By: 0xWeilan, EMC Labs
The information, opinions and judgments on markets, projects, currencies, etc. mentioned in this report are for reference only and do not constitute any investment advice.
After the COVID-19 crisis, the story of the United States using the dollar's status as the world's largest reserve currency to reap other economies through the "dollar tide" seems to be becoming a reality. All economies are under pressure, and the yen-dollar exchange rate has fallen to a low level last seen in 1986.
——On June 5, Canada cut interest rates, and on June 6, the euro cut interest rates. Why hasn’t the Federal Reserve cut interest rates yet?
——Because only the Japanese yen exchange rate has collapsed, it is not full yet.
Europe can't hold on, Canada can't hold on, only the United States can hold on. The U.S. dollar index continues to rise, causing huge pressure on the equity market.
Under the huge pressure of macro-finance, the crypto asset market ended its rebound in May and fell 7.12% in June, continuing the deep consolidation after BTC hit a record high. This consolidation has lasted for nearly 4 months. There are few sectors in the entire crypto market that have developed independent trends.
Although the inflow of stablecoins on the capital side has recovered to $856 million compared with May, it still remains at a low level. The ETF channel funds are 641 million, far lower than 1.9 billion last month.
On-chain activities are polarized. On the one hand, BTC data continues to deteriorate, while on the other hand, public chains such as Ethereum and Solana are still active. These data make people believe that the bull market is still going on.
Macro Finance
On June 12, the US released its May CPI, which fell by one percentage point from April to 3.3%, lower than the expected value of 3.4%. So far, the US CPI has fallen for two consecutive months in a high interest rate environment. At the same time, the PMI data on the corporate side fell from 49.2% to 48.7%, accelerating the contraction, which also provided support for the downward trend of CPI.
The downward trend of economic data exceeded market expectations, increasing expectations for interest rate cuts, causing the Nasdaq to continue to price in expectations for interest rate cuts. In the end, the Nasdaq closed up 5.69% in June, achieving two consecutive months of gains. Although the S&P 500 index did not hit a record high like the Nasdaq, it also maintained a monthly upward trend.
In June, the Nasdaq rose 5.96%, setting a new record high
The non-farm payrolls data released on June 7th far exceeded the forecast (182,000), reaching 272,000. The market pointed out that there were major problems with the statistical caliber of this data, which may have suppressed expectations of interest rate cuts.
The market is choosing the direction it is willing to believe in, such as interest rate cuts. There is still money betting on two interest rate cuts in 2024 in the interest rate swap market. UBS claims that the market underestimates the magnitude of this round of interest rate cuts and even predicts that the "first cut" will still be in September. Against the backdrop of the US dollar index breaking through 106, the Nasdaq continues to hit new highs. These long funds are betting based on their own judgment.
The "hawkish" remarks released by the US government and the Federal Reserve in June may have reached the highest dose so far this year. US Treasury Secretary Yellen said that "there is no sign that the United States is about to enter a recession", while Federal Reserve Board member Bowman emphasized that "inflation still has upside risks, and there may be no interest rate cuts in 2024."
Although CPI has declined for two consecutive months, the strong employment data allows the Federal Reserve to buy more time to maintain high interest rates and wait for CPI to approach 2%.
The high interest rate environment of the US dollar has put tremendous pressure on the global capital market, and the crypto market is no exception.
EMC Labs believes that as BTC hits a record high, some investors continue to sell to lock in profits, while high US dollar interest rates have significantly reduced the amount of money flowing into the crypto asset market, ultimately resulting in selling pressure that cannot be absorbed by sufficient buying power. This is the fundamental reason why the current crypto market cannot effectively break through and even constantly challenges the lower edge of the adjustment box.
Crypto Market
In June, BTC opened at $67,473.07 and closed at $62,668.26, with a monthly drop of $4,804.15 or 7.12%, an amplitude of 20.10%, and trading volume shrinking for three consecutive months.
BTC monthly trend
In June, BTC diverged from the Nasdaq trend. Against the backdrop of a strong 5.69% increase in the Nasdaq, BTC fell 7.12% for the month, losing most of the rebound in May.
