September 2023: Bitcoin Outperforms amidst Global Market Rout
Research Team
Last Updated: 10/1/2023 | 11 min. read
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.
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
Exhibit 3: Bond market struggling to absorb US government debt without Fed Quantitative Easing (QE)
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
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
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.
[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.
[11] According to CoinMarketCap.com, wallets with greater than 1% of outstanding supply (“whales”)hold 76% of TON’s total supply..
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