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Taking stock of the current negative and positive factors, when will there be a reversal?

2024-07-12 14:53

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Original title: "BTC price fluctuates downward, how will Web3 market trend in the future? | TrendX Research Institute"

Original source: TrendX Research Institute

After experiencing the downturn of "poor May" and "absolute June", the crypto market in July did not usher in the expected rebound. On the contrary, negative news such as the German government's sell-off and Mt.Gox repayment exacerbated investors' panic, causing Bitcoin prices to fall and driving the entire crypto market to fall across the board. Although the market has suffered a heavy blow, with the superposition of multiple positive factors such as the FTX repayment plan of up to $16 billion, rising expectations of interest rate cuts, and the results of the US election, many people believe that the crypto market may begin to turn around in the fourth quarter of 2024.

Currently important negative factors

Mt. Gox compensation triggers market panic: Bitcoin price plummets

The compensation issue of the Mt. Gox incident has attracted great attention from the market. The selling pressure of up to 142,000 BTC and 143,000 BCH once caused market panic on June 24, causing the BTC price to drop to around $60,000.

With the official launch of Mt. Gox's compensation on July 5, BTC fell below the $60,000 support level under heavy selling pressure. In the process, BTC miners showed signs of surrender. Historical experience shows that this usually means that the price has bottomed out. The last comparable hashrate drop occurred in 2022 when Bitcoin was trading at $17,000.

Mechanism Capital co-founder and partner Andrew Kang believes that most market participants do not realize the severity of the potential decline in Bitcoin's four-month range. The closest similar situation we can find is the range in May 2021, when Bitcoin and altcoins also experienced a parabolic rise. Crypto leverage is currently close to all-time highs (excluding CME), but in this case, our range is longer (18 weeks vs. 13 weeks) and there has not been an extreme washout. We have experienced similar situations several times during the 2020-2021 bull run.

It is possible that the initial estimate of the low of $50,000 is too conservative and we may see a more extreme correction to the $40,000 range. Such a correction could cause considerable damage to the market and may require several months of shock/downtrend (recovery period) before a reversal to the upward trend may occur.

German government sells off: nearly half sold

During the morning session, the German government transferred more than 10,000 bitcoins it held to crypto exchanges and market makers in batches. This action caused the price of bitcoin to fall below $55,000. However, according to Arkham Intelligence data, during the closing hours of U.S. stocks (around 01:56 AM Beijing time on Tuesday), the German government address recovered 2,898 bitcoins, equivalent to about $163 million, mainly from Coinbase, Kraken and Bitstamp.

According to Arkham data, the German government's sell-off plan has been nearly half completed. Since the sell-off began last month, its bitcoin holdings have dropped from nearly 50,000 to 27,461, and the current holdings are worth about $1.5 billion.

Recent industry headlines have focused on events such as the German government's sell-off and Mt.Gox refunds. Many analysts believe this is the main reason for the recent Bitcoin plunge. However, Bitfinex analysts attribute the decline to normal seasonal weakness.

Despite the market decline, data released by CoinShares shows that the inflow of digital asset investment products reached $441 million last week. Among them, Bitcoin investment products accounted for the largest share of the total inflow of crypto products ($398 million), accounting for as much as 90%. From a regional perspective, inflows mainly came from the United States, with an amount of $384 million. Other high buying came from Hong Kong, China ($32 million), Switzerland ($24 million) and Canada ($12 million), while Germany had an outflow of $23 million.

The Bitcoin mining market is bottoming out

The recent drop in Bitcoin prices to $54,000 (now recovered to $57,000) has made it even harder for miners, whose profits have plummeted due to the halving. According to surveys, if the price of Bitcoin falls to $54,000, only ASIC mining machines with an efficiency of more than 23W/T will be profitable, and only a few models of mining machines can barely support it.

The selling behavior of miners is also considered to be part of the reason for the price drop. In order to cope with the cash flow problem after the halving, the selling of mining companies continues. In June alone, 30,000 bitcoins from miners entered the market.

According to F2Pool, based on an estimated energy cost of $0.07 per kilowatt-hour, when the price of Bitcoin is $54,000, only ASIC miners with a unit power of 26 W/T or less can achieve profitability. In terms of specific models, six miners, including Antminer S21 Hydro, Antminer S21 and Avalon A1466I, break even at $39,581, $43,292 and $48,240 respectively. Other models, such as Antminer S19 XP Hydro, Antminer S19 XP and Whatsminer M56S++, require Bitcoin prices to exceed $51,456, $53,187 and $54,424 respectively to make a profit.

Against this background, with the ebb of inscriptions, whether for cash flow reserves or industry migration and exit, mining companies naturally choose to sell Bitcoin for survival.

Fortunately, as the price of Bitcoin drops, small and medium-sized mining farms gradually stop working, the difficulty of Bitcoin mining drops rapidly, and the capitulation of miners is about to end. On July 9, BTC.com data showed that the difficulty of Bitcoin mining was reduced by 5% to 79.5T, and the average hash rate of the entire network in the past seven days was 586.72EH/s. Since May, the number of Bitcoins sent to exchanges for sale by miners has dropped significantly, and the over-the-counter trading volume has dropped significantly. On June 29, the entire trading volume of the mining company's over-the-counter trading desk was exhausted, indicating that the selling pressure has eased.

