What We See in the Markets: September 25, 2023

Crypto, as a whole, continues to trade somewhat poorly, with BTC sliding back down to around $26k this morning, down from a high of $27500 a week ago. Crypto is deep in the apathy phase of the market, with nothing save the potential for an ETF as an exciting factor, but it’s not crypto-specific apathy that is weighing on the market at the moment. Equities had been rallying all year, giving crypto, if not a tailwind, permission to uptick. That rally petered out in September, as the rates market prices in expectations of further hikes this year. The equity rally had been driven by expectations of a pivot, and expectations that terminal rates wouldn’t go past 5%. Fed fund futures are now pricing in even odds that rates stay above 5% until next September.

It’s no wonder, then, how much focus within crypto is on importing treasury yields onchain. MKR is up 40% since the start of July, a period where ETH is down 20%. YTD, it’s nearly doubled. Maker is driving revenue of over $150m annually, a level of revenue generation nearly unheard of in the crypto space. (The second-best performer YTD in the DeFi sector is LDO, which derives revenue from another “risk-free rate” ETH staking yields.) MKR and LDO are, in fact, the only blue-chip DeFi names to outperform ETH this year. We’ve discussed, in this space, the importance of bringing treasury yields onchain, and the role that money-market tokens, like Hashnotes’ SDYC, will play in the transition. (If you want to discuss the role of money-market tokens further, please reach out to a Cumberland RM).

From a charts perspective, LINK is gathering a good deal of attention from the technical traders in our OTC counterparty base. LINK took a beating this summer, touching $5, but has shown good strength since then, rolling out CCIP to allow Chainlink’s oracle services to be used across multiple chains. LINK has traded in a range between $5 and $9 since the Luna collapse in May of ’22. It’s a fairly interesting name; the token itself does not gather much attention, but the oracle service is absolutely vital to any work being done in Ethereum’s DeFi ecosystem, and CCIP gives it an opportunity to garner that same status on L2s and other chains.