October 2023: Rising Demand for Bitcoin as Digital Gold
Research Team
Last Updated: 11/1/2023 | 10 min. read
Bitcoin’s price surged in October, outperforming most traditional assets as well as other crypto assets. Grayscale Research believes that the appreciation reflects rising demand for digital gold and optimism about the prospects for spot Bitcoin ETF approval in the US market.
Technology stocks have been under pressure, but digital assets have so far bucked this trend—largely because of macro demand for Bitcoin, in our view. Crypto’s near-term outlook will depend on whether the decoupling from tech can continue.
Another down month for traditional assets
Exhibit 1: Bitcoin gained in October alongside traditional safe havens
Exhibit 2: Bitcoin’s gain supported the Currencies Crypto Sector Index’s return
Crypto outperformers included Bitcoin, Solana, and Chainlink
Bitcoin (BTC) again outperformed Ethereum (ETH) in October, and the ETH/BTC price ratio fell to its lowest level since mid-2021. Flows into existing exchange traded products (ETPs)—including futures-based products in the US and spot products in other markets—skewed strongly in favor of Bitcoin during the month. Grayscale Research estimates that Bitcoin ETPs received net inflows of $436bn in October, compared to net outflows of $15bn from Ethereum-focused products (Exhibit 3). Other market positioning indicators like futures open interest also pointed to rising demand for BTC compared to ETH.
Exhibit 3: Flows into crypto ETPs favored Bitcoin in October
Bitcoin at a crossroads
On the other hand, Bitcoin’s core use case is as a non-sovereign money system and digital alternative to physical gold. Because of various risks around the world—including falling asset market valuations, vulnerable economies, and geopolitical tensions—demand for safe haven or “store of value” assets is rising. Bitcoin has benefited from these trends, in our view, as well as from expectations for spot ETF approval in the United States. For these reasons, Bitcoin’s correlation with technology-related equities has recently broken down (Exhibit 5). We think this decoupling can continue over the short-term, given the number of Bitcoin-specific positives. But if global asset markets continue to fall, it remains to be seen whether crypto can hold its recent gains.
Exhibit 5: Gold and Bitcoin rising while technology stocks fall
[1] Source: Bloomberg. Returns to the 60/40 portfolio measured with the Bloomberg Global 60:40 Index. The S&P 500 index fell 10.3% from July 31 to October 27. From July 21 to October 31 the cumulative drawdown for S&P 500 index was 8.6%.
[2] Source: Defi Llama and Glassnode.
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The FTSE Grayscale Crypto Sector Indexes provides a comprehensive framework that allows you to measure the performance of the expanding crypto universe. The index series seeks to bring clarity to this rapidly evolving asset class by identifying five distinct sectors that can be used as a roadmap to navigate the digital asset universe. The S&P 500 Index is a market-capitalization-weighted index that measures the performance of 500 of the largest publicly traded companies in the United States. The S&P Goldman Sachs Commodity Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The Barclays Global Aggregate Index is a market-weighted index of global government, government-related agencies, corporate and securitized fixed-income investments. The Advanced Research Risk Parity Index tracks the performance of a multi-asset strategy that balances risk equivalently among four broad asset classes: global equities, commodities, U.S. Treasury Inflation-Protected Securities (TIPS) and U.S. Treasury Futures. The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Market countries, excluding the United States. Global Aggregate Bond Index is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance. The MSCI Emerging Markets Index is designed to measure the financial performance of companies in fast-growing economies around the world and tracks mid-cap and large-cap stocks in 25 countries. The Bloomberg-Barclays 60/40 index is designed to measure cross-asset market performance globally. The index rebalances monthly to 60% equities and 40% fixed income. The Renaissance IPO Index (IPOUSA) is a stock market index based upon a portfolio of U.S.-listed newly public companies that include securities prior to their inclusion in core U.S. equity portfolios. You cannot directly invest in an index.
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