This episode of Markets Daily is sponsored by Kraken. This is Markets Daily from Coindesk. My name is Noelle Acheson, Coindesk collaborator and author of the Crypto is Macro Now newsletter on Substack. Since I'm out at a conference today, this episode has a different format than usual. Rather than talk about market performances, I'm going to give my thoughts on the main tailwinds and headwinds currently affecting crypto markets. And just a reminder, Coindesk is a news source and does not give investment advice. We all know that markets have been range -bound recently. For many, this is surprising given the potential upside of a spot Bitcoin ETF approval. For others, the resilience is unexpected given the downward pressure from higher interest rates. Both are strong forces and there are others in the mix as well. What we are seeing is positive and negative trends largely cancelling each other out amid a general lack of interest from new large investors. So, let's step back and take a look at some of the main positive and negative narratives and then I'll talk about how they are affecting new investor interest. Starting with the tailwinds. The most significant is the potential boost in demand that would come from approval of a Bitcoin spot ETF. Why would demand increase? Because an ETF that trades on US markets is a convenient wrapper for Bitcoin exposure. It makes it much easier for retail investors to add a small Bitcoin position for diversification purposes and many institutions can only invest in listed products. With an ETF, they would now be able to diversify their funds or even take a speculative position. The eventual demand for a spot Bitcoin ETF is likely to be greater than for the Bitcoin futures ETF. It's a better product in that it involves less rollover costs and therefore should deliver better alignment with the Bitcoin price. How likely is approval? Bloomberg analysts have put the probability at 75 % by the end of this year. 95 % by the end of 2024. So, not a sure thing, but pretty likely. I think it will happen and it is not yet anywhere near priced in. Other tailwinds. Activity on the Bitcoin blockchain is picking up. The 30 -day moving average of the number of active Bitcoin addresses on any given day is more than 20 % up from the local low in May, almost 15 % up since the beginning of the year, according to data from Glassnode. That suggests the network is broadening. Adoption of the Lightning network is likely to start picking up as Coinbase moves to adopt its fast and cheap Bitcoin transfer technology. This could end up boosting demand for Bitcoin as greater liquidity on Lightning brings in more users. And long -term holders of Bitcoin are still accumulating. Yesterday MicroStrategy revealed in a filing the purchase of a further 5 ,445 Bitcoin. Back in August, the company had suggested it was ready to accumulate even more. For Ethereum, approval of the first listed Ether futures ETF is likely within the next few months, with a probability of 95%, according to Bloomberg analysts. Again, not a sure thing, but the odds are looking good. Although it is a futures product, it could boost demand for spot Ether, much like the Bitcoin futures ETF launch in October 2021 that propelled the Bitcoin price up to $69 ,000. And finally, sticking with Ethereum, the network's next major upgrade is expected early next year or possibly sooner. This will improve Ethereum's scalability, potentially increasing its use and therefore also demand for Ether. Now this is far from a comprehensive list. There are many more factors supporting the crypto market, but in the interest of time, let's move on to the headwinds. One of the more significant headwinds is the regulatory cloud in the US, specifically the lack of clarity on what is and isn't a security. The general fear that the SEC or the CFTC will launch actions against a project is dampening activity, and the potential impact on the price of tokens that become the subject of regulatory scrutiny and or find themselves delisted out of necessity or caution. That's most likely enough to keep investors away from smaller tokens. It even impacts Ether, the second largest crypto asset by market cap. Ether's transaction volume is not totally dependent on DeFi activity, but they are related, and DeFi activity is down. According to data source DeFi Llama, total value locked on Ethereum -based DeFi applications is at its lowest level since January 2021. DeFi interest is dampened at the moment in part because of regulatory uncertainty and in part because of some recent high -profile exploits that have reminded investors how new this all is and how relatively untested the different attack vectors are. Another big headwind is the outlook for US interest rates. I say US interest rates because they are one of the key levers for global liquidity. This lever acts through the cost of lending and also through the price of US government bonds, the assets most used as collateral for short -term financing. US interest rates also act on the US dollar. Higher rates generally means that the US dollar will be heading up, and this influences liquidity in any country that imports goods priced in dollars or that has issued dollar -denominated debt. There are even more channels than this, but the bottom line is that higher US interest rates do tend to dry up global liquidity. This affects the flow of funds into higher volatility low -income assets such as tech stocks and crypto assets. Suffice to say that expectations are settling in that US rates will be higher for longer, and macro investors are likely to be more inclined to take advantage of the high returns available in safe bonds, especially when fears of an impending recession are gathering momentum. It's a fascinating time in crypto markets, even though the price movements are not particularly interesting. Bitcoin and Ether historical volatility are at their lowest point since January, which itself was a multi -year low. It's fascinating because I don't remember a time when you have this tug of war between such compelling narratives. The market is telling us that the headwinds and tailwinds are more or less evenly balanced. There are days when optimism is winning and we see clear signs of a pickup and accumulation activity. There are days when price movements bring out more sell orders. How long will this continue? That's hard to answer, since a bad economic read, a bank in distress, further climbs in the oil price, or a spike in geopolitical tension – all those things could happen at any time and they could send interest rate expectations hurtling up or down. We could also get some more unwelcome moves from regulators at any time. On the other hand, we could get some positive price moving news in the form of a new fund taking a crypto asset position, another nation state supporting Bitcoin mining, or of course a Bitcoin spot or Ether futures ETF approval. Any of these, or something I haven't thought of yet, could drop at any time. The uncertainty is dampening price movements while contributing a veil of suspense. Meanwhile, progress on network applications across the world is changing. The headwinds facing the crypto market at the moment will eventually dissipate, perhaps to be replaced by others. The tailwinds will change too, and new ones will emerge. It's up to investors to decide for themselves which type of wind will be more powerful in the months to come. And that's it for this week's show. If you liked the show, please leave us a five -star rating on whatever platform you're listening to us on. Markets Daily is produced and edited by Michelle Musso, with executive production by Jared Schwartz. I'm Noah Lacheson for Coindesk. We're back tomorrow with more market news and insights.