Cryptocurrencies: Dampener after soaring

The September euphoria on the crypto market has faded and the currencies are weakening again. Many believe that lower interest rates, the establishment of the asset class and seasonality speak in favor of the coins.

10 October, 2024 FRANKFURT (Frankfurt Stock Exchange). After the strong rise of Bitcoin & Co. in September, October brought some disillusionment to the crypto scene. “Due to the escalation of geopolitical tensions in the Middle East, the upswing came to a temporary end,” reports André Dragosch from the ETC Group. There is also speculation that the US government could sell almost 70,000 bitcoins that were confiscated from the operator of the dark web marketplace Silk Road. The sale of large quantities of bitcoins by the German Federal Criminal Police Office in the summer of this year had already put significant pressure on the price. 

Bitcoin, which cost around USD 53,000 a month ago, had risen to over USD 66,000 by the end of September. On Thursday morning, it is back down to just 63,126 US dollars. Since the beginning of the year, this still represents an increase of 43%, even if the all-time high of almost USD 74,000 in March is a long way off. The price of Ethereum, on the other hand, is currently at USD 2,404, roughly the same level as at the start of the year. At its peak in March, it was over USD 4,000. 

“Interest rate turnaround positive for cryptocurrencies”

“One of the main reasons for the recovery in September was the improved election chances of Donald Trump, who is considered crypto-friendly, in the US presidential election,” says Dragosch from the ETC Group. In addition, the liquid supply of bitcoins fell to its lowest level since the beginning of the year due to the halving. In addition, investors' risk appetite has increased, for example due to the increasing use of bitcoins by companies and the approval of bitcoin ETF options for the US cash market by the US Securities and Exchange Commission (SEC). “The interest rate turnaround implemented by the US Federal Reserve on September 18 is also seen as positive for cryptocurrencies.”

 “Fourth quarter period with best performance”

“Part of Bitcoin's performance is probably due to the easing of monetary policy,” says Benjamin Dean from issuer Wisdom Tree. “When central banks increase liquidity, the money has to flow somewhere.” He also points to gold, the price of which recently reached an all-time high. Adrian Fritz from 21Shares also mentions monetary policy, good demand for spot ETFs and the Bitcoin halving. “Historically, October and the fourth quarter have also generally been among the best performing periods for Bitcoin, with an average gain of 20 percent since its launch,” he adds. 

Inflows into baskets since the beginning of the year, outflows from Bitcoin ETNs

Crypto ETNs have been well received recently. “September marked the third consecutive month of inflows for the European crypto ETN market, with flows of USD 187 million into physical crypto ETNs,” reports Fritz from 21Shares. Basket ETNs (plus USD 139 million) were particularly popular. This is also evident for the year as a whole. According to 21Shares' figures, a lot of money has flowed into crypto baskets (USD 276 million) and Ethereum trackers (USD 143 million) since the beginning of the year, while physical Bitcoin trackers have seen significant net outflows (USD 385 million). 

The largest crypto ETN on Xetra is still the ETC Group Physical Bitcoin (DE000A27Z304), but assets under management have fallen from EUR 1 billion a month ago to EUR 775 million. The other major ETNs also recorded outflows in a month-on-month comparison: CoinShares Physical Bitcoin (<GB00BLD4ZL17Y>) with EUR 712 million, 21Shares Solana Staking (CH1114873776) with EUR 652 million, 21Shares Bitcoin (CH0454664001) with EUR 537 million and WisdomTree Physical Bitcoin (GB00BJYDH287) with EUR 478 million. 

From Anna-Maria Borse, 10 October 2024, © Deutsche Börse