Written 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 15 years of development, BTC and the Crypto industry have entered the stage of large-scale adoption from technology research and development and marginal market verification. From little-known and notorious to stormy and sunny, the path and form of its realization are often unexpected.
Everything seems accidental, but it seems inevitable.
Following the approval of BTC ETF in January, the US SEC unexpectedly announced the approval of 8 ETH ETFs on May 23. Because the market had previously assumed that the approval of ETH ETF would be delayed until the second half of the year, the unexpected positive news suddenly pushed the weak BTC and ETH to rebound by more than 11.4% and 24.83% respectively.
In the long process of BTC and Crypto's mass adoption, the transformation of traditional finance and regulatory agencies has brought huge impetus to the development of the crypto industry and market. In terms of Crypto, the "unexpected" defection of the Democratic Party not only shows that the influence of 50 million Crypto holders in the United States cannot be underestimated, but also shows the policy impact brought about by the massive entry of traditional financial institutions represented by BlackRock.
U.S. Policy
On May 23, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21) with a high vote. In the long run, the passage of the FIT21 Act will boost the development of the Crypto industry far more than the approval of the issuance of BTC ETF and ETH ETF.
For the crypto industry, the institutional affirmation and protection that the FIT21 Act will bring will have far-reaching impacts. The Act provides a path for blockchain projects to be launched safely and efficiently in the United States; it clarifies the regulatory boundaries of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) based on whether the regulated subject is a security or a commodity; it clarifies the regulation of cryptocurrency exchanges and protects U.S. investors by establishing and implementing trading rules.
After the House of Representatives passes the FIT21 bill, it will be submitted to the Senate for review. If approved, it will be submitted to the President of the United States for review. It will take time for the FIT21 bill to be approved, and it will take even longer to implement. However, its breakthrough significance has been initially demonstrated. The institutional level affirmation and promotion of the long-term development of the Crypto industry in the United States shows that the Crypto industry, which has resolved the legitimacy crisis, has become one of the key industries for development in the United States.
Macro Finance
In early May, the United States released economic data for April. The unemployment rate and non-farm payrolls were far below market expectations, which led to higher expectations for interest rate cuts, pushing the dollar index down, and the three major U.S. stock indexes, which had fallen sharply in April, rebounded strongly. In addition, with the support of Nvidia's earnings report that exceeded expectations, the Nasdaq index rose 6.88% in a single month, recovering the losses in April and setting a new record high.
In May, the Nasdaq rose strongly by 6.88%, recovering all the losses in April and setting a new record high.
In the middle of the month, the Federal Reserve continued to release hawkish remarks, suppressing expectations for the start and frequency of interest rate cuts, causing market fluctuations. However, the mild recession in some parts of the US economy has led market participants to believe that interest rate hikes are unlikely to happen, and interest rate cuts are only a matter of time. Goldman Sachs expects the start of interest rate cuts to be postponed from July to September, and the current market trend can be regarded as reflecting this expectation.
If there is no abnormal economic data in the future, the bullish trend of US technology stocks is expected to remain unchanged.
Crypto Market
In May, BTC opened at $60,621.20 and closed at $67,472.41, with a monthly increase of $6,850.31, or 11.3%, with an amplitude of 25.54%.
BTC monthly trend
BTC failed to recover the losses in April as strongly as the Nasdaq did. It performed relatively weakly in May. After the huge fluctuation, the trading volume failed to increase effectively, leaving long upper and lower shadows in the trend. The biggest gain was that it effectively recovered after falling out of the top box at the beginning of the month and returned to the fluctuation range of 58,500 to 69,500 US dollars.
Although the fundamentals of on-chain activities continued to deteriorate, prices recovered effectively, and with support from macro-financial, industrial, and capital dimensions, concerns about the end of the bull market were temporarily shelved.
BTC daily trend
In this cycle, the momentum of BTC's rise has gone through three stages: inventory replenishment, speculation on the expected approval of BTC ETF, and capital inflow after the operation of BTC ETF. As of the end of May, except for the ETF channel, the inflow of funds on the market has slowed down significantly. EMC Labs believes that in May, the rebound of BTC prices was mainly driven by the linkage effect brought about by the strong rise of ETH.
There are signs that industrial capital in the market is flowing from BTC to ETH, which can be confirmed by the increased trading volume of the ETH/BTC trading pair after May 15.
The volume of ETH/BTC trading pair has increased significantly
The reverse flow of industrial capital indicates that the price discovery of BTC in the future will be mainly determined by the inflow of funds through the BTC ETF channel and whether the existing funds on the market are sold.
As the bull market progresses, long holders will gradually sell the BTC they hold to the market in batches, while short holders, attracted by the price and aiming to outperform the market in the short term, will continue to increase their positions.
