Written by: 10X Research
Compiled by: Wenser, Odaily Planet Daily
Editor's note: After "Altcoin Bear Market, Traders Face Difficult Times", the well-known investment research institution 10X Research once again expressed its latest views on the Bitcoin market. Combined with the recent selling of Bitcoin ETFs, miners, listed mining companies and early Bitcoin holders, 10X Research gave a price forecast for the next stage of the market, and whether the expected point can be reached may determine the subsequent direction of the market. Odaily Planet Daily will compile this article for readers' reference.
The four-year cycle and supply-circulation model are key tools for price prediction
As the basis for Bitcoin price estimates, the four-year predictive parabolic cycle pattern is crucial, which is also the basis for 95% of cryptocurrency estimates. However, this pattern is often over-exaggerated, suggesting that Bitcoin's value will rise indefinitely. Another key tool is the "supply-to-flow model", which predicts Bitcoin's infinite value by emphasizing the reduction of supply.
As usual, this year most experts still predict that the price of Bitcoin will reach new highs, with predictions ranging from $100,000 to $150,000 or even higher.
Technological innovation and human psychology (particularly the interaction of greed and fear) are the key catalysts for the cyclical market in cryptocurrencies. Nevertheless, the market is essentially a momentum game - most participants actively drive prices up and maintain a consistent bullish stance. This self-fulfilling prophecy highlights the need to decisively seize the upward momentum when the opportunity arises. At the same time, this phenomenon also suggests that there may be more cycles in the future.
Bitcoin’s utility value and cash flow-based valuation should be addressed in the discussion. Unlike other assets, Bitcoin is similar to gold if it is valued based on a production cost curve. The psychology of buying Bitcoin becomes more complicated over time, as one Bitcoin purchased at a high price (e.g., $70,000) may seem less attractive than a billion coins that can be purchased for $100. Meme coins exploit this psychology, and public companies have done the same with stock splits.
Comparison of Bitcoin (purple) and the Money Flow Index (white)
Three major groups sell Bitcoin, and hedge fund arbitrage opportunities may have disappeared
While the current market structure is not entirely bullish, we speculated three weeks ago that Bitcoin would attempt a breakout near $70,000 based on the view that new all-time highs usually go parabolic, and when the breakout fails, risk management becomes critical. At the time, we expected lower inflation data to be a catalyst for Bitcoin's price to rise, which it did, but Bitcoin was heavily sold off.
First, contrary to the previous aggressive buying of Bitcoin ETFs driven by inflation changes, Bitcoin ETFs have sold $1 billion in assets over the past eight trading days.
Secondly, over-the-counter sales by Bitcoin miners grew to their largest single-day trading volume since March, with sales exceeding 3,200 Bitcoins in one day. Listed miners account for 3% of the market, but sold a net 8,000 Bitcoins in May (June data has not yet been released, but miners sold significantly more). Miners’ Bitcoin reserves dropped from $129 billion on June 5 to $118 billion now.
Finally, another group of sellers were early Bitcoin holders, who sold $1.2 billion.
All three appear to be content to sell Bitcoin above $70, 000.
We estimate the average entry price of Bitcoin ETFs to be $60,000 to $61,000, and a return to this level could lead to a wave of liquidations. When Bitcoin fell to $56,500 on May 2, BlackRock issued a statement saying that "sovereign wealth funds and pension funds are about to enter the market." This has prevented Bitcoin from falling further to a certain extent, but now BlackRock says that 80% of the purchases of their Bitcoin ETF IBIT come from retail investors rather than institutions (see this report for the source).
Currently, the $61,000 price level is consistent with the 21-week moving average, which in previous cycles has been a good risk management indicator when buying (Bitcoin price above the 21-week moving average) or selling. We estimate that 30% of the $14.5 billion in Bitcoin ETFs comes from hedge funds seeking arbitrage, and eight trading days of ETF liquidations indicate that these funds may not have continued the arbitrage trade (long ETF vs. short CME futures) as the futures expiration date (June 28) approached because the arbitrage opportunity had disappeared.
