Author: SoSoValue Research
Today, after the price of Bitcoin quickly fell below the previous important support level of $56,000, it became difficult to continue to make investment judgments from a traditional technical perspective. Where is the bottom of this round of decline? It has become the most concerned issue for all investors. Whenever the market encounters such a large panic moment, let us use the first principles and return to the basic mechanism of price formation, the supply and demand relationship analysis of Bitcoin, hoping to be able to unravel the mystery through the study of the status and motivation of buyers and sellers, and help investors find the best buying point in this round in a market full of different opinions and emotions.
Selling: German government selling, Mt. Gox exchange compensation, and potential early-year profit taking and miners following the sell-off, mainly carried out on crypto exchanges, which can be monitored and tracked through on-chain behavior
Buying: Investors in the US Bitcoin spot ETF mainly participate through stock accounts (the market will be closed for 1.5 days from July 3rd to July 4th for the US Independence Day, and trading will resume tonight). It can be tracked through the ETF's intraday trading volume and after-hours net inflow/outflow indicators.
Buying: Driven by the optimistic sentiment of the US stock market, Bitcoin spot ETF may bring the first wave of bargain hunting buying. July 5 is the first day of trading after the holiday. ETF trading volume and net inflow are most worthy of attention.
There is already a lot of information about selling orders on the Internet, so I won’t go into details. So we start with the possible buying orders.
First of all, we believe that the long-term buying power will continue this year. It is mainly due to the macro background in the second half of the year: 1. The US cut interest rates and the price of risky assets rose; 2. Trump's chances of winning the election are relatively high, which is beneficial to the regulatory environment of cryptocurrencies. So what is the specific relationship between the macro environment and the price of BTC? See the figure below. By comparing and analyzing the correlation between the price of BTC and the US stock market in the past 6 months, we can conclude that the rapid decline in the past two days is also related to the main buying of this round of Bitcoin's rise, and the Bitcoin spot ETF is in a closed state and cannot be subscribed.
Figure 1: Correlation analysis between Bitcoin price and Nasdaq 100 (data source: SoSo Value)
From the CME futures trading volume, institutional investors are in a stable mood and may be waiting to buy at the bottom. The CME (Chicago Mercantile Exchange) Bitcoin futures trading volume today did not fluctuate with the sharp fluctuations in the price of the currency, which indirectly proves that institutional investors are still relatively calm and are in a wait-and-see state. Under the macro-positive and the special selling pressure left in the market due to historical reasons, we believe that this unrepeatable event will give investors who are optimistic about Bitcoin in the long term a buying momentum.
Figure 2: CME Bitcoin futures trading volume on July 5 (data source: Bloomberg, as of UTC 8:00 on July 5)
Figure 3: Historical trading volume and positions of CME Bitcoin futures (data source: CME)
So when will the buying point be? The Bitcoin spot ETF on July 5 may provide an indicative signal. After a 1.5-day closure for the U.S. National Day on July 3-4, Bitcoin spot ETF resumed trading tonight. Recently, the sentiment of the U.S. stock market has been very optimistic. Nvidia, Microsoft, and Apple have hit new highs. Investors have bought Tesla at the bottom, with a return rate of nearly 40% in 2 weeks. Will the buyers of Bitcoin spot ETF follow the price drop or follow the U.S. stock market to buy at the bottom? We will wait and see. Among them, the real-time trading volume during the trading session and the net inflow data after the trading session are the core observation indicators. Higher trading volume represents a stronger enthusiasm for buying at the bottom, which is expected to send a signal to the market to stop falling; and if it can directly bring net inflows of funds to the chain, changing the situation of slight net outflows in the past two trading days (see Figure 4 below for details), it will also bring actual incremental funds to the chain, further enhancing the confidence of crypto investors.
Figure 4: Bitcoin spot ETF historical net inflows (data source: SoSo Value)
Selling pressure: Nearly 200,000 Bitcoins from the German government and Mt.Gox?
As for the clear selling, there are two key sources of selling: 1. Bitcoin seized by the German government 2. Bitcoin used by Mt.Gox to pay creditors
The German government may be the biggest force in the short-term market crash, and it is crucial to know when it will stop reducing its holdings. The German government has seized a total of 50,300 bitcoins, and transferred a total of about 8,080 bitcoins from June 19 to July 5. The current remaining holdings are 42,270 BTC, and 83.94% of the holdings have not yet been sold. Whether this part will continue to be sold in large quantities in the short term remains in doubt, and there is still great uncertainty about the selling pressure.
Figure 5: Summary of BTC transfers out of the German government wallet (data source: Arkham)
Figure 6: Bitcoin holdings and transfers by the German and American governments and Mt. Gox (data source: public information compilation)
As for Mt.Gox, the selling pressure may be much lower than market expectations. It is expected to compensate creditors with 142,000 bitcoins. According to the Japanese crypto community, more than 70% of the claims may have been acquired by institutional buyers after several rounds of OTC transfers. This part of the acquired bitcoins is not expected to bring a large amount of selling pressure. The remaining 30% of bitcoins that will bring large-scale selling pressure is about 40,000 to 50,000 bitcoins. According to on-chain data monitoring, Mt. Gox has transferred out about 50,000 bitcoins today, July 5, of which 1,544 were transferred to the exchange, and 47,228.7 bitcoins were transferred to the new address starting with 1L7Xbx, and there has been no further movement. On the whole, the actual selling pressure generated by Mt.Gox may be lower than market expectations.
July 4: Multiple Mt. Gox wallets tested small transfers.
July 5: Mt. Gox transferred more than 47,228.7 bitcoins (about $2.71 billion) to a new address starting with 1L7Xbx. Subsequently, the address distributed these bitcoins to two addresses: 44,500 BTC (2.55 billion USD) to the address 16 ArP 3...VqdF; 2,700 BTC (154.8 million USD) to the address 1 JbezD...APs 6. There has been no operation on these two addresses.
July 5: Another 1,544 bitcoins were transferred to address 1 PKGG, worth $84.87 million. This address belongs to the exchange Bitbank, which is one of the five platforms that Mt. Gox supports repayment.
July 5: Several MT.GOX creditors in Japan told crypto media DeepChao that they had received BTC/BCH repayments from MT.GOX, and the funds had been deposited into Bitbank or Kraken exchange accounts. In addition, some people said they had received cash repayments sent by international wire transfers.
Potential miners' selling has also become a factor in this round of decline, but this part of the selling is in line with the market and is expected to stop as Bitcoin stops falling. Due to the halving of Bitcoin mining rewards at the beginning of the year, the profitability of Bitcoin miners has dropped to the lowest level in two years. According to F2pool's data on July 4, based on the current Bitcoin mining difficulty and the electricity price of $0.06 per kWh, mainstream mining machines in the previous cycle, such as Ant S19, have reached the "shutdown coin price", and some unprofitable miners have been squeezed out, and liquidation and exit will also bring potential selling pressure.
Figure 7: Bitcoin mining machine shutdown cost (data source: f2pool)
In summary, buying is based on long-term positives, and selling is due to emotional panic caused by special events. We believe that this unrepeatable event will bring buying opportunities to investors who are optimistic about Bitcoin in the long term. According to past practice, the market's emotional digestion of selling pressure from a certain unrepeatable special event generally does not exceed two months. This round of Bitcoin decline began on June 7 and may be gradually digested after August 7. The largest single-day decline in the past two days may be the lowest point of this round of decline.