The Weekly #241
Markets continue to edge higher despite volatility around Bitcoin spot ETF filings but there are also reasons to be cautious too.
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The Braod Momentum Is Up
The crypto markets stay on their upwards path this week, extending the summer momentum. BTC opens the week at $30,685 while ETH rallies to just below $2k at $1968.
This rally comes as the industry ended the week in a rough patch with the SEC stating that the current Bitcoin ETF filings were ‘inadequate’. Specifically, the SEC believed the filings lacked clarity and details around surveillance-sharing agreements were not comprehensive enough. This led to applications being re-filed naming Coinbase as their surveillance partner.
Still, despite the ‘knockback’, markets have remained constructive and keeping within the ascending channel YTD. After the charges against Binance and Coinbase set back prices briefly in June, it seems like it’s business as usual.
Markets declined 2% around the time of the headline release on Friday only for prices to increase 5% from the local bottom until Monday morning.
BTC/USD has been battling the $30k-$31k range which we’ve been stating as the key zone for the pair to break through. There may be a good number of buyers but there seem to be enough sellers at these levels too.
We note the possible bearish regular divergence on both the daily and weekly that makes us a little more cautious at these levels despite the widespread consensus view that Bitcoin strength will prevail from here.
But There Are Still Reasons to Be Cautious for Now
We mentioned last week in our Friday Bitcoin ETF market note that this consensus view comes at a time of liquidity vulnerability. Both global and US domestic liquidity have been trending down which has historically been a strong headwind for risk assets including Bitcoin.
But the key point here is that either BTC bullishly diverges from broad market liquidity trends or the consensus view is exposed and at risk of catching investors out - both outcomes would be meaningful.
Could it be that the TGA refill is finally aiding in a net negative liquidity environment - at least near-term?
NDX seems to also be overextended in the near term, in need of a correction that aligns with the fall in liquidity and realises the bearish divergence that may be forming too.
NDX has also been outperforming BTC since February by 1% - an atypical dynamic for a risk-on period. Factors including the regulatory/banking infra has been dampening performance for several months.
So much so that the estimated Bitcoin production cost (to mint 1 BTC in USD) has been ~30% higher than spot. A highly competitive mining landscape has meant miners are producing each BTC at an estimated loss.
Note, spot uses production cost as a price floor but it is unusual to see spot below production costs for a sustained period. Typical dynamics would put BTC towards the $38k-$40k range today.
That said, longer-term (multiple months), the outlook on market liquidity is still positive with 5-month leading liquidity indicators signalling a 20% YoY rise by Q4 2023.
Thinking, Fast and Slow
Still, the ‘severe recession’ calls aren’t going away anytime soon from Bloomberg surveillance shows. Economists are quick to point out your classic indicators that a sharp economic downturn is just around the corner…
The US 2/10 spread looks to be pricing in more Fed rate hikes at a time when things are starting to roll over including prices and employment.
The Fed has been slow to react to inflation, they will be slow to react to economic downturn or financial stability. After all, behaviour and human psychology rarely change.
And it’s this disconnect between tech valuations and the worsening economic backdrop that everyone is talking about. Nearly $5T has been added to the value of companies in the Nasdaq 100 YTD.
So what happens now?
Going back to the BTC chart and we can see it could decline 10%+ and still remain above its YTD support. Its 200d MA is an even bigger drawdown at ~20%.
Short-term holder SOPR still points to a constructive outlook but equally has room to reset at or below trader cost basis (value of =<1) before the next leg up.
Bitcoin dominance is also correcting after we highlighted last Friday its RSI (D) was overcooked. Its break above the 49% resistance after 3 years may mean dominance can still stay elevated but it won’t come without periods of underperformance as capital rotates into other corners of the market.
This has paved the way for ETH to make up some lost ground. ETH/BTC has now bounced off its 1-Year descending channel support. It’s plausible the ratio eyes up its 200d MA once again with a further 6-7% upside from current levels.
It wasn’t just ETH with market outperformance. Mid-to small-cap alts had their time in the spotlight after being the cohort of assets sold off the hardest after the SEC charged Binance and Coinbase with securities law violations.
Within the top 100 names by market capitalization, Compound has led the charge over the past week with an 81% gain. It’s unclear why Compound specifically as core metrics like net deposits have oscillated around $400m for several months now.