In general, Bitcoin price fluctuations have had a huge impact on the survival of miners, but as the market adjusts, miners' selling behavior gradually decreases, and the industry may usher in a new balance.

Positive factors worth paying attention to

FTX repayment plan is expected to drive the market to new highs

According to the revised reorganization plan and disclosure statement submitted by FTX to the Delaware Bankruptcy Court in May this year, it is expected that the total value of the property collected and converted into cash and available for distribution will be between 14.5 billion and 16.3 billion US dollars, exceeding the 11 billion US dollars owed by FTX to customers and other non-government creditors. The remaining cash will be used to pay interest on the company's more than 2 million customers.

Currently, FTX has obtained court approval for creditors to vote on a compensation plan that can choose to pay cryptocurrencies in cash or in kind. Creditors must vote by August 16, and Judge Dorsey will decide whether to approve the plan on October 7. Once approved, FTX will repay creditors within two months, with an estimated time frame of Q4 2024 to Q1 2025.

Although the final compensation method has not yet been determined, crypto analyst Ash Crypto believes that given that most FTX customers are cryptocurrency enthusiasts, this $16 billion will enter the crypto market and become a major catalyst for price increases. Bitcoin is expected to break through $120,000, Ethereum will break through $12,000, and other altcoins will rise 10 to 50 times.

Expectations for interest rate cuts are clear

The Fed's decision to raise and lower interest rates is one of the important factors affecting Bitcoin prices, and interest rate cuts usually drive the market to strengthen.

Recently, Federal Reserve Chairman Powell said that inflationary pressure in the United States has eased, but the Fed needs more data to prove that the inflation risk has passed before deciding to cut interest rates. If interest rates are cut too early, inflation may rise again; if interest rates are cut too late, it may lead to slower economic growth or even a recession.

Although Powell said the timing of the rate cut has not yet been determined, as the latest US economic data showed slowing economic growth, such as the sharp downward revision of non-farm payrolls in June, the unemployment rate climbed to 4.1%, the highest since November 2021, and the market's expectations for rate cuts have increased. According to CME's FedWatch Tool, as of July 9, the market expected the probability of the Fed cutting interest rates at the September meeting to rise to 73.6%, and the probability of standing still was 22.9%.

Crypto Accounting System is about to take effect

In December last year, the Financial Accounting Standards Board (FASB) of the United States announced the first version of the cryptocurrency accounting rules, requiring companies holding Bitcoin or Ethereum to record their currency changes at fair value and reflect them in net income. The new rules will take effect for fiscal years beginning after December 15, 2024, and will apply to public and unlisted companies in 2025.

For crypto assets, this change in accounting standards means that companies including MicroStrategy, Tesla and Block will be able to record the highs and lows of their cryptocurrency holdings. This will promote further compliance in the crypto market and obtain liquidity injections from mainstream financial markets.

Bitcoin price trends after each halving

There are only three market trends: up, down and volatile. No matter how the market changes in the future, it will not escape these three modes. Trying to predict the direction of the market is a foolish act. We only need to know how to respond if the market develops in a certain direction.

If the market breaks through the current pressure level and stands above 69,000 points, it can be regarded as the beginning of an upward trend.

There are two possible situations for the rise:

1. Hitting the previous high but not breaking through: The market may be close to the previous high but fail to break through, or just slightly break through and then fall back. In this case, don't be confused by the market illusion and don't chase highs. You don't even need to leave the market, just reduce some positions, especially if you feel that your position is too heavy.

2. Breaking through the previous high and continuing to reach new highs: If the market breaks through the previous high and continues to reach new highs, and stays stable for at least 3 days. At this time, pay attention to the strength of the breakthrough and observe whether there will be a strong pull-up within 3 days to 1 week, or whether it will fluctuate upward. If the trend is strong and rises quickly after the breakthrough, you can hold positions and wait and see, waiting for a large correction (at least a correction of about 10%) before adding positions. If the trend is not strong and the increase is slow, it is recommended to reduce the position at the new high to prevent false breakthroughs. At present, the possibility of continued rise is low. If the second situation occurs and the trend is not strong enough after the breakthrough, be alert to the risk of a sharp decline. Reference to the market before and after the previous halvings:

The second halving (2016.07.10)

Before this halving, Bitcoin soared 78% in a month. After the halving, there was a deep retracement, falling 30% in a week, and the maximum decline even reached 40%. Then it began to rise all the way, from less than $500 to nearly $20,000. After the halving, the price of the currency fell back by 30%.

The third halving (2020.05.12)

In 2020, due to the historically rare black swan event of 312, the market fell sharply before the halving. If we ignore this negative news, Bitcoin also experienced a 20% correction a week before the halving. There was a rebound after the halving, but it did not go up, and the market was in a state of volatility. It pulled back from the high point before the halving in early May, and it fluctuated until the end of July before breaking upward. It fluctuated for a full three months, and there were two corrections of more than 10% in the middle.

From the previous two halvings, it can be seen that Bitcoin will go out of the correction market before and after the halving. Now the market generally expects that Bitcoin will rise after the halving, but what will happen this time? It may require further observation.