The charts and themes from the past week that tell an interesting story in crypto and investing…

1. One-year post Merge

It's been over a year since the Merge happened. As a refresher, The Merge was a technical upgrade to the Ethereum blockchain that transitioned it from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) system. This was achieved by joining Ethereum's mainnet with its PoS-based system, referred to as the Beacon Chain. The Merge was a major step towards Ethereum's long-term vision of a more scalable, secure, and sustainable blockchain. It reduced Ethereum's energy consumption by ~99.95%. It also paved the way for future scalability improvements, such as danksharding.

ETH/BTC has seen a gradual decline post-merge, down -21%. This indicates that ethereum has underperformed bitcoin in that time frame, which would be a surprise to most investors and/or believers in the ultrasound money meme. Even to me, this is surprising as I expected ETH to outperform BTC seeing it went deflationary post Merge. Perhaps 12 months is too short a time frame to make any meaningful analysis of the ultrasound money meme. We will check back later on this, sometime in the future.

ETH has also lagged behind the rest of the altcoins market combined in terms of trading volume. I know it doesn't speak a lot, comparing the volume of one asset (ETH) to thousands of altcoins. Why I still brought it up is because ETH outperformed for a brief period post-merge, and only began to lag as we got into 2023.

On the bright side, the number of stETH holders has been on an uptrend since inception, accelerating post-merge. stETH holders are users who have staked their ETH on the Lido protocol. Lido is a liquid staking platform that allows users to earn staking rewards without having to lock up their ETH for an extended period. When a user stakes their ETH on Lido, they receive an equivalent amount of stETH tokens in return. stETH tokens represent the user's staked ETH and the staking rewards that they have earned.

This one made the rounds during the weeks/days leading up to the merge. I'm talking about the PoW fork (ETHW). There was lots of chatter as to whether ETHW would survive or not. Didn't expect it to survive, and neither did I expect it to fade into obscurity so soon. I thought it'd slowly bleed value like Bitcoin Cash (BCH) or Ethereum Classic (ETC). Funny enough, ETC has held up way better than ETHW has. You can say ETC to Ethereum is what BCH is to Bitcoin, and ETHW to Ethereum is what BSV is to Bitcoin.

2. One less worry

Mt. Gox, the once-dominant cryptocurrency exchange that was hacked in 2014 and lost over 850,000 bitcoins, has extended its repayment deadline to creditors by one year to October 2024.

The delay was announced on September 21, 2023, by Mt. Gox's rehabilitation trustee, Nobuaki Kobayashi. Kobayashi said in a statement that the delay is necessary to give the trustee's team more time to finalize the repayment plan and to ensure that the repayment process is carried out in a fair and orderly manner.

The delay is the latest setback in the long and winding saga of Mt. Gox. The exchange filed for bankruptcy in 2014 after the hack, and it has been working to repay its creditors ever since. However, the repayment process has been complex and time-consuming, due in part to the fact that the value of bitcoin has fluctuated wildly since the hack.

The new repayment deadline of October 2024 is likely to be welcomed by Mt. Gox's creditors, who have been waiting for years to be repaid. However, it is also important to note that the repayment plan is still subject to court approval. If the court does not approve the plan, or if there are any other unforeseen delays, the repayment deadline could be pushed back even further.

The total assets that Mt. Gox is supposed to pay out are 141,686 bitcoins (BTC) worth $3.1B, 142,846 bitcoin cash (BCH) worth $40.3M, and 69.7 billion Japanese yen (JPY) worth $510M. They just took out ~$3.7B of potential selling pressure this year.

3. The Decoupling

The chart below shows the 30-day Pearson correlation between Bitcoin (BTC) and three other assets: gold, the S&P 500, and the Nasdaq Composite. The Pearson correlation coefficient is a measure of the linear relationship between two variables. It ranges from -1 to 1, with a value of -1 indicating a perfect negative correlation, a value of 0 indicating no correlation, and a value of 1 indicating a perfect positive correlation.

The chart shows that Bitcoin has a positive correlation with all three of the other assets, but the correlation is strongest with the Nasdaq Composite (0.60) and weakest with gold (0.20). This means that Bitcoin tends to move in the same direction as the Nasdaq Composite and the S&P 500, but it has a less predictable relationship with gold.

What's astonishing right now, is that Bitcoin has had a near 0 30-day correlation to Gold, the S&P 500, and the Nasdaq Composite in the past few weeks. Bitcoin's Correlation to all three assets has hovered between +0.2 and -0.2 in recent weeks, indicating no correlation between Bitcoin and the three asset classes.

4. Lights out

The lighting network's capacity has taken a hit in recent months, with the capacity declining from 5.64k BTC to ~4.5k BTC. This is the most meaningful decline of any sort we have seen in the lighting network's capacity since it went on its monstrous bull run starting in 2021. While this might be something to lose sleep over in the short term, it's a nothing burger when you zoom out.

It's lights out, but this time for Ethereum. Fees on Bitcoin are on pace to surpass those on Ethereum for the first time since July 2021. This may be due to the recent ordinals/BRC-20 frenzy we have seen on Bitcoin throughout the entirety of 2023.

And that’s it for this week.

Have a great weekend everyone!

-Pascal

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