Technically, affected by the news of BTC distribution from Mt.GOX exchange and the German government selling BTC, the BTC price fell back to the rising trend line since October last year on June 24 and bottomed out. On the same day, the BTC price also fell back to the lower edge of the new high consolidation range (that is, $58,000). The support of these two technical trend lines is relatively strong. After that, the BTC price rebounded to above $63,000, which is safe in the short term, but the mid-term is still confused.
BTC daily trend
Affected by the expectation that the ETF will be approved soon, ETH's trend is slightly stronger than BTC. This month, the ETH/BTC trading pair basically preserved the results of ETH's rebound in May and did not give up significantly, indicating that the industry capital in the market is still betting on the launch of ETH ETF.
The ETH/BTC trading pair basically preserves the results of ETH's rebound in May
ETH ETF is likely to be approved for trading in July. However, in the current context of severe capital shortage, once the favorable news is realized, ETH may face a large selling pressure in a short period of time. After the official trading, can ETH ETF bring a considerable net inflow of funds like BTC ETF? At present, it is not optimistic.
liquidity
The bull market is first and foremost a financial phenomenon.
Based on the source of funds, we can divide the trend of BTC since last year into 4 stages:
2023.01~2024.06 BTC market 4 stages
2023.01~09: Stablecoins have a net outflow, and the buying power comes from the top-escaping funds in the market to cover their positions. The BTC price has risen from 16,000 US dollars to 32,000 US dollars;
2023.10~2024.01: Driven by the approval of BTC ETF and the expectation of production cuts, the net inflow of stablecoins turned positive and continued to rise, pushing the BTC price from US$32,000 to US$49,000;
2024.02~04: After the BTC ETF was approved and speculative funds were withdrawn, the ETF channel fiat currency funds and stablecoin channel funds continued to flow in, pushing BTC to a new high of $73,000. Because the ETF channel funds exceeded expectations, BTC hit a new high for the first time before the production cut. Starting in January, long and short profit-taking began to sell in large quantities to lock in profits. The selling peaked in early March, and then the BTC price peaked on March 18 and started to pull back.
Statistics of BTC sales by long-term and short-term investors
Although the stablecoin channel alone had net inflows of more than 8.9 billion and 7 billion US dollars in March and April respectively, the massive sell-off consumed all the buying power, and the BTC price stopped at US$73,000.
2024.05~06: BTC price entered a new high consolidation area after March. The previous large-scale clearing completely extinguished the market's enthusiasm for long positions. Under the pressure of high interest rates of the US dollar, the capital inflow of the stablecoin channel and the fiat channel shrank rapidly to 341 million and 856 million US dollars in May and June. BTC built a new high and then consolidated at US$58,000~73,000, waiting for new funds to enter the market.
Monthly changes in the supply of major stablecoins (chart by EMC Labs)
A bull market is a process in which new funds pour in under an optimistic backdrop, revaluations push up asset prices, and long-term holders sell to lock in profits after prices rise. In the course of a bull market, sell-offs often occur in several waves, and the one that happened not long ago is just the first wave. The next sell-off will occur again after higher prices are realized.
Statistics of capital inflow and outflow of 11 BTC ETFs in June (Chart by EMC Labs)
Since its approval in January, BTC ETF has been regarded as an important channel for new capital inflows into the crypto asset market. Since January, a total of $13.882 billion has flowed into the ETF through all channels, but since March, the scale of inflows has been gradually declining as the BTC price stopped at $73,000.
In June, the ETF channel had an inflow of $641 million, which is quite close to the $856 million of the stablecoin channel. In the May report, we proposed that "ETF channel funds are expected to become an independent force for pricing BTC". With the growth of scale and the gradual independence of decision-making will, the funds in this channel are expected to take on this important task. Its scale and behavior deserve continuous attention, but it is not yet up to the task.
Market supply
In a bull market, long-term investors and short-term investors use different valuation systems for BTC. After the price finally rises, BTC flows from long-term investors to short-term investors, and the value is transferred accordingly.
