Crypto Countdown

by Ryan Shea

Judged on the basis of last month’s price action, the memo informing digital assets that it was Uptober was delivered late because it was not until halfway through the month that a bullish trend finally emerged. This late start meant the Trakx Top10 Crypto CTI closed the month higher by 5%. Nevertheless, with cumulative year-to-date returns for large cap crypto at 37%, it remains the best performer of all major asset classes in 2024¹.

What is rather unusual about the crypto rally observed over the past 12 months or so is that Bitcoin’s dominance, defined as Bitcoin’s share of crypto’s aggregate market cap, has also been rising. Typically during the bull market phase we see the two series move in opposite directions as altcoins outperform the market leader. As shown in the chart below, this relative price move naturally serves to lower Bitcoin’s market cap share.

Bitcoin Dominance vs. Price

Source: TradingView

During the 2017 bull market for instance, when the price of Bitcoin rose to almost $20,000, its dominance dropped from around 80% to below 40%. Back then, the bubble dynamics were fuelled by the ICO (Initial Coin Offering) craze and this was responsible for the slump in the market share of Satoshi’s invention. However, the same thing happened again during the post-Covid crypto bubble. As Bitcoin’s price surged to more than $60,000, the 70% market share it managed to claw back during the preceding bear-market dropped precipitously once more, falling by around 30 percentage points.

Follow My Leader, Not The Pundit

One crypto commentator, with an eye firmly set on the rear view mirror, went as far as to ask why any investor in crypto assets would own Bitcoin because in bull markets altcoins do better whereas in bear markets the crypto asset of choice is stable coins whose value is protected due to the fiat money anchor.

The pundit in question will remain nameless because, as the latest bull market has amply demonstrated, this perspective is nonsense. Indeed, since the low in November 2022 Bitcoin has gone up almost 3X but its dominance has also increased by twenty percentage points to 60%. As a small aside: the November 2022 low coincided (the timing was almost perfect) with two ECB staffers publishing a blog predicting it was Bitcoin’s last stand. The same two authors were out again bashing Bitcoin last month, this time for its impact on wealth distributions triggering this humorous meme in response – see image.

The Cockroach Theory Revisited

Source: @RuiPanther (via X) – ECB logo addition by yours truly.

Unlike the two previous bull markets, and contrary to the expectations of European central bankers, this time around Bitcoin is leading from the front.

One possible explanation for the atypical behaviour we have seen in this up-cycle so far is, to borrow a well-worn phrase in the industry, because “it is early”. When I say early I am not referring to crypto adoption, which is what crypto players typically mean when using this phrase. Instead I mean it literally – the current crypto bull market may still be very much in its infancy and, as it continues to evolve and mature, alt-coins will begin to play catch-up, a process that will, inevitably, see them take market cap share from Bitcoin.

Another possibility is that it is being driven by the introduction of spot Bitcoin ETFs in the US. These financial products, which arrived on the scene in January, are managed by large tradfi institutions who have PR budgets available to promote them. These marketing efforts not only serve to bring new users into crypto but they also reinforce Bitcoin’s superior brand recognition in the world of normies, ie a non-crypto owning general public. Indeed, Bitcoin probably should be considered crypto’s “gateway drug”.

Certainly, last month’s HBO documentary that purported to identify Satoshi Nakamoto did nothing but help the Bitcoin brand because both mainstream and social media were awash with articles speculating as to who it would be.

Satoshi Reveal

As it transpired the person named in Cullen Hoback’s documentary “Money Electric: The Bitcoin Mystery” as the sole genius responsible for creating the world’s first cryptocurrency was Peter Todd, a well-known (at least in Bitcoin circles) Canadian Bitcoin core developer. Todd was very much a left-field candidate to be Satoshi Nakamoto, so much so that his name was not even on the list of possibles on the online betting platform PolyMarket.

In one scene in the documentary, while standing next to Adam Back – a long-standing candidate to be Satoshi who was included on the Polymarket list – Todd stated he was Satoshi (a still from the scene is the source of my crude facial cut-outs in the Spartacus meme image below). However, his tone was clearly extremely tongue-in-cheek, and once the documentary aired and Peter Todd learned he had been named by Hoback as Satoshi Nakamoto he came out formally and denied he was the creator of Bitcoin and with good reason. No one in their right mind would want to be revealed as Satoshi (that rules out Craig Wright, the only person who has claimed to be Satoshi but no longer does after his claim was flatly dismissed by a British court earlier this year because they would be hounded by people for information and money as indeed has happened to Todd since the documentary aired.

Source: imgflip and HBO and the great Stanley Kubrick, director of the film 1960 Spartacus

Most Bitcoiners readily accepted Todd’s denial because the evidence presented in the documentary was very circumstantial (the smoking gun was supposed to be Todd finishing off a previous post by Satoshi when mistakenly logged in as himself rather than as Satoshi!). Moreover, at the time Bitcoin was created Todd would have been aged 23. At the risk of sounding ageist, the notion that someone would have such a depth and breadth of knowledge and skills, not to mention the creative genius to make the mental leap required to design, build and successfully launch the world’s first decentralized private digital money is certainly stretching the limits of most people’s credibility. So, as good as the documentary was in terms of PR and brand recognition for Bitcoin, as a piece of investigative journalism it was very much a face plant.

