From Ecoinometrics

Ethereum hasn't caught a break in 2024. A clear pattern keeps repeating:

The chart shows the total returns of BTC and ETH since the 2022 bear market bottom. This pattern appears consistently throughout the period.

The situation got worse after the Bitcoin ETFs launched. Even the introduction of Ethereum ETFs failed to help ETH's performance.

The core issue? Ethereum's price movements now depend almost entirely on its correlation to Bitcoin.

There's no compelling narrative driving investors toward Ethereum on its own merits. The ecosystem is quiet: no return of the ICOs, no DeFi innovations, no NFT revival, and Web3 gaming remains dormant.

Without a strong independent narrative, ETH's best hope lies in the traditional alt coin season. This usually happens when crypto investors take profits from Bitcoin and move into riskier assets seeking higher returns.

We're not at that stage yet.

The MicroStrategy Risk

MicroStrategy went on a major Bitcoin buying spree in Q4.

They purchased almost 200,000 Bitcoins across seven buying events, and now control 2.12% of the total supply.

To put this in perspective: MicroStrategy holds more Bitcoin than the Grayscale and Fidelity ETFs combined.

While these coins are currently profitable for MicroStrategy, their debt-financed buying strategy raises concerns.

Various analysts have calculated different Bitcoin price points where MicroStrategy might need to sell coins to cover their debts.

With control of 2.12% of the supply, any forced selling would impact the market in two ways:

Using our Bitcoin ETF flows model as a reference, if MicroStrategy sold just 10% of their holdings over 30 days, it could create an average -18% headwind for Bitcoin's price. While this estimate has large error margins since we haven't seen major ETF outflows yet, it shows the potential impact.

This selling pressure would likely coincide with an already declining market, after all, that's what would trigger MicroStrategy's need to sell in the first place.

MicroStrategy's size has become a genuine market risk. While everyone wants more Bitcoin, there's a point where aggressive accumulation might hurt both the company and the wider ecosystem.

The Yield Curve is Basically Un-inverted

The yield curve has finally returned to a normal state. After four years we are back to where we were before COVID hits, long-term yields are once again higher than short-term yields.

What's different this time? Current rates sit about 3 percentage points higher than before the COVID crisis.

Despite these higher rates, financial markets remain stable.

Historically, an inverted yield curve warns of an upcoming recession. But we've now gone well beyond the typical time gap between curve inversion and recession.

Even more striking: the period when the yield curve un-inverts typically carries the highest recession risk. Yet right now, we see few signs that the US economy is headed for trouble.

True, the Federal Reserve hasn't completely tamed inflation. But it is way down already and they have managed to avoid crashing the economy in the process.

While we should always watch for recession signals, the current outlook remains positive.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

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