Market Analysis with Mike Ermolaev
Welcome to the 22nd edition of GoMarket Weekly, curated for the GoMining community by seasoned crypto market analyst and journalist Mike Ermolaev. From euphoria to an extreme fear, Bitcoin market sentiment has had a rollercoaster ride. To make sense of the cryptocurrency market's hairpin turns, Mike has zeroed in on the factors that sparked the turmoil, read between the lines of encoded market signals, and monitored the strategy shifts of major institutional players. Is a sudden turnaround on the cards, and what's driving this streak? Let’s GoMarket and discover what he’s uncovered!
Bitcoin's Correction Sparks Investor Anxiety and Market Caution
It's fascinating to think that 25 years ago, the legendary economist Milton Friedman predicted a digital currency like Bitcoin, a full decade before its creation.
So here we are, where a major correction brought Bitcoin as low as $49,781 based on CoinGecko data, spooking investors greatly over the past week. After reaching $64,639 and retracing to about $60K levels as of this writing, many were left scratching their heads at what had happened.
Investor anxiety hit a peak yesterday, with the Fear and Greed Index plunging to a worrying 20, highlighting the market's deep unease. While it has bounced back to a neutral 48 currently, the market's volatility remains unmistakable. Caution is the trader's mantra these days, with many playing it safe and waiting for clearer signals.
Source: Alternative.me
US Economic Weakness Affects Bitcoin's Momentum
Bitcoin's struggles of late can be traced back to the flagging US economy, say a chorus of analysts, including 10x Research. A significant drop in the ISM Manufacturing Index, which fell to 46.8 in July 2024—having contracted for 20 of the past 21 months—rekindled concerns about broader economic stability. Risk assets reeled as the weak data torpedoed confidence, with Bitcoin's value cratering under the pressure. During the latest FOMC Q&A session, Fed Chair Powell indicated that a rate cut in September is likely if inflation decreases as anticipated. This dovish sentiment initially triggered rallies in both stocks and Bitcoin. However, the US economy's Achilles' heel was exposed by the downturn in the ISM index, quickly reversing the momentum and driving Bitcoin prices lower.
Parallels with Past Halving Cycles
According to Peter Brandt, a renowned technical analyst and CEO of Factor LLC, Bitcoin might be gearing up for a significant breakout. Brandt draws parallels between the current market conditions and the post-halving cycle of 2015–2017, highlighting that the current post-halving correction is strikingly similar to the one experienced during that period.
In the 2015-2017 cycle, Bitcoin saw a 27% decline post-halving, with the price dropping from a closing of $650 during the halving week to a subsequent low of $474. After a quarter of a year, Bitcoin's value surged past $790, culminating in a new peak that seemed almost unimaginable just months prior. Brandt suggests that the current cycle, which started with the April 2024 halving, mirrors this pattern. Bitcoin has already seen a 26% decline from its halving week close of $64,962 to a low of $49,050. He posits that, similar to the previous cycle, Bitcoin could experience a significant upward movement, potentially reaching $90,000 after testing resistance levels near $70,000–$73,000.
Mt. Gox Creditors Favor Holding, Supporting Market Stability
Data from various sources reveal that the majority of Mt. Gox creditors plan to hold their Bitcoin rather than sell, a strategy likely to contribute to market stability. In a recent poll from the Mt. Gox insolvency forum, 89 out of 244 respondents (approximately 36.5%) indicated that they are holding 100% of their returned Bitcoin. An additional 24 respondents (about 9.8%) reported that they are holding most of their Bitcoin. This strong preference for holding rather than selling suggests a significant degree of confidence among creditors, which could help stabilize Bitcoin's price in the market.
Furthermore, in another survey, 73 out of 142 respondents (around 51.4%) mentioned that they plan to hold their Bitcoin until they need to spend it, indicating a long-term holding strategy. Only a small fraction, 17 respondents (approximately 7%), reported selling all of their Bitcoin.
Key Accumulation Zones Signal Strong Bitcoin Support
This holding behavior aligns with on-chain data showing that over 600,000 BTC have changed hands in the $66,200 to $66,900 range, marking the largest on-chain cluster since the Satoshi era coins. This cluster represents 3% of Bitcoin's circulating supply, making it a significant zone of price activity. The sheer volume of Bitcoin exchanged within this price band indicates that many investors are building their positions at these levels, further underscoring the market's current phase of accumulation.
Moreover, as highlighted in a recent post by Alex Thorn, the Head of Firmwide Research at Galaxy Digital, this $66.2k-$66.9k range isn't an isolated area of activity. The next largest band was $65.5k-$66.2k, just below the current price range, where a further substantial volume of Bitcoin changed hands. Additionally, during the post-FTX crash, another key cluster formed between $16.1k and $16.8k. Altogether, 1.5 million BTC—equivalent to 8% of the total Bitcoin supply—has changed hands between $65.5k and $66.9k, creating a "big fat cost basis zone" that reflects significant investor interest and support at these levels.