Since December, this trend of "from long to short" has continued until it reversed in May. This month, the long-hand group as a whole changed from selling to accumulating 93,400 BTC, while short-handed hands began to reduce their positions and sold 38,200 BTC.
Long-term, short-term, CEX, and miners’ positions (chart by EMC Labs)
In the first month after the halving, the miners saw a decline in both block rewards and transfer consumption income, with income dropping sharply to $963 million (statistics from The Block). EMC Labs found that under the pressure of a sharp drop in income, miners were forced to make two moves this month for the coming year: one was to sell off the 6,000 BTC they had accumulated to the market, and the other was to reduce the supply of computing power.
As prices fell, the Bitcoin network lost up to 28% of its computing power after reaching a peak on April 23.
Bit network computing power statistics
Currently, the miners hold 1.8 million BTC and have not sold off on a large scale since the current bull market. If the market falls in the future, in order to maintain the operation of the mines, the miners may sell off and push the market, which is in a weak equilibrium state, downward.
Market supply
As the bull market progresses, long holders will gradually sell the BTC they hold to the market in batches, while short holders, attracted by the price and aiming to outperform the market in the short term, will continue to increase their positions.
Since December, this trend of "from long to short" has continued until it reversed in May. This month, the long-hand group as a whole changed from selling to accumulating 93,400 BTC, while short-handed hands began to reduce their positions and sold 38,200 BTC.
Long-term, short-term, CEX, and miners’ positions (chart by EMC Labs)
In the first month after the halving, the miners saw a decline in both block rewards and transfer consumption income, with income dropping sharply to $963 million (statistics from The Block). EMC Labs found that under the pressure of a sharp drop in income, miners were forced to make two moves this month for the coming year: one was to sell off the 6,000 BTC they had accumulated to the market, and the other was to reduce the supply of computing power.
As prices fell, the Bitcoin network lost up to 28% of its computing power after reaching a peak on April 23.
Bit network computing power statistics
Currently, the miners hold 1.8 million BTC and have not sold off on a large scale since the current bull market. If the market falls in the future, in order to maintain the operation of the mines, the miners may sell off and push the market, which is in a weak equilibrium state, downward.
liquidity
Since this cycle, stablecoins have achieved net inflows since October 2023, driving the market to rebound. The scale of inflows hit the highest and new highs since this cycle in March and April this year, becoming an important force in absorbing the liquidity shock caused by the large-scale realization of BTC profits (the other force is the fiat currency funds in the BTC ETF channel).
By May, with the massive exchange of chips and violent market fluctuations, coupled with the delay of interest rate cuts, the inflow rate of funds into the stablecoin channel dropped significantly. According to EMC Labs statistics, the inflow of stablecoin funds in May was only US$341 million, far lower than the US$8.9 billion and US$7 billion in March and April.
Monthly changes in the supply of major stablecoins (chart by EMC Labs)
Comparing the two major stablecoins, USDT had an inflow of 1.394 billion this month, while USDC recorded an outflow of 973 million for the first time in 5 months, indicating that the trend changes in the stablecoin channel funds in the US region are more sensitive than those in Asia.
11 BTC ETF Flows in May (Chart by SoSo Value)
EMC Labs observed the fiat currency funds in the ETF channel and found that outflows occurred on 5 of the 22 trading days in May, and net inflows were recorded on 17 trading days, with a net inflow of 19.05 billion US dollars for the whole month, far higher than the 3.41 US dollars inflow into the stablecoin channel.
As of the end of May, the assets held by the 11 BTC ETFs in the United States have reached 58 billion US dollars, and they hold 852,256 BTC, accounting for 4.32% of the total supply, and are becoming an important force influencing the price of BTC.
Conclusion
In the April report, we judged that the market had entered a bull market relay state, and the first wave of large-scale chip exchange (March to April) had already occurred. Throughout May, both long and short hand transactions dropped sharply, the market supply resumed "from short to long", and the BTC in the exchange returned to the outflow state, indicating that the BTC market had entered a weak equilibrium state after the passion was vented.
We maintain our judgment that there is a trend of capital migration from BTC to ETH in the market, and the "Ethereum time" will continue. The subsequent trend of BTC depends on the US macroeconomic data and the market voice of the Federal Reserve.
BTC, which is in a weak equilibrium state, does not actually need too much capital to push it upward. The possible buying power comes from the collateral effect brought by the approval of the ETH ETF and the fiat currency funds in the BTC ETF channel. With the continuous growth of its scale and the same rhythm as the Nasdaq, the fiat currency funds in the BTC ETF channel may become an independent force that affects the price of BTC.
