Will BTC price see 25000 or 31000? Pay attention to the layout opportunities brought by the golden pit

Author: 0x1987, LK Venture

Abstract

BTC has been fluctuating in the $27,000-$30,000 range for several days. We believe that the short-term bullish factors have been exhausted, and without new driving forces to push the market up, BTC may find support near the 120-day moving average at $25,000. In the long term, we are at the tail end of a tightening cycle, and a new bull market is about to begin. The Bitcoin Ordinals ecosystem and Ethereum's deflationary mechanism will also serve as catalysts for the bull market. We are optimistic about the long-term investment value of BTC and ETH and are paying attention to the layout opportunities brought by this round of adjustment.

I. Short-term macro bullish factors exhausted, risk assets may need to adjust

The Federal Reserve raised interest rates by 25bp at the May FOMC meeting, stating that the current level of interest rates is relatively high and there is no need for further increases. Subsequently released non-farm payroll and unemployment data exceeded expectations, showing that the U.S. economy remains strong. Meanwhile, inflation is rapidly declining, leading to continued gains in U.S. stocks, but BTC failed to break through the $30,000 barrier. The market expects the Federal Reserve to cut rates three times within the year. In the short term, macro bullish factors have been exhausted, and risk assets have risen to relatively high levels, making it difficult to find driving forces for further market upward movement.

The market expects the Federal Reserve to cut rates three times within the year

Liquidity is marginally tightening. Since the March SVB incident triggered a chain reaction, the Federal Reserve quickly adopted liquidity tools such as the BTFP (Bank Term Funding Program) to address the banking crisis, causing its balance sheet to start expanding again, thereby improving liquidity conditions. However, these emergency rescue measures are not traditional quantitative easing (QE), and quantitative tightening (QT) is still ongoing. Once the banking crisis subsides, the Federal Reserve's balance sheet will shrink again, putting pressure on liquidity.

The Federal Reserve's balance sheet has been continuously shrinking since April

At the same time, the U.S. Treasury faces the test of the debt ceiling. As early as January, the U.S. government reached its debt ceiling and could no longer raise funds through bond issuance, relying instead on deposits in the TGA (Treasury General Account) to meet expenditures, which somewhat improved overall liquidity. However, the current TGA deposits have fallen from $500 billion in January to $200 billion and may be completely exhausted in the next three months, which will negatively impact market liquidity.

The U.S. Treasury's TGA deposits are about to be exhausted

However, in the long term, we are at the tail end of the tightening cycle, and the rate-cutting cycle is about to begin, laying the foundation for a new bull market. Although BTC may experience a pullback due to liquidity issues, this year's adjustment is unlikely to be a one-sided decline compared to last year, and is more likely to take the form of range-bound fluctuations. BTC tested the 120-day moving average on March 11 and is expected to find support near the 120-day moving average at $25,000 in this round of adjustment. If the market experiences a panic-driven deep pullback, this will also present a good layout opportunity.

BTC may find support near the 120-day moving average at $25,000

II. Meme coins soar, Ethereum Foundation sells off, altcoins still need to consolidate and rotate

Recently, the performance of meme coins has been remarkable, and historically, peaks in meme coin trading volume often indicate market tops. PEPE surged 200,000 times within a month and even landed on Binance, with a market cap peak exceeding $1.5 billion, igniting market enthusiasm for buying meme coins. On May 5, the trading volume of major meme coins on the Ethereum chain reached $700 million, surpassing the levels seen during the bull market in October 2021, raising market concerns.

Peaks in meme coin trading volume often correspond to BTC tops

Additionally, the Ethereum Foundation transferred 15,000 ETH to Kraken on May 6, triggering a market decline. Historically, the Ethereum Foundation tends to sell ETH when prices have risen significantly, which corresponds to short-term tops. In fact, the selling pressure of 15,000 ETH is not substantial, but the high success rate of the Ethereum Foundation in recent years has led the market to form bearish expectations, resulting in larger-scale sell-offs.

The Ethereum Foundation has repeatedly sold ETH at market tops

The total market cap of stablecoins continues to decline, with no new funds entering the market. The market is beginning to realize that, compared to low liquidity and high valuation all-star projects, meme coins with full liquidity and lower valuations are more favored. This has led to funds shifting from large-cap altcoins to low-cap meme coins, further draining liquidity from the secondary market. The total market cap of cryptocurrencies, excluding BTC and ETH, has fallen below the 120-day moving average. Before positive signals appear, the decline of altcoins may continue for some time, and the market needs sufficient trading rotation to complete the bottoming process.

The total market cap of cryptocurrencies, excluding BTC and ETH, has fallen below the 120-day moving average

III. The Ordinals ecosystem is thriving, ETH deeply deflationary, becoming a bull market catalyst

Since we released the research report “The Arrival of Bitcoin's 'Smart' Era: The Ordinals Protocol and Lightning Network May Activate a Bitcoin Ecological Explosion”, the Bitcoin Ordinals ecosystem has experienced explosive growth, with BTC's daily network fees exceeding $15 million, the total market cap of BRC-20 tokens surpassing $700 million, and the leading token ORDI rising more than twentyfold. Through the experiments with the Ordinals protocol and BRC-20, we have seen new possibilities for Bitcoin, making its ecosystem more diversified. We believe that more native applications will emerge in the future, which will become important catalysts for Bitcoin's rise in the next bull market.

The total market cap of BRC-20 tokens exceeds $700 million, with the leading token ORDI's market cap exceeding $400 million

The Ethereum Shanghai upgrade was successfully completed, and the selling pressure of ETH was not as strong as expected. Due to ETH's good liquidity and rich derivative tools, potential selling pressure may have been absorbed by futures hedging and derivatives like lsD ETH. The market has already priced in the bearish factors, indicating that the Shanghai upgrade serves as a "bullish exhaustion" signal, and the total staking amount of Ethereum is also continuously rising.

The total staking amount of ETH has been continuously rising over the past week

The meme frenzy has driven up the fees on the Ethereum network, with the average Base Fee exceeding 100 Gwei since May, promoting ETH burning, and reducing the supply of ETH by 130,000 in the past month. Based on the burning rate over the past 30 days, ETH's supply will decrease by 1.31% annually, becoming a deflationary crypto asset. ETH/BTC has already bottomed and strengthened, and the deflationary mechanism will be reinforced in the bull market, further reducing ETH's supply.

Based on the burning rate over the past 30 days, ETH's supply will decrease by 1.31% annually

Conclusion

Both the macro environment and the indicators of the crypto market point to a bearish outlook in the short term and a bullish outlook in the long term. BTC may find support near the 120-day moving average at $25,000, and we should pay attention to layout opportunities brought by the golden pit.