These patterns provide valuable insights into market sentiment and the behavior of long-term holders during periods of price fluctuation, suggesting that many investors are opting to "hodl" rather than liquidate their assets. This accumulation behavior, especially in such a critical price range, could be indicative of strong future support levels for Bitcoin, potentially setting the stage for the next phase of market movements.
Institutional Confidence Amidst Uncertainty
Institutional investors also continue to demonstrate confidence in Bitcoin, with MicroStrategy and BlackRock's Bitcoin ETF collectively holding over 570,000 BTC. MicroStrategy, in its ongoing strategy to amass Bitcoin, recently purchased an additional 169 BTC, bringing its total holdings to approximately 226,500 BTC, worth around $15.06 billion. Meanwhile, BlackRock’s Bitcoin ETF, known as IBIT, holds approximately 344,967 BTC as of August 7, 2024.
Adding to this trend, Farside Investors data from August 1-9, 2024, shows that Bitcoin ETFs across all firms recorded a total net inflow of approximately $17.4 billion, with BlackRock and Fidelity leading the pack.
This ongoing activity, coupled with a recent survey by the legal firm Barnes & Thornburgindicating that 59% of fund managers are prepared to increase their cryptocurrency allocations in client portfolios, underscores the expanding institutional appetite for digital assets. As institutional investors increasingly make their presence felt, the cryptocurrency market may be poised for a period of more predictable price movements.
Brazil's Solana ETF, US Political Maneuvering, and Ripple's Legal Victory
In a significant regulatory milestone, Brazil's CVM has approved the world's first Solana ETF, signaling a new era of crypto investment opportunities in Latin America. While there are already Solana ETPs trading in Europe, such as the 21Shares Solana ETP on the SIX Swiss Exchange and others on the Deutsche Börse Xetra in Germany, this is the first Solana spot ETF to be approved anywhere in the world. The fund is currently in its pre-operational phase and is awaiting final approval from the Brazilian stock exchange, B3. While there is no specific launch date, the ETF is expected to be available within the next 90 days.
The United States is also seeing shifts in the crypto landscape, though in a different arena—politics. The Democratic Party has launched a "Crypto for Harris" campaign, countering the Trump-endorsing crypto industry's sudden affection for the Republican leader. As election campaigns heat up, one key factor stands out: the rising impact of cryptocurrency on the political climate. The campaign's slow burn is about to get hot, thanks to a high-stakes meeting next week featuring titans of industry like Mark Cuban and Anthony Scaramucci, alongside some heavyweight Democratic representatives from the House.
However, Arthur Hayes, co-founder of BitMEX, recently discussed the upcoming US election and its impact on Bitcoin, stating that it doesn’t matter whether Trump or Harris wins. Regardless of who holds the reins of power, Hayes predicts that they'll continue to inflate the money supply, and Bitcoin will likely be a major beneficiary of this artificial stimulus. However, he is skeptical about the possibility of the US government proactively acquiring Bitcoin, as doing so would undermine the US Treasury and the Federal Reserve's ability to maintain control over the US dollar.
Meanwhile, a long-running legal battle in the crypto space has reached its conclusion. After four years of uncertainty, Ripple's dispute with the SEC has ended with Manhattan court Judge Torres ruling that the crypto firm will pay a $125 million fine and commit to following securities laws going forward. The SEC had initially sought a staggering $2 billion penalty, making the significantly reduced fine a major victory for Ripple. Ripple's Brad Garlinghouse celebrated the verdict as “a victory for Ripple, the industry, and the rule of law.”
Russia Legalizes Bitcoin and Crypto Mining
A historic move, Russia officially greenlit Bitcoin and cryptocurrency mining, mandating clear-cut rules for the entire industry. The law allows only registered Russian legal entities and individual entrepreneurs to mine, while individuals within government-set energy limits can mine without registration. It also permits the trading of foreign digital financial assets on Russian blockchain platforms, with the Bank of Russia retaining the right to ban certain issuances if they threaten financial stability.
Conclusion
In this edition of GoMarket Weekly, we've explored the rollercoaster journey of Bitcoin, from its sharp correction and investor anxiety to the possibility of a major breakout. Institutional investors are clearly unfazed by the market's wild swings, while long-term players keep buying and holding tight. The destiny of Bitcoin and the crypto sphere will soon be clarified as market ripples, political posturing, and policy implications converge. Get ready for the market's next move – Mike is already crunching the numbers, preparing to deliver the insights you need to make informed decisions.
August 9, 2024
