The Weekly #242
Bitcoin struggles to sustain above $31.4k but takes pause at $30k. Several bearish divergences have been playing out with risk assets moving in line with liquidity outlooks near-term.
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A Heat Wave or Cool Summer?
Last week was a largely risk-off period for the cryptoasset markets with global MCAP measures down 2.2%. While relatively speaking, these aren’t large moves, the market once again struggled to breach past the $1.2T mark where it seems the air is thin.
This week the market has extended the declines slightly by 48 bps and the bearish exaggerated divergence we’ve been pointing out appears to be in full swing.
We now see the market as being at a slight inflection point with a spectrum of momentum levels. If 1 breaks, we look to the next number as the support zone:
1 - YTD support line. Found support on Monday at the $1.13T level
2 - the 200d MA. Useful longer-term momentum gauge where support was found in the March 2023 drawdowns and around the SEC’s clampdown on Binance and Coinbase in June 2023. This could also be the $1.05T level which has been used as support since June 2023 (and resistance pre-March 2023)
3 - possible new YTD support
For BTC, a $31.4k breach was attempted on Thursday but it was a flash-in-the-pan move. It was the 5th attempt for the orange coin but still the air remained thin above this level despite growing expectations for a BlackRock Bitcoin spot ETF to be approved soon.
One catalyst was BlackRock’s CEO Larry Fink calling Bitcoin an “international asset”.
The day eventually closed 2% in the red.
We see $30k as being the next key support with a 50/50 chance of this level breaking but the overall constructive trend as being intact until suggested otherwise. In this case, we would use the YTD support or the 200d MA as the more resilient support zone ($27.8k+).
So if everyone is constructive around the Bitcoin spot ETF then why is BTC struggling?
Well, it may be because everyone is/was constructive relative to the potential timeline of an ETF approval. Fink’s comments were positive but longer-term momentum will be driven by the access of flows unlocked by these ETFs vs. Fox news comments.
The interest in ‘Bitcoin spot ETF’ peaked on June 30th although, yes, these metrics are lagging indicators. The point here is that without any clear timelines, momentum can only be taken so far.
We also have the two largest crypto exchanges feeling the pressure of the US regulators. For Binance, you have several departures following the DOJ investigation into the exchange where Bloomberg reported US staff are being asked to relocate or be laid off:
Chief Strategy Officer - Patrick Hillmann
Senior Director of Investigations - Matthew Price
SVP for Compliance - Steven Christie
Chief Business Officer - Yibo Ling
For Coinbase, the SEC argued in a new filing on Friday that the exchange knew about its violations prior to the SEC’s lawsuit. The key point here is the SEC is going to battle and will not make light of this case against the listed exchange.
The same exchange which is being used as a partner is the surveillance-sharing agreement which has confused many. Still, these large firms (should) do their due diligence and seems the SEC’s lawsuit shouldn’t get in the way of Coinbase providing services with respect to Bitcoin ETFs.
Another factor is the decline in broader market liquidity which we have highlighted several times as being a key signal for being cautious.
When several measures pull back it’s more likely BTC gets pulled down with it. If BTC diverges (not base case), it demonstrates new market factors may now be at play with a long-awaited Bitcoin ETF as being a likely one. This is also a meaningful outcome.
We can also see evidence of the crypto markets not being able to diverge away from equities. Thursday’s move higher in the AM came at a time when equities were starting the leg lower. Factors driving equities are also likely drivers factoring equities.
As Noelle Acheson appropriately puts it:
“While the crypto market has been marching to a more optimistic drummer of late, we can’t assume it won’t be affected by a stock market sell-off or a sudden shift in rates expectations. It does have unique drivers, which will lend support; but many crypto investors breathe the same air as traditional asset investors, and it feels like it’s getting a bit thin.”
Stablecoin dominance models are also about to be tested where its multi-year support has coincided with local peaks in prices which would line up with the liquidity picture near-term.
The nominal declines in stablecoin since 2021 mean these indices may need to be adjusted for their validation (i.e. the change in stablecoin units outpacing the change in market valuations).
But more stimulus may be just around the corner. China’s CPI YoY is already closer at deflationary territory (0%). Coupled with producer price deflation deepening to the worst levels since December 2015, there are growing expectations of more government stimulus.
And it’s not just a China dynamic either. This early innings of the same dynamic could be playing out in Europe and even the US.
