After the downturn of "poor May" and "absolute June", the crypto market did not rebound as expected in July. On the contrary, negative news such as the German government's sell-off and Mt.Gox repayment exacerbated investors' panic, causing Bitcoin prices to fall and driving the entire crypto market down. Although the market has suffered a heavy blow, with multiple positive factors such as the FTX repayment plan of up to $16 billion, rising expectations of interest rate cuts, and the results of the US election, many people believe that the crypto market may begin to turn around in the fourth quarter of 2024.
Important negative factors at present
Mt. Gox compensation triggers market panic: Bitcoin price plummets
The compensation issue of the Mt. Gox incident has attracted great attention from the market. The selling pressure of as many as 142,000 BTC and 143,000 BCH once caused market panic on June 24, causing the BTC price to drop to around US$60,000.
As the Mt. Gox payout officially started on July 5, BTC broke the $60,000 support level under heavy selling pressure. In the process, BTC miners showed signs of capitulation. Historical experience shows that this usually means that the price has bottomed out. The last comparable hash rate drop occurred in 2022, when Bitcoin was trading at $17,000.
Andrew Kang, co-founder and partner at Mechanism Capital, believes that most market participants do not realize the severity of the potential decline in Bitcoin's four-month range. The closest similar situation we can find is the range in May 2021, when Bitcoin and altcoins also experienced a parabolic rise. Crypto leverage is currently close to historical highs (excluding CME), but in this case, our range is longer (18 weeks vs. 13 weeks) and there has not been an extreme whipsaw. We have experienced similar situations several times during the 2020-2021 bull run.
It is possible that the initial estimate of a low of $50,000 was too conservative and we could see a more extreme correction to the $40,000 range. Such a correction could be quite damaging to the market and could require several months of volatility/downtrend (recovery period) before a reversal to the upside could occur.
German government sells off: nearly half sold
In the early trading hours of the day, the German government transferred more than 10,000 bitcoins it held in batches to crypto exchanges and market makers. This action caused the price of Bitcoin to fall below $55,000. However, according to data from Arkham Intelligence, during the closing hours of the U.S. stock market (around 01:56 AM on Tuesday morning Beijing time), the German government address recovered 2,898 bitcoins, equivalent to about $163 million, mainly from Coinbase, Kraken and Bitstamp.
According to Arkham data, the German government is nearly halfway through its planned sale. Since the sale began last month, its Bitcoin holdings have fallen from nearly 50,000 to 27,461, with a current value of about $1.5 billion.
Recent industry headlines have focused on events such as the German government sell-off and the Mt.Gox refund. Many analysts believe that this is the main reason for the recent Bitcoin plunge. However, Bitfinex analysts attributed the decline to normal seasonal weakness.
Despite the market decline, data released by CoinShares showed that the inflow of digital asset investment products reached $441 million last week. Among them, Bitcoin investment products accounted for the largest share of the total inflow of crypto products ($398 million), accounting for as much as 90%. From a regional perspective, the inflow of funds mainly came from the United States, with an amount of $384 million. Other higher buying orders came from Hong Kong, China ($32 million), Switzerland ($24 million) and Canada ($12 million), while Germany had an outflow of $23 million.
Bitcoin mining market is bottoming out
Recently, the price of Bitcoin once fell to $54,000 (now recovered to $57,000), which made it even more difficult for miners whose profits had already plummeted due to the halving. According to surveys, if the price of Bitcoin falls to $54,000, only ASIC mining machines with an efficiency of more than 23W/T can make a profit, and only a few models of mining machines can barely support it.
The selling behavior of miners is also considered to be part of the reason for the price drop. In order to cope with the cash flow problem after the halving, the selling of mining companies continues, and in June alone, 30,000 bitcoins from miners entered the market.
According to F2Pool, based on an estimated energy cost of $0.07 per kilowatt-hour, when the price of Bitcoin is $54,000, only ASIC miners with a unit power of 26 W/T or less can achieve profitability. In terms of specific models, six miners including Antminer S21 Hydro, Antminer S21 and Avalon A1466I break even at $39,581, $43,292 and $48,240 respectively. Other models such as Antminer S19 XP Hydro, Antminer S19 XP and Whatsminer M56S++ require Bitcoin prices to exceed $51,456, $53,187 and $54,424 respectively to make a profit.
In this context, as the inscription ebbs, whether for cash flow reserves or industry migration and exit, mining companies naturally choose to sell Bitcoin to survive.
Fortunately, as the price of Bitcoin drops, small and medium-sized mining farms gradually stop working, the difficulty of Bitcoin mining drops rapidly, and the capitulation of miners is about to end. On July 9, BTC.com data showed that the difficulty of Bitcoin mining was reduced by 5% to 79.5T, and the average hash rate of the entire network in the past seven days was 586.72EH/s. Since May, the number of Bitcoins sent by miners to exchanges for sale has dropped significantly, and the over-the-counter trading volume has dropped significantly. On June 29, the entire trading volume of mining companies' over-the-counter trading desks was exhausted, indicating that the selling pressure has eased.
