executive Summary
The digital asset market has achieved impressive returns in 2023, with BTC and ETH outperforming traditional assets such as gold by 93% and 39% respectively.
Market corrections for both major digital assets have been significantly smaller than in previous cycles, which indicates investor support and positive capital inflows.
Our Altseason indicator shows the first significant appreciation against the US dollar since the highs of this cycle. However, it’s worth noting that this comes against the backdrop of Bitcoin’s continued rise in dominance, with its market capitalization growing 110% year-to-date.
💡All charts can be viewed on the on-chain weekly console.
Bitcoin prices have risen more than 30% in recent weeks, in part due to positive developments related to numerous Bitcoin ETF applications submitted to the SEC for approval. Also noteworthy is the relative performance of Bitcoin and digital assets as a whole compared to traditional asset classes such as commodities, precious metals, stocks and bonds.
In this week’s report, we explore this impressive relative performance of digital assets in 2023. BTC and ETH have significantly outperformed traditional assets so far, while also experiencing smaller drawdowns compared to previous cycles.
Relative toughness
The chart below compares the price of BTC and ETH in terms of gold, showing how they perform compared to traditional defensive stores of value. In 2023, BTC appreciated by 93% compared to gold, while ETH rose by 39%. Against the backdrop of increased global uncertainty, the strong performance of digital assets may have attracted the attention of many traditional investors.
Real-time charts
We can see that based on a rolling 30-day basis, the returns of BTC🟧 and ETH🟦 have been closely correlated throughout 2023. Both assets have experienced declines of similar magnitude, but Bitcoin has performed more strongly during the rallies.
We can also see that the relative volatility of both digital assets exceeds that of gold (black), which has seen smaller price swings in both directions.
Real-time charts
The relative strength of a digital asset can also be observed by evaluating the deepest corrections within a macro uptrend. Here, we will evaluate this metric for ETH so that we can see the performance relative to the USD (an external benchmark), but also compared to the market leader BTC (an internal benchmark).
We believe that the cycle low for ETH/USD occurred in June 2022, following the collapse of 3AC, Celcius, and LUNA-UST. Since then, the deepest ETH/USD correction relative to the local high has been -44%, which was set when FTX failed. Today, ETH is trading $2,118, or 26%, below its 2023 high, which is significantly stronger than the -60% or larger retracements seen in previous cycles.
The real-time chart shows that BTC's performance is comparable, with its deepest retracement in 2023 being only -20.1%. The 2016-17 bull run often saw corrections of more than -25%, while 2019 saw a retracement of more than -62% from the July 2019 peak of $14,000.
To assess capital flows within the digital asset market, a useful reference is to look for periods when ETH has outperformed relative to BTC. The chart below shows the depth of the maximum retracement of the ETH-BTC ratio, compared to the local highs of the current uptrend.
Previous cycles have seen ETH retrace over -50% relative to the benchmark during bear market recovery phases, with the current retracement reaching -38%. Of particular interest is the duration of this trend, with ETH having depreciated relative to BTC for over 470 days to date. This highlights an underlying trend between cycles, where BTC dominance strengthens over longer periods of time during the post-bear market hangover.
We can also use this tool to monitor inflection points in risk-on and risk-off cycles, which we mentioned in Chain Weekly Update 41 (and will be discussed again later in this update).
Real-time charts
This chart shows the relative performance of the ETH/BTC ratio from another perspective, showing the quarterly, weekly, and rolling weekly ROI oscillators for the ETH/BTC ratio. A barcode indicator (blue) then highlights periods where all three time frames show ETH underperforming relative to BTC.
Here we can see that the recent weakness in the ETH/BTC ratio is similar to what happened in May-July 2022, with the price ratio reaching the same level of 0.052.
Real-time chart of investor sentiment trends
Digging deeper into the Ethereum price model, we notice that ETH is trading at $1,800, 22% above the realized price ($1,475). The realized price is typically viewed as the average cost basis of all coins in supply, priced according to the time of the last transaction.
This suggests that the average ETH holder is holding a modest profit, but it is still well below the extreme price levels often seen during bull run binges.
Real-time charts
Another way to visualize changes in investor profitability is through the MVRV ratio, which is the ratio between price and realized price. In this case, we compare the MVRV ratio to its 180-day moving average as a tool to monitor trends.
When the MVRV ratio is above this long-term average, it indicates that investors are becoming significantly more profitable, which is usually a sign of a rising market. However, despite ETH’s good market performance at the start of the year, the market is still in a state of negative momentum according to this metric. It appears that the aftermath of the 2022 bear market is still slowly dissipating.
Real-time charts
Changes in Confidence
We can also measure the relative performance of Ethereum investor profitability using the Investor Confidence in Trend metric we developed in our On-Chain Weekly Report Week 38. We attempt to gauge changes in Ethereum investor sentiment by comparing the difference between the holder and seller cost benchmarks.
When the seller’s cost basis is lower than the holder’s, it means that the sentiment is negative;
On the contrary, if the seller's cost basis is high, it shows that the sentiment is optimistic.
🟧Transition sentiment refers to the fluctuation of cost basis close to the holder's cost basis.
By this measure, the market is in a transition zone, positive but relatively small.
Real-time charts
Altcoin Season: USD….but not BTC
Building on previous work conducted in Week 41, we were able to develop a new iteration of the altcoin indicator. In this model, we use the risk environment defined previously as our first condition, requiring capital inflows into BTC, ETH, and stablecoins. We also added a second condition, which is positive momentum in the total altcoin market capitalization (the total cryptocurrency market capitalization excluding BTC, ETH, and stablecoins).
Here, we are looking for periods when the total altcoin valuation is greater than its 30D SMA. This indicator was positive on October 20, before Bitcoin surged from $29,500 to $35,000.
Real-time charts
When evaluating the recent performance of the total altcoin market capitalization, a high level of confidence in digital assets is evident.
The local upside recorded a +21.3% increase in the sector’s valuation, with only six trading days showing larger percentage changes. This highlights the waterfall effect of investor capital as Bitcoin’s dominance trended upward, tending to spark a rise in altcoin valuations compared to fiat currencies.
Real-time charts
However, it is important to remember that Bitcoin’s dominance is continuing to rise. From a relative perspective, BTC now controls over 53% of digital asset market valuation, while Ethereum, large altcoins, and stablecoins have all experienced relative declines in their dominance in 2023. Bitcoin’s dominance has risen from its cyclical low of 38% set at the end of 2022.
Real-time charts
Finally, we can compare the year-over-year growth of Bitcoin to the total altcoin market cap (excluding stablecoins). Bitcoin market cap grew 110% in 2023, while altcoin market cap grew 37%, an impressive but relatively small increase.
This highlights an interesting market dynamic where the altcoin sector has outperformed traditional assets such as fiat currencies and gold, but significantly underperformed Bitcoin.
Real-time charts
Conclusion and Summary
The digital asset market posted impressive returns in 2023, leaving the initial recovery phase and entering an uptrend again. For market leaders BTC and ETH, the 2023 market correction was significantly shallower than the previous cycle uptrend, indicating that investor support and positive capital inflows are taking place.
Looking at multiple indicators, including the Altcoin Indicator we developed, we have seen the altcoin sector’s market valuations rise significantly for the first time since the peak of the last cycle. However, it is important to note that this performance is relative to fiat currencies (i.e., the U.S. dollar). Within the digital asset space, Bitcoin’s dominance continues to rise, resulting in an annual growth rate of over 110% in Bitcoin’s market capitalization.