Bitcoin (white) compared to its 21-week moving average (purple)
Arbitrage opportunities exist because high rates allow exchanges to sell futures at a premium and most crypto traders tend to be bullish (buyers), which drives up funding costs. The average annual funding rate for Bitcoin in 2024 is 16%, while it has only been 8-9% in the past few days. So, these single-digit funding rates may not be able to continue to sustain the arbitrage game, resulting in continued outflows from Bitcoin ETFs. This is the other side of the arbitrage signaling effect we explained in articles such as March 8 (the first cautious statement since Bitcoin reached $40,000) and April 5.
Our market structure analysis breaks down liquidity components, so it sometimes provides a cautious view contrary to the underlying bullish (parabolic) narrative. In fact, despite a significant slowdown in Bitcoin ETF inflows since March 12 (when CPI data rose rapidly), a sharp drop in altcoin trading volume and a corresponding decline in funding rates, Bitcoin prices have remained in a wide 15% range over the past three months.
Stablecoin minting has slowed significantly since April 21, when the Bitcoin halving was completed. These factors (Bitcoin ETF inflows and stablecoin minting pauses, falling altcoin and funding rates) have led us to fear that Bitcoin prices will fall to $52,000-55,000, a figure that is just shy of the actual performance of the market. Around 3% (Bitcoin price dropped to as low as $56,500).
On May 15, following the release of lower CPI data, Bitcoin ETFs saw inflows of $3.8 billion over the next 20 days. If growth continues, we expect lower CPI data to drive a market rebound and expect CPI data to be below 3.0% later this year. The reason for the rate cut is important given that Bitcoin fell as much as 30% in July 2019 when the Federal Reserve cut rates in response to lower inflation and weak economic growth.
However, this time the Bitcoin ETF purchases failed to grow as the attractiveness of arbitrage (funding rate) weakened. When the SEC hinted on May 20 that an Ethereum ETF might be approved, the market structure improved significantly as futures positions increased. In about three weeks, the market bought $4.4 billion in Ethereum futures positions (a 50% increase) and $3 billion in Bitcoin futures. Combined with the May 15 CPI data, this effectively improved the market structure and helped the Bitcoin price to rise back to $70,000, and early holders, miners, and ETFs actively chose to sell their Bitcoin positions.
Key points: Can 61000 and 65000 be held?
Trading is always a "risk-reward game" and we pointed out on June 3 that if Bitcoin price fails to reach a new all-time high in June, there will be collateral risks for excessive ETH futures positions. Since the approval of the 19b-4 filing by the SEC on May 23 (the S-1 filing is still pending), leveraged futures traders have been the main or even the only buyers. Their capital flows pushed Bitcoin back to the top of the range, and combined with the lower CPI data, the risk/reward ratio favors Bitcoin's breakout.
Lower inflation data, the US election, and a rebound in US stocks are non-crypto market catalysts that could support higher Bitcoin prices later this year. But without more stablecoin minting, Bitcoin ETF inflows, increased futures leverage, or other liquidity (market structure) indicators, Bitcoin bulls may miss out on the upside.
Every time the price fails to breakout or Bitcoin trades back below the previous cycle’s all-time high ($68,300 as a dividing line), we need to redefine a level to risk manage our open positions.
In previous cycles, the 21-week moving average at $61,000 has somewhat avoided larger pullbacks.
Another key level is $65,000, which is the midpoint of the past three months of consolidation and could signal the formation of a larger cycle top.
We will not blindly believe those unfounded statements, we trust the information reflected by the data more. From the perspective that the number of market participants (including early holders, Bitcoin ETF buyers, miners, stablecoin issuers, etc.) has not increased significantly, the current market situation is worrying.
Therefore, everyone needs to decide their own risk tolerance. Combining risk management and data analysis can keep traders from leaving the table. As an old trader told us 15 years ago, "the market opens every day", which means we always have the next opportunity and the next cycle.
Bitcoin (white) compared to its monthly stochastic indicator (purple)
