To be honest, I have been bullish since mid-2023, but my confidence has started to waver recently. This is actually a good sign, indicating that the market is recovering. I have also received more and more private messages from veterans in the cryptocurrency circle, who are concerned about the market, especially ETH's recent poor performance. This is another comic reversal signal. Looking back to March, the market consensus was to follow the typical 4-year cycle. This seems too simple, and it turns out to be true! With the correction in US stocks, Bitcoin has been falling recently, and the market seems to have gone to another extreme, but how bad is the situation?

US ISM Manufacturing Index

The catalysts for the upcoming bull run can be understood by looking at the “heavyweight” and “lightweight” narratives that dominate the cycle. At the same time, it makes sense to review previous forecasts to draw important lessons.

The heavyweight narratives include the Fed’s liquidity cycle, wars, and new government policies. Grayscale’s court victory pushed for a BTC ETF, but it was not expected that an ETH ETF would follow.

Meanwhile, the U.S. ISM, one of the best predictors of asset price trends, looks to be nearing the bottom of its two-year downtrend. Stock markets are already reacting.

Looking back at history, it can be found that ISM can predict the price of BTC. However, the biggest problem is that the US ISM manufacturing index reversed its bullish trend in 2024 and began to decline.

The US manufacturing sector has contracted for the fifth consecutive month, with the index falling to 47.2 points. The ISM Manufacturing PMI index missed expectations for 47.5 points last month.

The US ISM index affects cryptocurrencies by influencing economic sentiment, risk appetite, and the strength of the US dollar. A weak index can lead to reduced risk investments and selling, while a strong index can boost market confidence.

The following data in the near future will also have a significant impact on the current market.

The US non-farm payrolls data released on September 6th is crucial to the upcoming US interest rate policy adjustment in September. The 142,000 new jobs are slightly lower than market expectations. The expectations of mainstream US financial institutions were also divided. In the end, concerns about economic recession and the continued deleveraging of the Japanese yen carry trade caused funds in the entire market to flow out of risky assets. The impact on BTC is very obvious in the US ETF. Since the US ETF went online, it has recorded a net outflow for 8 consecutive days for the first time.

The above data indicators are currently one of the best indicators for predicting asset prices. The CPI indicator will be released today. We need to pay close attention to the trend to seize the opportunity of bullish reversal.

Cryptocurrency ETFs

In the past 9 days, 8 of them have seen outflows totaling $1 billion from the BTC ETF. This is the longest period of negative outflows since the ETF was launched.

This week, BTC opened at $57,301 and closed at $54,867, with an amplitude of 12.6%, and the lowest price dropped to $52,000, which is very close to the lowest point of the new high consolidation zone of $49,000, which fell rapidly a month ago. The gains accumulated from the rebound to $65,000 in the previous two weeks have disappeared. The market has been hovering below the 200-day moving average for a month, and the panic index once reached 26, close to the bottom of the bear market.

This also left ETF holders facing a record $2.2 billion in unrealized losses, equivalent to a loss of 16%, and the situation has improved slightly recently. Most of the inflows to spot BTC ETFs come from on-chain holders transferring funds back to traditional financial accounts, so the "new" funds entering the crypto market are very limited. However, the situation is still getting worse.

ETH ETFs have not even attracted retail interest. Even Blackrock’s ETHA has only seen inflows in two of the past 13 days. Cumulative flows for all ETF issuers are negative. The sell-off by ETH big players has dealt another heavy blow to the market since July.

Although the data seems unfavorable, the discussion about the ETH roadmap and the value enhancement of L2 to L1 is becoming increasingly heated. If you are more optimistic, you will find that the community can finally start to focus on the value accumulation of L1.

Understand current market conditions with quick charts

According to the IPOR Stablecoin Index, on-chain leverage has subsided as lending rates have returned to levels seen before the 2023 market rally. During the period of active airdrop activity, lending rates had risen sharply, but due to the poor performance of the airdrop, many investors chose to close their revolving positions.

At the same time, the leverage reset of Bitcoin open interest rates can also be clearly observed.

Funding rates were higher in March, turned negative in April, and were negative again in July and August. Negative rates mean shorts need to pay longs, which usually indicates that traders expect the market to fall. However, open interest (OI) is now back to positive.

The Bitcoin on-chain Tx Volume chart in Glassnode’s latest weekly report is very confusing. The 30-day SMA structure of Tx Volume from October 2023 to the present has a strong similarity with that from October 2020 to September 21, which will lead some people in the market to conclude that "we are already in a super bull market and the bull market is already halfway through."

The confusing thing about this chart is that the structure of the Tx Volume used for comparison has changed dramatically. The Taproot Witness TX related to inscriptions and runes has grown rapidly since 23 years ago, accounting for 41.8% of the Tx Volume at its peak, which was not seen in the previous cycle.

This can also be verified from the change chart of Bitcoin mining fees. Excluding the impact of the inscription/rune boom period, the base scale of mining fees from 23 years to the present is completely incomparable with the bull market from March 20 to July 21, and is only slightly higher than the bear market in 22 years.

Therefore, the so-called "bull market" that we experienced from October 2004 to March 2005 was not a real super bull market, but a market consisting of two seasonal markets (one autumn market + one spring market) and a new asset issuance boom.

This is also proven by the changing trend of spot trading volume on exchanges from November 2023 to the present. As shown in the figure, there are only seasonal fluctuations, and no trend of increase.

Summarize

The current ISM index is falling, ETH ETF demand is weak, and risk investors are cautious. These are not ideal market conditions. However, this is exactly how the market heals itself. In fact, when everyone is panicking, it often means that we may be closer to the bottom of the market than we think.

While there are a lot of bearish data, there are also many positive signals. L2 solutions are performing well (especially Base), social platforms such as Farcaster and OpenSocial are growing, and market leverage has been cleared. Although the market has cooled down, it remains active in some key areas.

After a weekend of digestion, the Nasdaq began to show signs of rebounding, and the market's concerns about the economic recession have also been reduced to a considerable extent. BTC rebounded from 53,000 to around 57,000 US dollars. However, it must be noted that before the clear interest rate cut in September, the market is still in a fragile balance. We firmly believe that the interest rate cut will be beneficial to the market after the door is opened, but historically, it takes some time for various expected price ins to actually play a role in liquidity.