BRRR: Bitcoin’s Dominance Is Slipping

Summary Bitcoin’s chain usage data in November was generally down when measuring MAAs, fees, and TPS. Seasonality and high RSI suggest the coin may be taking a breather. Bitcoin’s Dominance in the crypto market has fallen from 60% to 55% in just two weeks. BRRR is currently trading at a very small discount to net asset value. The fund has not benefitted from Grayscale fee flight to the same degree as other spot ETFs. After a four-month rally, the market has taken Bitcoin ( BTC-USD ) from a low of $49k in early August up to $99.7k in late November. An epic tease, perhaps. With many, myself included, expecting a $100k BTC price, crypto’s top coin is taking a breather. Have we already seen the top for this cycle? I have my doubts about that, though I don’t think the top is as far away as others seem to believe. But with this recent pullback in the orange coin and another month of on-chain activity in the books, I think it’s worth updating readers with how I’m seeing the ball currently. In this article, we’ll look at chain usage data, seasonality, market dominance, and assess whether the CoinShares Valkyrie Bitcoin Fund ETF ( BRRR ) is the right financial product for investors who want long-term exposure to BTC. On Chain Data Token Terminal If you’d like to see a picture of ‘Gresham’s Law’ in one chart, the one above might suffice. Since September 2023, Bitcoin’s price has surged while monthly active addresses have fallen off a cliff. At 9 million active addresses during the month of November, monthly active addresses (or MAAs) on Bitcoin have fallen by 43% year over year while the price of the coin has nearly tripled. I’ve made this case ad nauseam at this point, but my personal view is that less people using Bitcoin is only sustainable if average transaction fees remain elevated to counter both the declining usage and the declining coin issuance long term. Otherwise, the hash rate is at risk of collapse as ledger validation loses incentive. Thus, my view is investors are better off if monthly fees trend up. Token Terminal For the month of November, Bitcoin produced $38.3 million in fees. This was a 19.2% decline from the $47.4 million fees produced in October and a 73% decline from the $142.1 million produced from transaction fees in November 2023. The general trend in transactions each month has been higher going back to January. That said, there was a 21% MoM decline in November as Bitcoin processed 16.1 million transactions – down from 20.5 million in October. November 2024 transactions were also slightly behind the 16.4 million in November 2023. Token Terminal The average transaction fee was essentially flat month over month from $2.38 in October to $2.41 in November. TPS fell month over month from 7.7 to 6.2. All things considered, network usage was down in November by most important metrics. As has been the case for some time, Bitcoin is being used primarily as a fiat hedge rather than as a peer to peer payment network. Of course, none of that means the price of the coin will go down. If anything, it’s indicative of a broad crunch on supply. But I believe there are additional factors to consider. Seasonality & Bitcoin Dominance In previous articles for Seeking Alpha, I’ve noted the terrific historical setup for Bitcoin seasonality in the fourth quarter – particularly in years of and following halving events. October and November have notoriously been terrific months for Bitcoin gains, December is much less clear: TrendSpider Going back the last 11 years, Bitcoin has a 45% chance of delivering a positive return in December. Despite the month generally being a toss up from a gain or loss standpoint, the mean return is 8%, which still makes December a solid month for Bitcoin on paper. But BTC is typically feast or famine in December. Going back to 2011, December has resulted in a single digit percentage return in either direction just 4 times. So it’s a ‘go big or go home’ kind of month historically. TrendSpider We’ve also seen Bitcoin generate positive returns in each of the last three months between September and November. Bitcoin has actually generated positive returns for four consecutive months starting in September three different times in the past. But I would caution against expecting that to happen again. Bitcoin is very much a part of the traditional investment world now and that puts the coin at risk of profit taking to end the year and the quarter, in my view. Furthermore, judging by indicators like the RSI, there are signs that BTC is technically overbought on several time frames. Exhaustion in the BTC move is potentially why we’re seeing so much action in altcoins like XRP ( XRP-USD ). CoinMarketCap ‘Alt season’ may finally be upon us. Over the last decade, we’ve seen the general trend in long term ‘Bitcoin Dominance’ has been down. As calculated by CoinMarketCap.com, Bitcoin Dominance of the $3.45 trillion crypto market cap has fallen from 60% on November 10th down to 55% on December 3rd. If that was indeed the cycle peak for Bitcoin Dominance on 11/10, it would be yet another lower high in the long-term trend dating back the last two halving cycles. The point is, seasonality and Bitcoin Dominance may both be signaling that the better returns from here are in the altcoins rather than in Bitcoin. BRRR In a recent article covering Ethereum ( ETH-USD ) for Seeking Alpha, I shared the most recent weekly capital flow data that we have from CoinShares. While the net flow in the final week of November was positive for the broader digital asset investment landscape, Bitcoin was actually down by nearly a half a billion dollars in a single week: Asset ($m) Week Flows MTD Flows YTD Flows Bitcoin -$457 $6,226 $33,912 Ethereum $634 $1,427 $2,198 Multi-asset -$16 -$25 $441 Solana -$4 $40 $110 Binance – $0 -$2 Source: CoinShares, Bloomberg, as of 11/30/24 In spite of the final week of November sales, full-month net flow for Bitcoin was enormously positive at over $6.2 billion. That brings the full-year capital flows to nearly $34 billion for Bitcoin. Despite the clear enthusiasm for this asset from the investment community, the CoinShares Valkyrie Bitcoin Fund ETF has not enjoyed the same level of interest: BitcoinTreasuries With a little over 9k BTC managed by the fund, investors haven’t looked to BRRR for Bitcoin allocations to the same degree that they have with other funds like the iShares Bitcoin ETF ( IBIT ) or the Fidelity Wise Origin Bitcoin ETF ( FBTC ). There are a few different reasons why there could be relative lack of interest for BRRR, though all of these are just my own speculations. The fund originally launched with a 0.49% expense ratio after waiver expiration. That expense ratio has since been dropped down to 0.25%, which is very much in line with the rest of the market. But it’s possible that early fee mispricing soured the market on BRRR. Larger funds are managed by companies like BlackRock ( BLK ), Grayscale, and Fidelity – which may give those ETFs an advantage in areas like product marketing. The fund’s original manager, Valkyrie, sold to CoinShares shortly after launch, which may have also contributed to confusion in the market. Again, all of these are just guesses. It’s important to keep in mind that smaller funds could potentially produce larger swings in the NAV rate than bigger funds: Data by YCharts So far, we haven’t really seen BRRR decouple dramatically from the larger players in the market. That said, at market close on 12/2/24, BRRR shares could be had for a 0.25% discount to NAV, larger than both IBIT and FBTC. Closing Thoughts As far as Bitcoin specifically, I think we’re witnessing a small pullback in price that will allow altcoins to have their moment. I suspect there are better gains in select alts from here. That said, I’m of the view that we have not yet seen the peak in BTC for this cycle. I still think we see a BTC price that eclipses the long-awaited six-figure level. There may be better ways to play that possibility as a trade than through BRRR shares. And I’ll no doubt explore some of those opportunities in the days and weeks ahead. For long-term investment, BRRR is a fine option since the expense ratio has come down in line with the market. Especially considering the fund trades at a larger discount to NAV than peers. I am not personally long BRRR, but I’ll rate it a ‘buy’ yet again simply on the notion that I suspect Bitcoin will continue higher in 2025.

Source: Seeking Alpha