Why bearish may be the new bullish

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Why so sleepy?

It remains incredibly quiet out there as we continue this sideways action. I know I quoted Green Day the other day, but it really does feel like folks are waiting for the end of September to perk up. 

Or perhaps everyone just wants someone else to make the first move that could break us out of this rut we’re in. Either way, it’s fairly quiet. Honestly, it’s been boring at times.

PitchBook’s Robert Le said earlier this week that projects are plotting out token launches, but everyone’s biding their time for the right moment. I think that narrative actually applies to the wider sector right now.

For what? Well, that’s the tricky part. What needs to be seen to engage again? There are probably a few different answers, but I think price action is the easiest to dig into.

I’m constantly hearing bullish takes for the end of this year, perhaps after the election. Now the data is starting to back that up. 

While CME’s future premiums are nearing yearly lows, it would seem that offshore traders are continuing to remain bearish, K33 analysts wrote. 

The good news is however buried, counterintuitively, in the bearish perp sentiment.

“The bearish perp sentiment reigns sticky, leading 30-day average funding rates to push to negative levels for the seventh time since January 2018. Our small sample of similar funding rate environments offers a very compelling case for aggressive exposure in BTC in the months ahead,” analysts Vetle Lunde and David Zimmerman said.

You see, there’s a pattern of monthly funding rates bottoming. And, yes, I know, that doesn’t sound good, but hold on.

After we get that bottom in, “the subsequent average 90-day returns sit at a massive 79%, while median 90-day returns sit at 55%” when looking at data going back to 2018.

Outside of the current market drivers (bitcoin is again heavily correlated with the S&P, at a 23-month high), the other potential event on the horizon to watch are FTX repayments. 

Now that we’ve digested Mt. Gox repayments and the impact they had, the market now gets to put another big bankruptcy behind it. Yay. 

Those factors, alongside a Fed pivot, the US election, seasonality and delayed halving effects “supports our bullish end-of-the-year thesis,” K33 analysts said.

The potential end to the FTX bankruptcy (and, consequently, the repayments) starts to play out in early October, so we have a little under a month, given that the confirmation hearing is set for Oct. 7. We could see, pending the legal back and forth that needs to happen, repayments begin before the end of the year. 

“Among the remaining creditors, we expect funds in the range of 20-40% of the payouts to be redeposited into crypto markets, as FTX’s trader base consisted of crypto-native aggressive risk takers,” K33 wrote. 

Perhaps FTX will give us that jolt of energy to revitalize this sleepy market. Or maybe folks really are just waiting for the end of September. Less than three weeks left to go.

— Katherine Ross

Data Center

• BTC and ETH are down 1% each with markets mostly quiet directly following the Trump-Harris debate. (BTC: $56,750; ETH: $2,330.)
• Not so for PolitiFi coins, with a string of Trump parody tokens sinking sharply. MAGA fell 6%, MAGA Hat dropped 28.5%, and TREMP slipped 14%.
• FTM, ASI and ICP are leading the top-100 in the past week, all gaining over 20%.
• Scroll has entered the top-10 chains by TVL after adding 10% in the past month. It now has $694 million, slightly ahead of Hyperliquid and $50 million behind Blast.
• Polymarket set consecutive records for daily trading wallets on Monday and Tuesday, coinciding with the debate: 10,672 and 12,128, per Blockworks Research data.

Burned by blobs

Crypto hasn’t pumped in so long that you might start to wonder: Are we close to another bear market?

Don’t tell that to Base. It’s setting new records for transaction counts and unique active addresses every other day — recording over four million transactions per day from more than one million unique addresses right now.

Both those metrics can be easily boosted by Sybil bots and whatnot, but in any case, volumes on Base DEXs Aerodrome and Uniswap are holding steady, while some others across other blockchains have fallen. 

The blue line on the chart below shows the weekly transaction count for Base. The orange one plots the combined count for rival networks Arbitrum, Optimism and ZKSync. Notice that Base really kicked into gear after Ethereum blobs were introduced with the Dencun hard fork in March. 

Blobs gave layer-2s like Base their own specialized fee market, so that they would no longer compete with regular users for blockspace. This change has widely driven down median L2 fees to fractions of a cent and turned ETH into an inflationary asset all over again.

All that hasn’t converted to anymore profit for Base’s operator, Coinbase, despite the record high usage.

According to Blockworks Research data, Base generated $5.6 million in average weekly profit in the four weeks after blobs were activated in March.

In the past four weeks, Base has made almost $407,000 in weekly profit on average — a reduction of over 90%.

That calculation done on Base’s weekly transaction counts shows that onchain activity has jumped more than 80% across the same period. 

(Profits for Base, alongside Arbitrum, Optimism and ZKSync are seen on the chart by the columns in the background.)

Who knows if all those transactions would have occurred on Base (or anywhere else) had the fees not been slashed so much. It could also be that cheap fees have made running a layer-2 far less lucrative, particularly for companies solely focused on the network itself.

Still, any profit is, of course, a win. Blobs have made the operating expenses of Base practically insignificant — posting data to Ethereum mainnet cost Base under $11,000 last month, down from $3.8 million in February.

For scale, Coinbase the company made $36.15 million in profit overall in the second quarter of this year. 

Base has otherwise raked in a $53.63 million profit for Coinbase since it came online last June, which works out to be $11.5 million per quarter on average. Not too shabby at all, even with blobs.

— David Canellis

The Works

• Ex-Alameda CEO Caroline Ellison’s attorneys asked a judge to spare her any jail time ahead of her late September hearing, given her previous cooperation. 
• The SEC has imposed over $7 billion in fines against crypto firms since 2013, with $4.6 billion coming in 2024 alone, per a report from Social Capital Markets.
• tZero became the second broker dealer to receive SEC approval, following in the steps of Prometheum.
• PayPal and Venmo integrated with ENS Labs, allowing users to use their ENS names when transferring crypto.
• Singapore is investigating seven people who offered Worldcoin services and warned the public against selling or giving away their accounts or tokens.

The Riff

Q: Was crypto snubbed at the debate?

I’d consider it conveniently forgotten.

It could be that whoever is in the White House come next January has a major impact on the future of crypto space — positive or negative. 

Neither side has come out with any real hard policies on crypto, digital assets or blockchain, only soundbites from Trump and rumblings of industry outreach from Harris. Although, Trump has clearly been more openly agreeable.

I’m still naively positive that we’ll see some real crypto policies drip through both political machines in the next seven weeks or so.

It would definitely hurt to be forced into waiting until after the election to really learn what crypto is actually in for. Let’s hope that’s not the case.

— David Canellis

Yes, though neither candidate ever really focused on the economy, outside of the very first question.

There was a point where Harris said that she wants the US to “win the race on AI and quantum computing” and while there isn’t a race per se for crypto, it was a rare moment in the debate where I could have seen crypto come up naturally. Yet neither candidate mentioned it. 

Don’t get me wrong: I am not surprised. Regardless of political beliefs, this debate was clearly less about policy and more about who could land the best punches. 

And, honestly, I’m a little glad it didn’t get brought up. Yes, we need clarity on both candidate’s approaches to the crypto industry, but at last night’s debate it would have felt more like a hot potato than a serious campaign issue.

— Katherine Ross

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