As it transpired, the documentary reveal had no discernible impact on the price of Bitcoin. Partly, as noted above, because most Bitcoiners did not buy into Hoback’s theory but more fundamentally because at this point in time it no longer matters who created Bitcoin. By definition decentralized currencies are designed to function without a central authority figure, something Bitcoin has repeatedly proved for more than a decade and a half now.

Top Trumps

What did have an impact, and which was mainly responsible for crypto prices pushing higher in the second half of the month, was increased anticipation that Donald Trump would win the presidential election. Unlike Kamala Harris whose support for digital assets has been – at best – lukewarm, Trump has been actively polishing his pro-crypto credentials over recent months. Hence, any perceived improvement in his chance of winning pushes crypto prices higher as investors anticipate a more favourable regulatory environment (certainly relative to that observed under the Biden administration).

The boost in support for Trump came after vice president Harris had a less-than-flawless interview with right-leaning channel Fox News and in the wake of her surprise decision not to attend the Al Smith dinner. This white-tie charity event held in New York is a long-standing feature in the US presidential election calendar and every candidate over the past forty years has attended and given a speech where tradition dictates they should roast their opponent and poke fun at themselves. In contrast to Trump, who made the most of the opportunity, Harris submitted a four minute long video “skit”² featuring a character from the US TV show Saturday Night Live who, I am willing to bet, no one outside the US recognized (I certainly didn’t!).

Based on the latest opinion polls Harris remains ahead, but her lead has dwindled such that it is best described as wafer thin. The odds on betting platforms like Polymarket make even worse reading for the Harris camp, with the implied odds of a Trump victory rising to 60% last week after a five point surge.

Source: Polymarket

It has been suggested by some in the mainstream media that these online betting markets are open to manipulation given the total amount of money staked on the US president outcome is, in the grand scheme of things, a modest $2bn. However, it should be noted that in the event Donald Trump loses, all of the bets backing him to win will not pay out, so even if the aggregate sum is modest it is still a fairly expensive form of manipulation. Furthermore, if Harris supporters believe the odds implied on these betting platforms do not accurately reflect the odds of Harris winning the election there is nothing stopping them from placing a bet; all it requires is the stake to be paid in USDC (if you don’t have any Trakx would be more than happy to help you acquire some!). Not only would this remove any “bias” due to manipulation, it would be a potentially very profitable trade generating a $1 pay out for every 38 cents staked. Not bad for a few days of work!

Contested Result

Of course, that assumes the result of the election will be clear on or soon after November 6th and there is a great deal of speculation that this may not be the case. One of the worries Democrats have not been shy at expressing is that unless their win is overwhelmingly clear, Trump may seek to challenge the result. Such an outcome is possible because the way the US presidential election works means there is no guarantee the person who wins the popular vote (that is to say secures the greatest number of votes country-wide) will get sufficient electoral college votes to become president-elect (270 electoral votes secures a majority). Much depends on how candidates do in the seven key swing states, where the vote majorities in the 2020 presidential election was under three percentage points.

Given his previous form in 2020, unsurprising, such concerns are centred on Trump. However, imagine if, as happened with Hillary Clinton in the 2016 election, Harris wins the popular vote but loses out narrowly due to the way the electoral college vote falls. Would the Democrats gracefully accept defeat and resign themselves to another four year stint under Trump?

If these were normal times such a thought would seem ludicrous, but these are hardly normal times! In fact, this has been one of the weirdest elections I can recall, with the incumbent President usurped by his own side and replaced by a vice president who’s approval ratings were dismal, and all without any real contest. Not to mention two, perhaps even three, assassination attempts on the other presidential candidate. Odd, very odd.

All this chatter and speculation about contested election results speaks to the increased social and political tension in the US – zeitgeist that was captured in the dystopian film Civil War that came out earlier in the year.

The film, written and directed by Alex Garland – the filmmaker behind Ex Machina, Annihilation and the sci-fi series Devs – envisages a fictional US future where the country is divided by secessionist states battling an authoritarian third-term president. The film didn’t go down too well with audiences, not because of the subject matter but mainly due to the deliberate obfuscation as to why Texas and California seceded and joined forces as the so-called Western Forces (hard to see much political commonality between those two states!). Nevertheless, one does not need too much imagination to see how this fictional story could turn into prophecy.

What has all of this to do with crypto markets, which is the focus on this note? Well, as I noted in a previous research note, such periods of heightened political and social tension, when institutional set-ups are being threatened and the economic status quo is in jeopardy, present very favourable backdrops for outside assets such as gold and digital gold (Bitcoin and crypto more generally).

Maybe this is a tad dramatic.

Maybe this month’s election goes smoothly and crypto will respond in obvious fashion depending on who wins (Trump = Good, Harris = Bad), but maybe it won’t.

Maybe the outcome will be messy, because as I noted above these are hardly normal times!

1 This return is similar to that of spot gold bullion. That two of the best fiat money hedges are at the top of the return tables in 2024, at or near, all-time highs, says a lot about how investors feel about the state of the global financial system.

2 I put inverted commas around the word skit because a skit is supposed to be funny and, personally, I didn’t find the video sketch funny in the slightest.