Along with other outperformers like MKR, this indicates little substance driving price action and/or blue chip names being back in vogue for investors. Bitcoin’s relative cooling off may be the signal investors have been waiting for to rotate capital down the risk continuum before others do.
Fundamentals not being a key factor for investors can be seen for other assets. For example, Rocket Pool’s fair value index is no longer correlating to RPL price action. Other factors seem to be at play here.
Other alt pairs specifically targeted by the SEC in June also benefitted from this renewed interest. SOL returned to the $20 level which is an important zone for given the ‘magnetism’ of its 200d MA. The asset sees good support between the $12-$16 zone but TBD whether the bulls can take it back above its 200d MA for the coming months.
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ICYMI: Market Note - The Bitcoin Spot ETF
Global Market Cap
$1.174T; Bulls are still in control with markets continuing their bullish momentum after bouncing off channel support. Break to the downside means the market can fall back to the 200d MA as it did with the SEC charging Binance and Coinbase.
Alts (DeFi)
$42.4B; A 27% gain from June's bottom reaching 42B (200d MA) as resistance. As an alt sector, DeFi has a lack of institutional (regulatory) and retail buyers (higher prices needed for participation) as its current headwinds. This price rally may be the result of capital rotation by investors down the risk continuum without fundamental catalysts per se.
Alts (Global)
Alt dominance indices rallying 8% from June bottom but reaching resistance at ~19%. Momentum bias still remains to the downside.
DeFi/ETH market also showing a similar dynamic.
Trader Positioning
BTC OI weighted funding rates remain positive (0.01) as BTC remains above the $30k level. Traders continue to take a predominantly bullish stance.
Aggregate funding rates are more volatile for ETH compared to BTC but are similar levels at time of writing (0.01).
Large drawdown of OI for Bitcoin options ($12.48B to $8b) after June 30 expirations.
June 30 expirations also impacting put/call ratio for both BTC and ETH which has since declined. Traders took out a large number of put protection strategies (with vol low and cheap) in the run-up to July.
Grayscale Trusts
GBTC discount to NAV has remained sticky at 30% since BlackRock’s filing to the SEC for a Bitcoin spot ETF. Slight widening following the SEC’s comments on Friday but not yet meaningful. Traders likely taking the news as unaffecting the prospect of a spot ETF being approved at some point over the coming months.
But the discount reflects the uncertainty around Grayscale’s ability to transition its GBTC product into a spot ETF which is producing $40m/month in revenue for the parent company. There is a question of even if Grayscale could transition the Trust, are the incentives there for them to do so?
ETHE discount to NAV widening to a great degree to ~48% despite relatively strong spot action for ETH.
BTC/USD Aggregate Order Books
Order books look slightly heavier on the ask side. Heavier resistance up to $31k (same as last week).
Miners
Bitcoin hash 1.2% below ATH (30d) with momentum still upwards. Hash rate tends to bounce of its 60D MA during constructive phases (resource additive).
Hashprice printing lower highs and is in a corrective phase as difficulty adjusts negatively for the first time since May 4th 2023. Bitcoin USD mining cost for 1 BTC being materially above spot is creating a headwind dynamic for hash rate, putting pressure on difficulty.
Bitcoin-related assets listed on EDX among top performers while BNB losing investor interest following the SEC charge against Binance:
Top 100 (7d %):
Compound (+79.1%)
Bitcoin Cash (+52.7%)
eCash (+49.7%)
Flow (+41.7%)
BitcoinSV (+32.9%)
Bottom Top 100 MCAPs (7d %):
Radix (-20.3%)
Coinflux (-11.4%)
Kaspa (-10.2%)
ApeCoin (-10.1%)
NEAR Protocol (-7.5%)
> The New Political-Economy [Hidden Forces]
> What’s Wrong With Existing Blockchain Models? [Real Vision]
> Michael Saylor on Gold, Ordinals, and Bitcoin ETFs [The Scoop]
> Should I buy a Punk? [Empire]
> Re-staking Alignment [Bankless]
> Bitcoin miners are pivoting to new markets and making bank [Blockworks]
> Bankrupt Celsius Can Convert Altcoins to BTC, ETH Starting July 1 Following SEC Talks [Coindesk]
> Volume 138: Digital Asset Fund Flows Weekly Report [CoinShares]
> Binance’s Market Share Fell Further in June [Coindesk]
> Azuki Wallets [Jason Choi]
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> Decentral Park Research Hub
> Decentral Park Market Pulse
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