Crypto Market Compass (July 2, 2024)

Navigating the Bitcoin and Cryptoasset Markets Successfully

Chart of the week

Performance

Cryptoassets rebounded from oversold levels amid bearish sentiment. Many indicators had indicated that downside risks were relatively limited and that the near-term risk/reward ratio had shifted to the upside, as described ici.

One factor that contributed to this price reversal was the fact that Trump, who is pro-cryptocurrency, appeared to have fared better than Biden in the last public debate (Chart of the week).

Trump has made numerous positive statements about crypto assets in recent weeks, including support for Bitcoin mining in the United States.

Major industry players have recently joined forces to support Trump’s campaign, with major donations from the Winklevoss brothers, founders of the Gemini exchange, and Kraken founder Jesse Powell.

In addition to these political developments in the United States, the industry is monitoring the potential launch of a spot Ethereum ETF, which was expected to take place as early as this week.

Bloomberg analysts expected U.S. Ethereum ETFs to be launched at the beginning of Julybut recent SEC actions suggest a launch could happen latermaybe next week or at the end of the summer.

While net flows into Ethereum ETFs are not expected to be as large as initial flows into Bitcoin ETFs, we still believe these flows will have a relatively large impact on Ethereum price, as we have highlighted ici.

Additionally, several issuers have also applied for a Solana ETF in the United States. Regulatory sentiment towards crypto assets continues to evolve favorably, and Solana is cementing its position as the third largest crypto asset after Ethereum and Bitcoin.

Among the top 10 cryptoassets, Avalanche, Solana and TRON were the best performers.
Overall, altcoin outperformance versus Bitcoin has increased significantly compared to the previous week. 95% of the altcoins we track have managed to outperform Bitcoin on a weekly basis. This potentially indicates a significant return of risk appetite.

Sentiment

Our internal index « Cryptoasset Sentiment Index » has recovered significantly from its lowest levels and is once again signaling positive sentiment. Currently, 7 out of 15 indicators are above their short-term trend.

Last week, there were significant reversals to the upside in the liquidation dominance of long BTC futures and the altseason index.

The Crypto Fear & Greed Index has also rebounded from “Fear” levels early last week and is signaling “neutral” sentiment heading into the week.

The dispersion of performance across cryptoassets has continued to increase sharply. This means that altcoins are becoming less correlated with Bitcoin’s performance.

Sentiment in traditional financial markets has rebounded from its lowest levels as judged by our own measure of Cross Asset Risk Appetite (CARA).

Fund Flow

Despite the weak market prices, fund flows into global crypto ETPs continued to be positive. We recorded net inflows of approximately +$38.2 million across all crypto asset types.

Global ETPs on Bitcoin saw net inflows of +$50.9 million, despite net outflows of -$37.1 million from US ETFs. However, most vehicles saw a recovery in inflows towards the end of the week. Interestingly, the 2x Bitcoin Strategy ETF (BITX) saw the second-highest net flow of any Bitcoin ETP globally, at +$70.1 million, which could indicate a significant return in risk appetite.

At the same time, outflows from Hong Kong Bitcoin ETFs accelerated with -USD 204.3 million.

The Grayscale Bitcoin Trust (GBTC) continued to see net outflows, with approximately -$159.0 million in net outflows last week.

Meanwhile, net outflows from ETPs Ethereum decelerated from the previous week, but remained negative with a total of -USD 40.1 million. Interestingly, Hong Kong Ethereum ETFs did not see any inflows or outflows during the past week.

On the other hand, the ETP altcoin ex Ethereum continued to attract capital to the tune of +10.7 million USD. The same applies to the Thematic crypto ETPs and basketswhich also continued to record positive net inflows of +16.6 million USD, according to our calculations.

Meanwhile, crypto hedge funds have started to increase their exposure to the market again, with beta rising from a low of 0.47 on June 24 to around 0.57 as of yesterday’s close.

On-chain data

Bitcoin’s on-chain data implied some sort of capitulation last week, making a near-term stabilization more likely.

For example, the Bitcoin Short-Term Holders Exit Profit Ratio (STH-SOPR) dropped to 0.96 last Monday, meaning that spent coins that were previously held for less than 155 days were spent at an average loss of -4%.

In fact, realized losses by short-term holders reached $345 million – the highest figure since May 1 – when Bitcoin was at ~$58k.

In other words, short-term holders literally capitulated and exited the market with significant losses. In this context, it is important to note that most of these losses were realized by larger investors, especially those controlling more than 100 BTC. Roughly 75% of the realized losses came from this cohort of investors.

Additionally, we have seen an increase in profit-taking from long-term investors, which appears to be linked to recent Bitcoin liquidations by US and German entities.

According to information provided by Arkham Intelligence, the German government still holds 46,000 BTC and has only sold -4,000 BTC.

However, the German government seems very aware of the impact it is having on prices and is currently selling in an orderly manner via a number of exchanges and market makers, including Coinbase, Kraken, Bitstamp, and Flow Traders. Therefore, we do not expect any significant declines following this distribution.

The Mt Gox administrator has not distributed any Bitcoin in recent weeks, despite some erroneous speculation. According to data provided by Arkham, the administrator still holds around 142,000 BTC spread across multiple wallets.

The US government sold approximately 3,940 Bitcoins in June, bringing its total holdings to 214,000 Bitcoins. Holding over 1.01% of the global Bitcoin supply, it remains the largest government holder in the world, followed by the Chinese government, which holds 190,000 Bitcoins (~0.90% of the total supply).

Over the next few weeks, the market may continue to experience selling pressure from US and German government agencies.

In total, these forces have led to net selling volume of approximately -$751 million on exchanges over the past seven days.

This situation was exacerbated by the fact that “whales” sent the largest number of Bitcoins to exchanges since the beginning of the year, with approximately 22.7k BTC net transferred to exchanges.

The good news is that selling volumes on exchanges have gradually declined since the June 24 trough, implying some “seller exhaustion.”

The near-term risk remains the continued distribution by BTC miners as part of the “miner capitulation”. However, we are already observing that BTC miners have decreased their selling volumes from mid-June levels. Over the last 30 days, BTC miners have sold ~105% of the mined supply, or ~13.7k BTC.

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