Tide Capital: The opportunity of patience and greed, BTC short-term holders are selling their last chips around 26,000

Source: Tide Capital

Summary

The overall market has entered a period of consolidation, with large-cap altcoins completing the process of deflating bubbles. Funds are flowing from altcoins to BTC and ETH, and the market is nearing the bottom. We are optimistic about BTC oscillating between $25,000 and $30,000 in the short term. Current market sentiment is overly pessimistic, and a natural rebound may occur. The Federal Reserve's interest rate hikes are nearing their end, and the upcoming rate cut trades are expected to initiate a significant market movement. The remaining time this year will be a good opportunity for positioning.

Macro: Interest Rate Hikes Nearing Their End, Rate Cuts Still Take Time

In the past month, U.S. inflation has maintained a downward trend, and the heat in the labor market is easing. The U.S. macro economy is moving towards a soft landing, and the adjustment in the U.S. stock market is relatively controllable, with no unexpected factors in sight. The Federal Reserve's interest rate hikes are nearing their end; there may be one more hike, but its impact is diminishing and is no longer the main focus of the market.

Figure: U.S. CPI data is overall in a downward trend

However, for the crypto market, the most critical issue remains the current high interest rate environment. Recently, both the 10-year U.S. Treasury yield and the U.S. dollar index have risen, putting significant pressure on risk assets. In a high-interest, continuously shrinking monetary environment, risk assets are unlikely to perform well. Due to the strong performance of the U.S. economy, the Federal Reserve's determination to combat inflation remains firm, and rate cuts will take time. The Fed may not start cutting rates until the third quarter of next year, and investors need to remain cautious and patient.

Figure: 10-year U.S. Treasury yield hits new highs

Retail investors are out of bullets. During the pandemic, the U.S. provided substantial fiscal subsidies to residents, which not only boosted the economy but also led to a significant flow of funds into the financial markets, inflating small-cap stocks and cryptocurrencies. However, as time goes on, excess savings among U.S. residents are gradually declining. The San Francisco Fed predicts that excess savings will be depleted by the third quarter of 2023, which will also impact the economy, inflation, and employment. The U.S. is one of the world's strongest economies, and the depletion of excess savings among its residents indicates that retail investors are out of bullets, making it difficult for the capital market to replicate a bull market performance.

Figure: U.S. residents' excess savings are about to be depleted

Institutional investors are also remaining cautious. Since the beginning of this year, institutional investors have been reducing their investments in the crypto market, with primary financing amounts significantly lower than in the previous two years. In August, the financing amount was only $283 million, essentially returning to the levels of 2019-2020. Even during the significant market downturn in 2022, the average monthly financing amount was over $1 billion, highlighting the current market's lack of activity. On a positive note, the market is completing the process of deflating bubbles, which is very similar to the characteristics of the previous cycle's bottom.

Figure: Primary financing amounts in the crypto market have significantly decreased this year

Overall, there is a temporary lack of favorable changes macroeconomically, with the Federal Reserve still maintaining a relatively hawkish stance, and rate cuts may not occur until the third quarter of next year. Retail investors are out of bullets, and institutional investors are becoming more cautious, making it difficult for the market to experience a significant movement. It is more likely to pass through this period in a range-bound manner, and investors need to remain patient. Specifically, when the market falls to low levels, it is not advisable to be overly pessimistic; when the market rises to high levels, it is not advisable to be overly optimistic.

On-Site: Lack of Liquidity, Altcoins Deflating

The ETF narrative has faded, and the market is in a stalemate. The news of the Bitcoin spot ETF in late June stimulated a market rally, but the SEC's decision to delay in August led to a complete retreat of bulls. According to Bloomberg analysts, the first final deadline is Ark's January 10, and the SEC may postpone the final decision until the end of the year, leaving 3-4 months for it to become a factor driving the market up. Although the news of Grayscale's victory briefly boosted the market, BTC failed to recover above the 120-day moving average, and just two days later, the gains were completely erased, leading the market back into a stalemate.

Figure: BTC oscillating below the 120-day moving average

Trading volume has decreased, and trading willingness is low. Since mid to late July, BTC and ETH have been oscillating, and trading volume has significantly declined, with market trading willingness being quite low. Currently, BTC's total trading volume is nearing the levels seen after the FTX collapse, with both buyers and sellers on the sidelines.

Figure: BTC trading is low, with volume nearing levels after the FTX collapse

On-site funds are insufficient, and altcoins are deflating. Excluding BTC and ETH, the total market capitalization of cryptocurrencies is nearing the bottom range seen in late June, with altcoins continuously bleeding and showing a downward trend. XRP has completely erased the gains from the SEC lawsuit victory, while ARB has fallen below the June lows, with only a few small-cap altcoins experiencing Pump & Dump activities with the participation of market makers. Former on-chain star projects like UNIBOT, BITCOIN, and OX have seen even larger declines, indicating a lack of market funds and confidence.

Figure: The total market capitalization of cryptocurrencies, excluding BTC and ETH, is nearing the bottom range seen in late June

Overall, funds are flowing from altcoins to BTC, and altcoins are completing the process of deflating bubbles. Compared to the lows at the beginning of the year, BTC's increase is still around 60%, while many altcoins have turned negative in returns. The market is gradually digesting the excessively high valuations of many altcoins through low-volatility declines, completing the final consolidation and turnover at the end of the bear market. The market has adjusted to a lower position, with limited downside potential; in the absence of significant negative news, declines present opportunities rather than risks.

What We Are Optimistic About

Short-term: BTC oscillating between $25,000 and $30,000. From the current situation, there are no significant changes macroeconomically, and there are no clear positive or negative factors in the market, so BTC is likely to oscillate widely between $25,000 and $30,000. Current market sentiment is overly pessimistic, and impatient investors have already exited their positions. The deflation of altcoins is basically complete, and an increase does not require much capital. Even if a wave of confidence restoration occurs spontaneously in the market, BTC has the potential to rebound to around $30,000.

Figure: Current market sentiment is overly pessimistic, and a natural rebound may occur

Medium-term: The Federal Reserve's interest rate hikes are nearing their end, waiting for rate cut trades. Looking back at the last interest rate hike cycle, after the Federal Reserve paused rate hikes, BTC bottomed out and rebounded, rising sharply from $3,300 in February to $13,000 in June. The market often anticipates the Fed's rate cut expectations ahead of time, and by the time the rate cut actually occurs, a round of increases may have already been largely completed. Although it is still early to discuss rate cuts, we are very close to the last rate hike, and future market movements are worth looking forward to.

Figure: In 2019, after the Federal Reserve paused rate hikes, BTC experienced a significant increase

Conclusion

Short-term BTC holders are selling their last chips around $26,000, while patient investors see extraordinary opportunities. We maintain a neutral optimistic attitude towards the current market and are optimistic about BTC's significant movements next year. Stay patient and cherish the buying opportunities brought by the decline.