Q9 Weekly | Shifting Tides

Q9 Capital
6 min readMay 18, 2023


18 May 2023

  • BTC/ETH correlation weakest since 2021 — signals shift in dynamics
  • Axie Infinity rallies after game listing on Apple App Store
  • Tether will buy BTC monthly for reserves

Bitcoin’s correlation with Ether has reached its weakest point since 2021, hinting at a changing market dynamic. As Ethereum has shifted from PoW to PoS, the economics of supply and demand underlying the two cryptocurrencies should continue to diverge and BTC may no longer anchor ETH and the broader market.

Both BTC and ETH seem increasingly driven by divergent idiosyncratic factors. Bitcoin will cement its status as the “digital gold” and macro asset while Ether will be seen as a growth stock or emerging market. For traders, the decoupling presents new opportunities to capture the relative value between the two tokens without involving the dollar.

The 30-day rolling correlation between changes in BTC and ETH prices was 77%, the lowest since 2021 and notably weaker than 96% seen two months ago.

BTC/ETH Correlation Declines

Source: Kaiko

Meanwhile, trading ranges for BTC continue to narrow, a sign that uncertainty remains the order of the day.

BTC Trading Ranges Decline

Source: TradingView

Simultaneously, BTC’s total share of the crypto market continues to rise, remaining the safe haven digital asset for investors.

Bitcoin’s Dominance Has Risen in 2023 (BTC.D)

Source: TradingView

Solana has seen a huge growth in active users recently, jumping to second place after the BNB Smart Chain. The launch of Mad Lads NFTs likely contributed to this spike in user activity. Mad Lads has been responsible for over 50% of total NFT sales on the Solana blockchain over the past week.

Solana Leads Major Chains in Active Addresses Growth Rate

Source: Messari

Mad Lads NFTs

Digital asset investment products saw a 4th consecutive week of outflows totalling US$54m, bringing the total outflow to US$200m, representing 0.6% of total assets under management (AuM). Bitcoin products saw outflows totalling US$38m, representing 80% of all outflows over the period.

Weekly Crypto Asset Investment Product Flows (US$)

Source: CoinShares

To Infinity and Beyond

Blockchain-based play-to-earn project Axie Infinity’s native cryptocurrency AXS rallied after the company’s card-based strategy game debuted on the Apple app store. AXS surged over 7% from $6.8 to $7.3 on the news. This is still a long way off its all-time high of $165 reached in November 2021. The game will initially launch in the Apple store across Latin America and Asia.

Axie Infinity: Origins is a card game that will initially give players free non-NFT “starter characters.” It represents a shift away from the original Axie Infinity game, which users had to either buy or rent NFTs to play. Although starter characters on the app won’t be NFTs, but the Axie Infinity COO says that users can transfer NFTs into the app.

However, broader NFT trading volumes have hit a new low since 2021, down 80% from last year’s numbers.

Source: Intotheblock

The total number of blue-chip NFT sales fell from 19.9K to 17.5K, a 12.2% MoM decrease. Bored Ape Yacht Club (BAYC) was the only collection to have an increase in the number of sales throughout April.

Source: TheBlock Pro

Birds of a Tether

Tether says it will buy Bitcoin monthly for stablecoin reserves — Weeks after an attestation found that a highly-profitable Tether was holding gold and BTC, the stablecoin issuer has said it will regularly buy Bitcoin starting this month as part of a new investment strategy. Tether, which had a profitable first financial quarter of the year amid a banking crisis that affected its main competitor (USDC), said it will allocate up to about 15% of the realized profits from investments into BTC, building up a “reserve surplus” of assets backing the USDT token.

USDT Total Supply

Source: CoinGecko

Total Stablecoin Market Supply

Source: The Block

Last week the stablecoin issuer reported that it held more than $69bn in cash and cash equivalents at the end of March, including $53bn invested in US Treasury bills, $7.5bn in overnight reverse-repurchase agreements and $7.5bn in money-market funds. The crypto company had billions of dollars in precious metals, secured loans and other investments that include digital tokens. The firm also reported $1.48bn of net profits in Q1 and revealed $1.5bn in BTC holdings already.

Based on current profit levels, they expect to buy around $75mn per month of Bitcoin going forward (about 15% of their total monthly profits). “Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential,” said Paolo Ardoino, chief technology officer of Tether. 85% of their reserves will remain in “cash and cash equivalents.”

Tether said it plans for its Bitcoin investments to be part of the company’s “excess reserves,” which is what it calls additional reserves beyond the value of its liabilities — the market cap of the Tether stablecoin. Tether said that each token is backed one for one with liquid investments — cash and cash equivalents such as Treasurys — to allow stablecoin users to redeem their tokens and maintain the coin’s dollar value. High yields on its holdings of Treasurys have been profitable for the company.

Even though Tether claims it will make these purchases with net operating profits, rather than existing client deposits, there is still inherent risk in this action considering the company’s historical lack of transparency and the market’s frequent bouts of volatility.

Tethers Bitcoin bet isn’t moving digital asset markets, but it does provide another indicator that diversification into the asset could provide a hedge against dollar debasement or instability — especially in the face of potential US government default risks as we near the end of debt ceiling negations.

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