In general, Bitcoin price fluctuations have had a huge impact on the survival of miners, but as the market adjusts, miners' selling behavior gradually decreases, and the industry may usher in a new balance.
Positive factors worth noting
FTX repayment plan expected to drive market to new highs
According to the revised reorganization plan and disclosure statement filed by FTX with the Delaware Bankruptcy Court in May this year, it is expected that the total value of the property collected and converted into cash and available for distribution will be between $14.5 billion and $16.3 billion, exceeding the $11 billion FTX owes to customers and other non-government creditors. The remaining cash will be used to pay interest to the company's more than 2 million customers.
Currently, FTX has obtained court approval, and creditors can choose to vote on a compensation plan that pays cryptocurrencies in cash or in kind. Creditors need to vote by August 16, and Judge Dorsey will decide whether to approve the plan on October 7. Once approved, FTX will repay creditors within two months, with an estimated time of Q4 2024 to Q1 2025.
Although the final compensation method has not yet been determined, crypto analyst Ash Crypto believes that given that most FTX customers are cryptocurrency enthusiasts, this $16 billion in funds will enter the crypto market and become a major catalyst for price increases. Bitcoin is expected to break through $120,000, Ethereum will break through $12,000, and other altcoins will rise 10 to 50 times.
Expectations of interest rate cuts are clear
The Federal Reserve’s decision to raise or lower interest rates is one of the important factors affecting the price of Bitcoin, and rate cuts usually lead to a stronger market.
Recently, Fed Chairman Powell said that inflationary pressure in the United States has eased, but the Fed needs more data to prove that inflation risks have passed before deciding to cut interest rates. If interest rates are cut too early, inflation may rise again; if interest rates are cut too late, it may lead to slower economic growth or even a recession.
Although Powell said the timing of the rate cut has not yet been determined, as the latest US economic data showed a slowdown in economic growth, such as a sharp downward revision of non-farm payrolls in June and a rise in the unemployment rate to 4.1%, the highest since November 2021, market expectations for a rate cut have increased. According to the CME Group's FedWatch Tool, as of July 9, the market expected the Fed to cut interest rates at its September meeting.
The probability of remaining unchanged is 22.9%.
Crypto Accounting Regulations Coming Soon
Last December, the U.S. Financial Accounting Standards Board (FASB) announced the first version of cryptocurrency accounting rules, requiring companies holding Bitcoin or Ethereum to record changes in their value at fair value and reflect them in net income. The new rules will take effect in fiscal years beginning after December 15, 2024, and will apply to listed and unlisted companies in 2025.
For crypto assets, this change in accounting standards means that companies including MicroStrategy, Tesla and Block will be able to record the highs and lows of their cryptocurrency holdings. This will promote further compliance in the crypto market and obtain liquidity injection from the mainstream financial market.
Bitcoin price trend after each halving
There are only three market trends: up, down and oscillating. No matter how the market changes in the future, it will eventually escape these three patterns. Trying to predict the direction of the market is a foolish act. We only need to know how to deal with it if the market develops in a certain direction.
If the market breaks through the current resistance level and stabilizes above 69,000 points, it can be regarded as the beginning of an upward trend.
There are two possible scenarios for a rise:
1. Hitting the previous high but not breaking through: The market may approach the previous high but fail to break through, or just break through slightly and then fall back. In this case, don't be confused by the market illusion and don't chase highs. You don't even need to leave the market, just reduce some of your positions, especially if you feel that you are overweight.
2. Break through the previous high and continue to reach new highs: If the market breaks through the previous high and continues to reach new highs, and stays stable for at least 3 days. At this time, we should pay attention to the strength of the breakthrough and observe whether there will be a strong pull-up or a volatile upward trend within 3 days to 1 week. If the trend is strong and rises rapidly after the breakthrough, you can hold positions and wait and see, waiting for a large correction (at least a correction of about 10%) before adding positions. If the trend is not strong and the increase is slow, it is recommended to reduce positions at the new high to prevent false breakthroughs. At present, the possibility of continued rise is low. If the second situation occurs and the trend is not strong enough after the breakthrough, be alert to the risk of a sharp decline. Reference to the market before and after the previous halvings:
Second halving (2016.07.10)
Before the halving, Bitcoin surged 78% in a month. After the halving, it fell back 30% in a week, with the largest drop reaching 40%. Then it started to rise all the way, from less than $500 to nearly $20,000. After the halving, the price of the currency fell back 30%.
The third halving (2020.05.12)
In 2020, due to the historically rare black swan event of March 12, the market fell sharply before the halving. If this negative news is not taken into account, Bitcoin also experienced a 20% correction a week before the halving. There was a rebound after the halving, but it did not go higher, and the market was in a state of volatility. From the high point before the halving in early May, it fluctuated until the end of July before breaking upward. It fluctuated for a full three months, and there were two corrections of more than 10% in the middle.
From the previous two halvings, we can see that Bitcoin will go through a correction before and after the halving. Now the market generally expects that Bitcoin will rise after the halving, but what will happen this time? It may require further observation.
