LTP Research: Escalating safe-haven sentiment in the cryptocurrency market, insufficient bullish sentiment for Bitcoin.

Source: LTP Research

1. Table of Contents

May Summary

Market Review

-Macro Commentary

-Bitcoin CME futures CFTC commercial institutional positions-Bitcoin Price Model

-CEX May spot and derivatives trading volume- Hourly trading volume of Bitcoin perpetual futures in May- Bitcoin perpetual futures and Ethereum perpetual futures CVD, buy/sell ratio and Delta.-Litcoin Halving-Layer 1 and Layer 2 popular Tokens-GameFi/元宇宙和 DeFi 表现

Key News Summary

June Market Volatility Forecast

Appendix

2. Summary of May 2023

2.1 Macro Market

In May 2023, the US debt ceiling crisis and ongoing quantitative tightening further intensified the safe-haven sentiment of cryptocurrencies.

It is expected that the US Congress will raise the debt ceiling in early June. As a result, the US Treasury will be able to issue bonds to provide funding for the depleted Treasury General Account (TGA). This will consume market liquidity, thereby weakening risk appetite for cryptocurrencies.

Before the mid-June FOMC meeting, CME federal funds rate futures reflected market expectations of a pause in rate hikes, despite Federal Reserve officials claiming that inflation remained too high.

2.2 Digital Asset Market

As of May 31st, the price of Bitcoin was higher than the 200-week moving average and the short-term holder cost, but several on-chain and trading indicators indicate a lack of bullish sentiment for Bitcoin and Ether.

Despite the overall market downturn, LTC, CFX, TRX, and XRP have achieved significant trading volumes, outperforming BTC (see Chapter 2.10).

As the mid-June FOMC meeting approaches, we expect volatility to increase in June.

3. Macro Commentary

Quantitative Tightening

The Federal Reserve is undergoing quantitative tightening, as evidenced by the continued decline in its balance sheet every month (see Appendix Figure A), which has weakened market risk appetite. With the easing of systemic risks in the US banking system, the $400 billion growth in its balance sheet in March has been wiped out in April and May. We expect that as the Federal Reserve and the European Central Bank continue to tighten their balance sheets in the second half of 2023, the risk appetite for cryptocurrencies will continue to weaken.

US Treasury Department's Final Debt Ceiling Agreement

President Biden and House Speaker McCarthy reached a final agreement on raising the national debt limit on May 28, 2023. The US Congress is expected to raise the debt limit in early June. After the debt limit is raised, the US Treasury will issue bonds to provide funds for the depleted Treasury account. As the Federal Reserve is implementing a quantitative tightening plan, the bonds will be absorbed by the market, thus favoring low-risk assets and weakening the risk appetite for cryptocurrencies.

Inflation and Interest Rates

The US unemployment rate reached a historic low of 3.4% in April, indicating a strong labor market. The April CPI and CPI (MOM) were 0.4%. Despite the fact that the inflation rate has been declining, the latest MOM deflation rate has not shown a decline. Although Federal Reserve officials claim they still cannot accept this level of inflation, CME Federal Funds Rate futures reflect a market tendency towards a decision not to raise interest rates, as shown in Appendix B.

4. Digital Asset Market Review

4.1 Bitcoin, Gold, US Dollar Index (Inverted) and Bitcoin CME Futures CFTC Commercial Institution Position

Data source: LTP Research, 2023. As of June 1, 2023, data obtained from Glassnode, CBOT, and CFTC. For reference only and should not be considered as investment advice or recommendations to buy, sell, or hold any specific securities or digital assets.

LTP Research Review:

In May, Bitcoin showed a strong negative correlation with the US dollar index, or a positive correlation with the inverted US dollar index. The price trend of Bitcoin is similar to that of gold.

In addition, most commercial institutions trading Bitcoin futures on CME hold short positions, with a long/short ratio of 0.29.

Therefore, commercial institutions' investment sentiment towards Bitcoin was cautious in May. If Bitcoin continues to trend upwards, we may see commercial institutions reduce their short positions and establish long positions as a signal of positive risk.

4.2 Bitcoin Price Model, Stablecoin Circulation Supply and Stablecoin Supply Ratio Oscillator

Data source: LTP Research, 2023. Data obtained from Glassnode as of June 1, 2023. For reference only and should not be considered as investment advice or a recommendation to buy, sell, or hold any specific securities or digital assets.

LTP Research Review:

As of May 31st, the trading price of Bitcoin was higher than the cost of both long-term and short-term holders, as well as the realized price and the 200-week moving average.

However, since March 2022, the total circulating supply of stablecoins has been consistently decreasing, indicating a lack of external capital entering the market.

In addition, the TVL of DeFi has been in a downward trend and has shown weak performance.

The supply ratio of stablecoins to oscillators has decreased after reaching overbought levels in March, indicating a slowdown in stablecoin purchasing power for BTC.

If Bitcoin falls below its 200-week MA and the support of short-term holders' costs, the price may retest the realized price area.

4.3 Trading Volume of Spot and Derivative Products in May 2023

Source: LTP Research, 2023. As of June 1, 2023, data obtained from Tokeninsight. For reference only and should not be considered as investment advice or recommendations to buy, sell, or hold any specific securities or digital assets.

LTP Research Review:

In May, the overall spot and derivative trading volume of major cryptocurrency exchanges decreased compared to April.

LTP Research Review:

Transaction hash：0x940d58c99c8175afbf5aa4483bce8ed750b56ea7cd831ffc8e77ec014a3d7b3b

Figure A. Federal Reserve balance sheet, US Treasury General Account (TGA), reverse repurchase agreements (RRP), and total assets of the European Central Bank

Data source: LTP 2023. As of June 1, 2023, data obtained from ST. LOUIS FED. For reference only and should not be considered as investment advice or recommendations to buy, sell, or hold any specific securities or digital assets.

LTP Research Review:

It is worth noting that the Federal Reserve and the European Central Bank are currently implementing quantitative tightening plans, indicating a sustained decline in their balance sheets.

Figure B. Daily financial report of the Ministry of Finance account as of May 31, 2023.

Data source: As of June 1, 2023, FiscalData.Treasury.Gov. For reference only and should not be construed as investment advice or a recommendation to buy, sell, or hold any particular security or digital asset.

Figure C. Future Federal Funds Rate and Effective Federal Funds Rate

Data source: As of June 1, 2023, data obtained from CBOT and CFTC. For reference only and should not be considered as investment advice or recommendations to buy, sell, or hold any specific securities or digital assets.

LTP Research Review:

It is worth noting that the Federal Funds Rate is expected to converge with the Effective Federal Funds Rate in the future, indicating that most traders no longer anticipate further interest rate hikes.

Figure D. Liquidation Zone Heat Map

Data source: Hyblock Capital, as of June 1, 2023. For reference only and should not be considered as investment advice or a recommendation to buy, sell, or hold any specific securities or digital assets.

LTP Research Review:

There will be a large number of long positions liquidated in the $22,000 to $25,000 range.

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