Last week, US jobless claims came in higher while job openings came in weaker than expected too. Dollar remained weak as we near the end of the rate hike cycle which central banks will be too slow to react the other way.
DXY may look to break 100 in which the next target is 90. Weak dollar periods are also constructive periods for Bitcoin.
That aside, Bitcoin as a relative play hasn’t been struggling. In fact, it’s at its 2-year high.
And for growth tech equities, the euphoria is creating divergences on the weekly…
and daily…
And NDX has been priced well above its liquidity fair value for some time now…
The alt market still struggles with few buyers around. After all, Bitcoin's relative strength has to come from somewhere and alts are the dominant source followed by stablecoins.
And remember, these alt coins need a steady level of buying support to offset issuance rates.
Take Compound which has been an outperformer over the past 14 days. Compound has seen ~$24.5m in issuance since late April 2023.
Prior to its recent rally, the spot trading volumes fell to their lowest levels since 2020. Not much volume can influence price in either direction - liquidity cuts both ways.
Finally, Bitcoin’s relative strength is also being expressed via miners which have where their revenue and earnings have surprised to the upside. MARA
For example, Marathon saw a 41% upside surprise on their earnings vs. a 4.7% upside surprise in Q1.
Mining equities are now showing some divergence to Bitcoin spot and is likely due to 1) recent reports showing Bitcoin mining revenue hitting $184m in Q2 due to Ordinal inscriptions, 2) Bitcoin spot ETF and 3) miners being traded closer to AI due to their ability to diversify the use of their facilities.
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ICYMI: Market Note - The Bitcoin Spot ETF
Global Market Cap
$1.3T; Markets start the week flat at -0.1%. Appears the market may now be using support-turned-resistance. Still above its 200d MA ($1.05T). Technicals are neutral.
Alts (DeFi)
$40.34B; The sector has yet to confirm bullish momentum but has been printing higher lows since June 2023. Sector indices using the 200d as a resistance zone since June 2023.
DeFi/ETH market also shows a similar dynamic to Alt coin sector measures. Support-turned-resistance with the ratio struggling to break above the 19% mark.
Trader Positioning
BTC OI weighted funding rates turned negative on the 7th of July after BTC’s failed attempt at sustaining above $31.4k. FRs have since returned to positive territory despite the slight decline in spot indicating traders remain bullish above the $30k level.
ETH FR has been declining over the past week as ETH spot has been retreating from the $2k level with traders appearing to be neutral at the $1.84k zone.
Late long flush-out occurred on Thursday with $60m long liquidations taking place on that day (aggregate).
BTC ATM IV short tenors falling with longer tenors following suit implying a period of near-term consolidation.
Grayscale Trusts
GBTC discount to NAV keeping below 30% and is the lowest it has been in almost a year. One could take this as the market maintaining a 70% likelihood of a GBTC spot ETF conversion (incl. the price of the time of t).
Digital asset investment products saw $136m of inflows last week bringing the last 3 consecutive weeks inflows to $470m, fully correcting the prior 9 weeks of outflows. $132.8m out of $136m were Bitcoin-related flows highlighting an interest given the spot ETF.
BTC/USD Aggregate Order Books
Order books look fairly even. Heavier resistance up to ~$30.8k.
Miners
Bitcoin hash up 51.2% YTD as miner commitment remains resilient. The 30d MA Hash rate often uses its 60d MA as support in uptrends which occurred again last week.
Hashprice to remain somewhat elevated but gradually pulled down as difficulty adjustment lowers to entice further hash commitment. Unlikely we see a new cycle peak in hashprice.
Top performers are a mixture of alt L1s and blue chip DeFi names with bottom performers being predominately alternative L1s:
Top 100 (7d %):
LEO Token (+7.2%)
Solana (+6.6%)
Curve DAO (+3.9%)
Frax Share (+3.1%)
Maker (+2.8%)
Bottom Top 100 MCAPs (7d %):
Flow (-23.7%)
The Graph (-17.1%)
Fantom (-16.6%)
BitcoinSV (-15.4%)
Mina Protocol (-15.1%)
> Why the Recession Conventional Wisdom is Wrong [The Breakdown]
> Unlocking the potential of Bitcoin [Wolf of All Streets]
> The Dollar’s Resiliency [Thoughts on the Market]
> Should I buy a Punk? [Empire]
> What’s the Future for Airdrops [Bell Curve]
> 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 Market Pulse
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