibit 3: Bond market struggling to absorb US government debt without Fed Quantitative Easing (QE)

The combination of rising bond yields and higher oil prices appeared to weigh on equity markets and most other risky assets. The S&P 500 lost almost 5% in September, and was led lower by segments tied to the health of the US economy: homebuilders, industrials, and firms tied to the performance of the retail industry.[3]

Bitcoin was largely immune to the drawdown in traditional assets, and outperformed most other large-cap cryptocurrencies. While trading volume continued to decline during the month, a variety of Bitcoin’s on-chain metrics improved: funded addresses, active addresses, and transaction counts all increased (Exhibit 4). Given the progress toward a spot Bitcoin ETF in late August, it’s possible that the pickup in on-chain activity represented positioning by new investors ahead of possible regulatory approval.[4] Bitcoin may also have been supported by news that the trustee overseeing defunct crypto exchange Mt Gox will delay creditor repayments until October 2024.[5] The estate holds approximately 138,000 Bitcoin, currently valued at $3.7bn, and the decision will likely keep that supply off the market for the time being.[6]

Exhibit 4: Bitcoin on-chain activity increased in September

Meanwhile, Ethereum’s (ETH) token price declined slightly over the last month, and the ETH/BTC ratio fell to a new one-year low. Price volatility for the second largest cryptocurrency was also exceptionally low: ETH’s 30d annualized price volatility to September 30 was just 25%, lower than BTC’s volatility over the same period, and compared to an average of about 60% since January 2022.[7] Unlike Bitcoin, ETH’s on-chain fundamentals changed little. Later in the month, market attention focused on potential ETH futures ETF approval, and the ETH/BTC ratio partly recovered.

Away from BTC and ETH, a notable fundamental development in September was the leveling off of stablecoin market capitalization after a long decline. According to DeFi Llama, total stablecoin market cap has steadied around $124bn, after falling almost continuously over the last year (Exhibit 5). Since mid-August, outstanding supply of both DAI and True USD (TUSD) has increased notably, and Tether (USDT) supply has grown modestly since early September.

Exhibit 5: Stablecoin market cap has steadied after falling most of last year

Stablecoin adoption appears to be driving the recent outperformance of Tron’s TRX token vs other large cap tokens. In the past month, Tron's TRX has seen a 15% growth in price. The Total Value Locked (TVL) of stablecoins hosted on Tron is higher than any other blockchain, even surpassing Ethereum. A large chunk of this TVL is attributable to Tether (USDT), which is predominantly hosted on Tron and currently makes up an average of 35-40% of the network's daily transactions.[8]

Interestingly, Tron doesn't just lead in TVL; thanks in large part to lower transaction fees, it also significantly outstrips Ethereum in the number of USDT transfer events, boasting a daily average that is ~15 times higher (Exhibit 6). This robust adoption of USDT on Tron attests to the stablecoin's product-market fit and underscores its growing importance in contemporary cryptocurrency ecosystems. The symbiosis between USDT's success on Tron and TRX's recent price uptick could indicate that stablecoins are becoming an increasingly vital cog in the mechanics of modern crypto markets.

Exhibit 6: Tether activity on Tron much higher than Ethereum

Aside from stablecoins, crypto markets remained focused on ongoing developments in Layer 2 blockchains–which Grayscale Research discussed in a recent report. Notably, social media application on the BASE L2 overtook decentralized exchange Uniswap in total fees collected during September. From a price standpoint, other strong performers included major DeFi tokens AAVE, CRV, and MKR, as well as oracle protocol token LINK, which we believe has benefited from recent announcements related to partnerships with Swift and BASE.[9]

Lastly, Toncoin (TON) briefly overtook TRX to become the 10th largest crypto asset in terms of market cap. The project announced an integration with messaging app Telegram at Singapore’s Token2049 conference (the TON project was originally started by Telegram’s founder).[10] While we are optimistic about the prospect for crypto integrations with messaging applications, investors should consider an asset’s liquidity, among other factors, when assessing its valuation. Notably, a large portion of TON’s supply is owned by a few large holders and the token has extremely low trading volume compared to its market capitalization.[11] For example, according to data from The Tie, the Dollar value of TON’s market cap is more than 200 times its monthly trading volume.

Bitcoin’s resilience alongside significant losses for traditional assets speaks to the diversification benefits of digital assets as well as the industry’s steadily improving fundamentals, in our view. The next major catalyst for Bitcoin’s price could come from approval of a spot ETF. The SEC has until October 13th to seek a rehearing following its loss.s to Grayscale in the recent ruling from the DC Circuit Court of Appeals. If the agency forgoes an appeal, it will then reconsider Grayscale’s pending application, as well as the applications of other spot bitcoin ETF filing it’s currently considering.

Despite these encouraging signs, the broader financial market backdrop may remain challenging for the time being: the Federal Reserve is still tightening, government bond yields may still be finding a new equilibrium, and a “soft landing” for the US economy is not assured. However, Bitcoin’s recent stability suggests that its valuation could begin to recover once the macro backdrop improves.


[1] Source: Bloomberg.

[2] The heavier supply outlook also reflects details of the US Treasury's funding decisions. Previously the agency was financing spending partly through bill issuance and drawing down its cash balance at the Federal Reserve. It is now leaning more heavily on longer-maturity bond issuance.

[3] Source: Bloomberg. Indices include the S&P Homebuilders Select Industry Index, the S&P Industrial Sector Select Index, and the Goldman Sachs US Retail Index.

[4] We use the generic term “ETF” to refer to exchange-traded investment vehicles, including those that are required to register under the Investment Company Act of 1940, as amended (the “‘40 Act”), as well as other exchange-traded products which are not subject to the registration requirements of the ‘40 Act.

[5] Source: CoinDesk.

[6] Source: Arkham.

[7] Source: Bloomberg, Grayscale Investments.

[8] Source: BItquery.

[9] Sources: CoinDesk, Decrypt, Token Terminal, and Bloomberg.

[10] Source: TechCrunch.

[11] According to, wallets with greater than 1% of outstanding supply (“whales”)hold 76% of TON’s total supply..


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