Cumberland is commenting on the recent volatility and potential opportunities to take advantage of it.

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Last week was crypto’s most volatile of the year, with BTC realized volatility around 95% over the past eight days and most alts between 120% and 160% realized vol. The end result of all of this movement was fairly minimal; after a range of more than 25%, BTC ended the period down only 3%. Alts, on the other hand, performed much worse, with ETH down 12%, and most other alts distributed around that, from down 4% in some cases to down 15% in others.

That BTC would (mostly) recover, and alts would lag felt predictable. Alts have struggled all year: we are, in fact, in a bear market if your portfolio includes nearly any asset outside of BTC and ETH. Liquid crypto investors this year have been spoiled for choice: there are an ever-increasing number of L1 tokens, L2 tokens, DeFi governance tokens… every sector has seen a steady uptick in terms of the number of token choices available to investors. At the same time, while crypto has seen an overall capital inflow in 2024, it’s been exclusively into exchange-traded products, and therefore completely consumed by BTC and ETH. We’re now firmly in the second half of the year, and even some of the former best names in crypto are languishing, from a price perspective.

Solana has been one of the exceptions, up 40% on the year and almost impacted through last week. SOL’s separation from the rest of the L1/L2 pack has been noticeable all year; over the past twelve weeks, it’s had only a 73% correlation with BTC, much lower than ETH, AVAX and NEAR, which are all around 82-85%. SOL’s separation could be attributable to a few different factors. First, it stands the best chance of being adopted into the “institutional” class, especially if it is the next token to get traction on an ETF. Second, however, it has developed a DeFi ecosystem that is not just robust, but actively used. According to Artemis, Solana typically has between 1.5m and 2m daily active users; most chains have between 500k and 1m (though Near has more, with around 2.5m-3m, which is interesting and bears investigation). PayPal’s stablecoin, PYUSD, now has as much AUC on Solana ($350m) as it does on Ethereum, after only about six weeks.

One of the oldest pairs trades in crypto is the XRP-XLM pair, which tend to correlate even when it doesn’t make sense. Both coins were early movers with payment use-cases, and both have been around for a while, so the coins have always tracked closely. This sometimes leads to unexpected outcomes. Last week, Ripple settled its long-standing case with the SEC, agreeing to pay a $125m fine, which was broadly considered a win by the market: XRP rallied nearly 20% immediately following the headline. Due to the laziness of pairs trading, XLM also rallied. Intriguingly, XRP has retraced about half of its move since the headline, while XLM has held up, with the unintuitive result that XLM has outperformed XRP over the past week.

Disclaimer

The information (“Information”) provided by Cumberland DRW LLC and its affiliated or related companies (collectively, “Cumberland”), either in this document or otherwise, is for informational purposes only and is provided without charge. Cumberland is a principal trading firm; it is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances, or requirements of any person, and it should not be the basis for making any investment or transaction decision. THE INFORMATION IS NOT A RECOMMENDATION TO ENGAGE IN ANY TRANSACTION.

If any person elects to enter into transactions with Cumberland, whether as a result of the Information or otherwise, Cumberland will enter into such transactions as principal only and will act solely in its own best interests, which may be adverse to the interests of such person. Before entering into any such transaction, you should conduct your own research and obtain your own advice as to whether the transaction is appropriate for your specific circumstances. In addition, any person wishing to enter into transactions with Cumberland must satisfy Cumberland’s eligibility requirements. Cumberland may be subject to certain conflicts of interest in connection with the provision of the Information. For example, Cumberland may, but does not necessarily, hold or control positions in the cryptoasset(s) discussed in the Information, and transactions entered into by Cumberland could affect the relevant markets in ways that are adverse to a counterparty of Cumberland. Cumberland may engage in transactions in a manner inconsistent with the views expressed in the Information.

Cumberland makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness, or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. Cumberland undertakes no duty to amend, correct, update, or otherwise supplement the Information. The virtual currency industry is subject to a range of risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or cryptoassets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products, or cryptoassets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. Investing in virtual currencies involves significant risks and is not appropriate for many investors, including those without significant investment experience and capacity to assume significant risks.

The Monetary Authority of Singapore (“MAS”) requires Cumberland SG Pte. Ltd. to provide this risk warning to you. Before you: (a) pay or transfer your Digital Payment Token (‘DPT’) service provider any money or DPT; (b) enter into an agreement with a third party to buy or sell DPTs upon inducement by your DPT service provider; (c) enter into an agreement with a third party under an arrangement by your DPT service provider for the transmission of DPTs; (d) pay a third party any money or DPT under an arrangement by your DPT service provider for the transmission of DPTs; or (e) transfer any digital payment token instrument to your DPT service provider, you should be aware of the following:

1. Cumberland SG Pte. Ltd. is exempted by MAS from holding a license to provide DPT services while its license application is pending with MAS. Please note that you may not be able to recover all the money or DPTs you paid to a DPT service provider, or any other third party referred to above, if the DPT service provider’s or the third party’s business fails.

2. You should not transact in a DPT if you are not familiar with the DPT. This includes how the DPT is created, and how the DPT you intend to transact is transferred or held by your DPT service provider.

3. You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens.

4. You should be aware that your DPT service provider, as part of its license to provide DPT services, may offer services related to DPTs which are promoted as having a stable value, commonly known as “stablecoins.”

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