What We’re Seeing in the Markets: BTC and ETH Resilience Amid Altcoin Struggle and Strategic Shifts

Stay on top of the latest in crypto research as we share the insights of leading institutional research players.

In this edition, we share what Cumberland is seeing in the markets amid the recent crypto pullback and broader strategic shifts with the ETF benchmarks.

June was a challenging month for crypto markets; BTC and ETH are both down about 8% as a bit of pre-summer ennui crept into what was otherwise a phenomenal year for both assets; even after June, both assets are up about 50% on the year. A decline after a sharp rally is always to be expected, and with stocks pushing to new highs, a rate easing later in the year looking likely, and an ETH ETF on the way, BTC and ETH holders, for for the most part, quite understated.

However, the stress is in the alts market. The first issue is that while BTC and ETH lost 8% in June, alts are up significantly more on the month, usually between 20 and 30%. It feels like Beta – more volatile assets tend to do worse in declining markets – but it’s not. If it was only Beta to blame, we would have seen better performance in these assets earlier in the year, on the way up, but we didn’t. Alts underperformed BTC and ETH on the rally, and also underperformed on the selloff; a very ugly state within a correlated asset class. At the start of June, with BTC and ETH both +60% and near their local highs, assets such as OP, ARB, MATIC, ATOM, AVAX and APT were all down between 10% and 40% on the year, and June saw all brought down.

A few weeks ago we highlighted an issue with L2 tokens; there are too many of them. Not from a management standpoint, but from a market cap standpoint. The capital pool distributed to these L2 tokens is not growing, but the number of tokens available has been. Looking at the performance of all alts this month, one has to wonder if the same can be said of L1 tokens, or even alts written large. Even in the midst of crypto becoming more mainstream investable (which is definitely happening), it’s unclear if more capital is being unlocked for assets outside of BTC and ETH. I’m not being cute here: it’s really unclear.

There is absolutely more capital being unlocked for crypto. But it’s mostly the “can only invest in regulated products” crowd, and it all flows into BTC, and is expected to flow into ETH once the ETF launches

We can expect some wealth effect due to BTC and ETH rallies. Crypto investors are wealthier, and we would normally expect them to spin some of their profits further down the risk curve: into NFTs and into ALTs. We haven’t seen much evidence of this.

BTC and ETH are special here because they are on the right side of a significant moat. The question, the, becomes “Who else can cross the moat?” There are definitely some candidates – SOL, DOGE, even BCH or LTC – but none of them feel like a this year thing.

This puts crypto fund managers in a challenging spot. It is extremely difficult to outperform the benchmark (BTC) right now, and thanks to ETFs, the benchmark is now widely available for around 25 bps. We have seen many traders shift strategies to options, where they can stay in BTC and ETH markets but trade leveraged, and in particular, there has been significant volume going through in calls, even amid this month’s decline.

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