Author: Teng Yan, former analyst at Delphi Digital; Translated by: 0xxz@Golden Finance
The cryptocurrency market has experienced a major sell-off this month. Many investors have panicked and de-risked their portfolios faster than you can say "HODL." Panic is high and sentiment is at rock bottom.
Last week, BTC fell below $54,000 and ETH fell below $2,850.
That’s why now is the perfect time to firmly support the bullish position on ETH.
Near-term catalysts
The spot ETH ETF is expected to launch around July 15th, less than a week from now. Given the massive sell-off we saw previously, it is reasonable to expect that this news will trigger a rally. The initial spot ETF flows are anyone’s guess, but I believe they will exceed expectations within 12 months.
I think the most compelling reason for inflows is that TradFi investors who have already allocated to the BTC ETF will also diversify by purchasing ETH. This move allows them to capture a broader portion of the cryptocurrency market (digital gold + technology platform) while reducing the risk of a single asset. "Diversification" is a word that many investors like.
ETHE outflows may be limited. It is currently trading at NAV, so investors who want to exit can do so without waiting for an ETF to launch. Additionally, Grayscale announced that it will distribute shares of its new Ethereum Mini Trust, which has lower fees, to existing ETHE holders on July 18.
German government BTC balance. They have been selling on the market. Source: Arkham
Cryptocurrency markets, including ETH, are being weighed down by the German government's BTC sell-off and the Mt. Gox payout. While some of these concerns are justified in terms of actual money outflows, this issue is unique and should be addressed sooner rather than later. Germany, in particular, has been blitzing the market, leaving less than $1 billion in BTC to sell, $3 billion lower than last month.
Current Market Status
ETH perpetual futures open interest (OI) has returned to pre-ETH levels. While this may not be terribly significant due to overall position changes, it suggests a general lack of interest or attention, leaving more potential upside.
Source: Kaito AI
Despite the upcoming ETF launch, sentiment around ETH is at its lowest point. This gives a sense of the state of the market.
Many OTC investors and traders (e.g. Jason Choi / Tangent, Andrew Kang / Mechanism) have laid out arguments for why we are at a bear market inflection point. This may be true, but no one knows for sure. If prices start to rise significantly, they will have to buy back in.
Medium-term outlook
Source: FedWatch
An improvement in the macro environment is also on the horizon. We are entering a rate-cutting cycle, with the market pricing in a 73% chance of a rate cut in September. Citi analysts predict that rates could fall by 200 basis points by 2025. We appear to be on track for a soft landing.
FTX creditors are expected to recover $14-16 billion in cash by the end of the year. These people are crypto natives, so it stands to reason they might use some of that to buy crypto (h/t @wintermute_t).
There is also a strong chance that Trump will win the election, which could mean a better regulatory outlook for cryptocurrencies. Gensler is no longer the SEC chairman.
I am bullish on ETH
There are good reasons to be bullish on ETH in the near to medium term.
I'm not the only one who thinks this:
I haven’t even touched on the technology yet – let’s assume we all agree that Ethereum is a key factor in the success or failure of the crypto industry. The basic assumption is that ETH is the best technological bet in the tokenized world.
“If you want to invest in the development of tokenization, Ethereum is the way to go. It is the foundation of all tokenization.” - Matt Hougan, CIO of Bitwise
One thing is for sure: it won’t be a straight path.
The market remains nervous and needs to regain confidence after last week's shock. With the summer holidays approaching, big money may not be ready to buy until August.