Based on this, two phenomena are bound to occur in a bull market: "capital inflow" and "BTC holder group transfer". The two phenomena influence each other and jointly shape the market trend. In the previous section, we analyzed the capital inflow situation. In this section, we focus on the changes in the BTC holder group.
Analyzing the positions of long-term investors, short-term investors, exchanges, and miners since last year, we found that in the first 11 months of 2023, long-term investors increased their positions, while short-term investors reduced their positions. The turning point occurred in December, when the price of BTC approached the previous high. The long-term investor group began to distribute chips, while the short-term group began to increase its holdings. With the price of BTC hitting a record high in March, this chip exchange game reached its peak. After that, the price began to collapse, and the scale of long-term investors' selling in April shrank rapidly. In May and June, this selling completely ended, and long-term investors began to increase their holdings again.
Analysis of changes in holdings of long-term investors, short-term investors, exchanges and miners (Chart by EMC Labs)
From March to May, the exchange of chips by all parties in the market around the previous high price of BTC at $69,000 was one of the main activities in the market cycle, and its occurrence meant the start of the first stage of the bull market. The chips held by low-frequency traders (long-term investors) flowed into the hands of high-frequency traders (short-term investors), and the market liquidity suddenly flooded. New funds were consumed by the hard work, prices fell, speculation cooled, and the market returned to the stage of hesitation after the passion.
Will the bull market come to an abrupt end? We will look at the previous bull markets.
BTC distribution statistics for long-term investors
As indicated by the green box in the above figure, we have observed in the past three bull markets that long-term investors will conduct two rounds of large-scale selling to lock in profits after taking advantage of price increases. The first wave of selling will pause the price increase, and the second wave of selling will destroy the market. The first wave of selling in history lasted 3 months, 9 months, and 4 months in chronological order. This round from December last year to March is also 4 months, the same as the previous cycle.
According to historical rules, after the first wave of selling, the long-term group returned to the accumulation state and waited for the price to rise. As shown in the red box in the above figure, when the price continued to hit a record high, it returned to the state of reducing holdings and sold ruthlessly. This method of selling in batches to lock in profits is in line with the behavior pattern of long-term investors and the law of market movement. Therefore, we believe that this selling rule is still applicable to the current crypto asset market.
Based on this, EMC Labs judged that the recent sell-off was only the first wave of sell-offs in the bull market. As long-term investors return to the accumulation state, the market selling pressure will decrease, and the market will continue to rise after the capital flows back in. At that time, the market will usher in the second and most lucrative stage of the bull market. The end of the high interest rate environment of the US dollar is likely to occur in the second half of this year. Therefore, although the market confidence is low and the trading volume is light, we are still optimistic that BTC is likely to start the market in advance in the fall.
Conclusion
Market movement is a process of interaction between internal and external factors.
In the first half of 2024, long-term investors in the market carried out the first wave of selling, locking in tens of billions of dollars in profits, and have now returned to accumulation.
After the approval and operation of 11 BTC spot ETFs in the United States, nearly US$14 billion flowed into the ETF channel, with an additional 240,000 BTC holdings, and the cumulative holdings reached 860,000, totaling US$53.1 billion.
Considering that this record was achieved in an environment of high US dollar interest rates, this market performance is already very outstanding.
The US dollar has not yet started to cut interest rates, and the capital pressure in the global capital market has reached an unprecedented level
The first phase of the bull market is coming to an end, and the second phase has not yet begun. We believe that the variables are likely to occur in the fall.
The biggest risks are the Federal Reserve's unexpected rate hike and increased selling of U.S. debt, the issuance of Mt.Gox BTC, and the U.S. government's selling of its BTC holdings.
Now should be the most depressing and painful moment before the heavy rain.
EMC Labs was founded by crypto asset investors and data scientists in April 2023. It focuses on blockchain industry research and Crypto secondary market investment, takes industry foresight, insight and data mining as its core competitiveness, and is committed to participating in the booming blockchain industry through research and investment, and promoting blockchain and crypto assets to bring benefits to mankind.
