Split personalities

Crypto's early September slide has abated and now the sector has momentum again.

Bitcoin, up 1.7%, is leading the way as it reacquaints with $78K. XRP, Solana, Cardano and Sui have produced noteworthy returns of between 3%-6%. Hyperliquid and Zcash are vividly green for the week.

The fact that total crypto assets increased 0.4% to $2.69 trillion during the midst of an extended global bond sell-off could be a sign that digital assets are winning respect as a hedging alternative — or perhaps (alternatively) investors just sense that maybe the Fed might not hike rates on Sept. 16.

Only one day ago, the CME FedWatch tool pegged the odds of a 0.25% hike at 67%. But a private sector U.S. jobs number released monthly by ADP came in lighter than expected on Wednesday. And so then the CME’s rate hike odds fell to 62%. But the odds are still up from one week ago, when they sat below 40%, right before Fed Chair Kevin Warsh spoke publicly, and not at all cryptically, about the central bank’s inflation-fighting priorities in the months ahead. 

A supposed Sept. 1 Bitcoin hard fork (that actually technically occurred in early August) came, went and was almost completely ignored.

Developer Luke Dashjr’s new BLAKE2b chain did go live on Tuesday but, as BeInCrypto noted, it arrived devoid of any meaningful hash rate. A signaling period for Dashjr’s “BIP-110” proposal began early last month. Nodes were put on notice that they were, as part of the network’s consensus process, obliged to signal whether Dashjr’s proposal — to strip non-financial data out of Bitcoin blocks — warranted recognition. However, BIP-110 was treated by miners and exchanges as a non-event.

Obviously, Dashjr and cohorts had the ability, during the run up to the fork’s Sept. 1 go-live day, to swap out the SHA-256 algorithm and replace it with BLAKE2b. But that didn’t mean anyone else had to. And so the Dashjr camp wound up cordoned off from the industry's hardware base. “The specialized rigs that secure the Bitcoin network can’t touch the new chain,” BeInCrypto said. “Computing power on the fork fell right after launch.”

As Blockstream CEO Adam Back summarized in an X post: “Live by the fork, die by the fork.”

Government bonds continue to sell off globally, driving prices down and yields up. Germany’s 10-year yield hit its highest level in 15 years. UK gilt yields touched levels reminiscent of the 2008 financial crisis.

As for the 10-year Treasury — a widely watched bond market barometer — its yield fell a couple basis points to 4.77%. Two days ago, the 10-year reached 4.79%, a 20-month high.

This week’s bond market upheaval reflects a potent mix of outsized government debt issuance, a wartime oil-price shock as well as the growing recognition that the world’s central banks might need to reduce the supply of available money. Tighter financial conditions could put pressure on risk assets while boosting safe haven assets like precious metals. 

No one can ever be sure, week to week, month to month, whether BTC falls into this latter camp. The largest digital asset tends to bop around like a high schooler who intermittently hangs with both the jocks and the freaks. 

Lately, BTC has decoupled from the Nasdaq while its 90-day rolling correlation to gold has climbed above 50%. At the start of this year, the gold correlation was nearly zero.

“Macro FUD is back,” AMBCrypto declared of the fear, uncertainty and doubt permeating markets since the U.S. and Iran resumed more intense fighting. “Bitcoin is showing safe-haven strength.”

We’re keeping an eye on the BTC/XAU ratio. It’s a measure of how much physical gold it takes to buy 1 BTC. The ratio is up 1.2% over the past few days, seemingly reflecting brewing favoritism for BTC, a dynamic which, AMBCrypto said, could help “digital gold” outperform its physical counterpart should there be an even more pronounced risk-off move.