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Investors Remain Resilient, Shrugging Off Long-Awaited Sell Pressure
The past week has been one of gradual gains in the crypto markets, with the total crypto market capitalisation having been in a downtrend since mid-March.
A short-lived support range formed between $1.9t and $2t amid a sharp drawdown as we entered July, driven by fear highlighted last week surrounding the Mt. Gox and German government Bitcoin sell pressure.
As of the latest update on the 13th of July, the German government is now out of Bitcoin, having sent their entire balance of 49,860 BTC ($2.90B) to exchanges and market makers in the past three weeks.
In addition to this, the immediate effects of the Mt. Gox distribution schedule appears softer than anticipated. By way of reminder for Mt. Gox, a total of 142k BTC was to be distributed to creditors beginning in July. It has been estimated that 65k BTC was made available to be sold immediately, though the full extent of this selling is somewhat unknown.
As the fear associated with the above sell pressure subsides, we are seeing evidence that the market remains resilient, with BTC retaking the $60k level and the total crypto market capitalisation bouncing hard off of its 233d SMA, a level that has not been breached significantly to the downside since late 23’, as we remain structurally bullish.
Spot BTC ETFs have seen inflows of $414m over the past week, with the recent price weakness likely being seen as a buying opportunity. This week's inflow reached levels not seen since early June, marking a sustained change in momentum for the institutional product. As mentioned, this points to investors remaining structurally bullish, and utilising these temporary forced selling periods as an opportune entry point.
Turning of the Tide
JPMorgan has forecasted a rebound in the cryptocurrency market starting in August, following a period of significant liquidations.
The bank has revised its year-to-date net flow estimate for crypto to $8b from the previously projected $12b, attributing this adjustment to the aforementioned liquidation of BTC reserves by creditors of Mt. Gox and the German government. JPMorgan anticipates a recovery in the crypto market, with the expectation that liquidations will decrease by the end of July.
This is in line with analysis conducted at Decentral Park, which shows that returns in election years typically kick in during the second half of the year.
Indexing average returns to 100 at the beginning of election years since 2009, i.e. the beginning of Bitcoin price data, shows strong performance from November through December. On average, the total crypto market capitalization has gained 120% in election years, versus the current 15%YTD. This gain in crypto market capitalization looks to be driven by liquidity, a thesis worked on by Michael Howell and championed by Raoul Pal in recent months. Should the pattern sustain this year, which remains our base case, H2 24’ looks to be primed for strong performance.
Standalone Catalysts to Kickstart Performance
Several catalysts could be responsible for kick-starting performance going into the rest of the year.
The first is the ETH ETF, for which many applications are still awaiting verdicts for the approval of S-1 forms. Bloomberg ETF analyst Eric Balchunas predicts that the SEC may approve a spot Ethereum ETF on July 18th, 2024.
Staking of Ether has reached a record high, with 33.3m ETH staked, making up nearly 28% of its total supply. Meanwhile, ~12% of the supply is locked in smart contracts and bridges. This ~40% lock-up of supply heightens the price sensitivity of ETH to inflows, forecast to sit at only 20% of BTC flows.
On the Solana side of things, the three catalysts worth watching include Firedancer, the growing SOL ETF narrative, and PayPal’s PYUSD.
On the Firedancer front, Jump Crypto launched a bug bounty program with a $1m prize pool to find any bugs in Firedancer v0.1. The program is running from July 10th to August 21st, and so a full mainnet implementation of Firedancer is not anticipated until shortly after this date.
In conjunction with this testing, the full Firedancer validator client successfully built its first accepted block on the Solana testnet. This is a material step in progressing towards ultra-high TPS on the Solana network, a key component of creating a network ready for the masses. While Solana's true TPS hit 1000 tx/sec this weekend, the capacity of 1m TPS is far from required at current levels.
In other positive news for the monolithic chain, the CBOE has submitted an application to list VanEck and 21Shares' Solana ETFs, while rumours suggest BlackRock might also be eyeing a Solana ETF next.
Although this is not material yet, we can learn from the ETH ETF process in which a complete 180 occurred overnight on the anticipated success of the applications. Solana is now well respected as an Ethereum challenger for the number one spot in smart contract networks, and its own ETF would likely see the chain valued at a much closer level to Ethereum.
Finally, on the real-world integration front, Jupiter has integrated PayPal's stablecoin, PYUSD, into their platform. PYUSD, backed by PayPal and issued by Paxos, is designed to maintain a stable value of $1.00 and is fully backed by U.S. dollar deposits and cash equivalents. PYUSD's supply has grown significantly and recently passed $565m.
Stablecoins are a core component of any DeFi ecosystem and one that Solana currently lacks, with only $3.3b relative to Ethereum’s $85b. Integrations such as PYUSD will broaden the onchain optionality, and thus application utility, which should in turn act to attract more value and users to Solana’s DeFi offerings.
Top performers over the past week have been broadly mid-cap names with $400m-$800m MCAP:
Top 100 (7d %):
Mog Coin (+65%)
Stacks (+42%)
Maker (+33%)
VeChain (+32%)
Sei (+32%)
Bottom Top 100 MCAPs (7d %):
Celestia (+18%)
Beam (+19%)
Core (+19%)
Aptos (+20%)
Nexo (+20%)