Greythorn Monthly Market Report: Significant Volatility in the Crypto Market in April, Low Interest in Altcoins

Author: Greythorn

Source: TechFlow Deep Tide

Introduction

Welcome to the monthly market update from Greythorn Asset Management for April 2024. We are pleased to share insights and analyses that will help you understand our work and the market trends we are observing. Our mission is to invest in breakthrough technologies and asset classes to create significant value and have a positive impact on the world.

At Greythorn Asset Management, we are committed to providing monthly updates on the cryptocurrency market. These updates include in-depth analyses of market dynamics, regulatory developments, and macroeconomic factors affecting digital currencies.

For more information about our work and to learn more about us, please visit our website .

Market Analysis

April 2024 Market Dynamics

The cryptocurrency market experienced significant volatility in April, with major events occurring after Bitcoin hit a record high in March. At the beginning of the month, Bitcoin's price sharply dropped over 5%, falling below $66,000. Throughout the month, the price experienced multiple fluctuations, primarily driven by macroeconomic factors and changes in market sentiment. These movements aligned with shifts in U.S. interest rate expectations, highlighting Bitcoin's sensitivity to global economic trends.

Source: TradingView

The derivatives market anticipated this decline, as the funding rate for Bitcoin perpetual futures dropped, signaling an impending correction. For many observers, the change in market sentiment made this adjustment seem inevitable, culminating in a significant liquidation event outside U.S. ETF trading hours.

Source: VeloData

Another factor influencing BTC sentiment may be the change in U.S. interest rate expectations, which could be related to the recent decline. This serves as a reminder that while many view BTC as a "store of value," it remains sensitive to macroeconomic changes.

Source: Bloomberg

Throughout the month, BTC prices fluctuated between $73,000 and $60,000. This stability can be attributed to several factors. A significant influence was the unexpected decline in the U.S. dollar index (DXY). A weaker dollar makes BTC more attractive, thereby supporting its price.

Source: TradingView

Investor attitudes toward the BTC halving event may have led to expectations of a price surge. This is another potential factor affecting market sentiment. However, these expectations did not materialize, and BTC's price remained unaffected.

Additionally, despite a slowdown, ETF inflows continued to support the market.

Source: The Block

As April came to a close, BTC was positioned at the lower end of its price range, indicating significant market weakness and potentially leading to more interesting developments.

Source: Coinalyze

Innovation and Transformation in Crypto Investment Products

In April, one significant development that Greythorn focused on was the ongoing exploration of asset tokenization, particularly with the launch of the BlackRock USD Institutional Digital Liquidity Fund by BlackRock. This fund is open only to accredited investors who can meet a substantial minimum investment amount, represented by the $BUIDL token on Ethereum. It primarily invests in safe, income-generating assets such as U.S. Treasury bonds and repurchase agreements, with dividends paid in $BUIDL tokens. This innovative model not only provides a new investment option but also demonstrates how blockchain can enhance the liquidity and accessibility of traditional financial assets.

The fund manages assets exceeding $375 million from just 10 holders, highlighting a significant advancement in merging real-world assets with blockchain technology.

Furthermore, the $BUIDL token has been further enhanced through partnerships with BlackRock, Securitize, and Circle. This collaboration connects the token to a smart contract pool of USDC, enabling direct redemptions and continuous liquidity. As a result, investors can convert their $BUIDL holdings into USDC at any time, supporting instant global transactions. This feature is particularly beneficial for crypto companies managing large treasuries, providing a seamless way for businesses to access funds quickly, as stablecoins become increasingly prominent in international transactions. This integration marks an important advancement in liquidity management within the financial sector.

Regulatory and Regional Expansion

April was particularly significant for regulatory actions in the crypto world, especially with the Hong Kong Monetary Authority approving Bitcoin and Ethereum spot ETFs. This approval is a game changer for the Asian market, particularly in Hong Kong, although it is worth noting that access for mainland Chinese investors remains significantly restricted due to stringent regulations. This decision involves three major investment groups, underscoring the importance of integrating cryptocurrencies into a broader financial ecosystem.

In Europe, the situation for crypto is also progressing. Germany's LBBW, one of the country's largest banks, announced that it is preparing to offer crypto trading and custody services. This action by a traditionally conservative financial institution highlights the growing perception of cryptocurrencies as legitimate, investable assets. LBBW's approach is particularly noteworthy as they focus on integrating crypto services into their business model rather than merely chasing speculative gains. This reflects a deeper and more practical application of blockchain technology in corporate finance.

Developments in Ethereum and Regulatory Challenges

Ethereum's trajectory has been similar to Bitcoin's, but it has faced more intense regulatory scrutiny. The SEC has yet to decide on the application for an Ethereum spot ETF, requesting public comments on the proposed amendments, indicating a cautious stance from regulators and ongoing uncertainty in the regulatory environment.

Notably, Ethereum lab Consensys sued the SEC challenging the decision to classify ETH as a security. This lawsuit could clarify Ethereum's regulatory standing and impact other cryptocurrencies. If successful, it could influence market dynamics and boost investor confidence.

This legal action strongly suggests that issuers are operating under the assumption that approval will eventually be granted.

Bitcoin Halving

The Bitcoin halving event occurred this month, reducing miners' block rewards by half. This change has significant long-term implications for the network's economy. While we have not seen a direct impact on prices, the reduction in rewards over time may lead to higher transaction fees as miners increasingly rely on gas fees to remain profitable. This shift is crucial for Bitcoin's future as a transaction network, especially since higher fees may diminish its appeal for small transactions. On a positive note, the development of Layer 2 networks is underway, helping to balance the trade-off between security (more critical for larger transfers) and cost (a larger factor for smaller transfers).

Source: Blockchain.com

Macroeconomic Environment

Steady Rise of Gold and Its Connection to Cryptocurrency

In April, gold remained a focal point. Despite a decline in holdings of the largest gold ETF in the U.S., gold prices continued to rise.

Source: @BobEUnlimited

This divergence is noteworthy, especially in Asia, where net inflows into gold ETFs have been recorded despite less developed market infrastructure compared to North America and Europe.

Source: World Gold Council

Central banks have also been active buyers of gold, continuing a decade-long purchasing trend. Recent data from the World Gold Council indicates that central banks are buying gold primarily for traditional market diversification and crisis hedging, rather than moving away from the dollar. The only added motivation last year was gold's performance during crises, highlighting global geopolitical and economic uncertainties.

Source: World Gold Council

This interest in gold seems to resonate with discussions in the cryptocurrency world about "seeking international payment options beyond the dollar," reflecting a broader market demand for reliable alternatives outside the conventional financial system.

Interest Rate Expectations and Economic Signals

April opened with heightened attention to the U.S. financial markets, with discussions about interest rate cuts sparking lively debate. Stronger-than-expected economic data dampened hopes for rate cuts in 2024. It appears that the U.S. economy may be more resilient than we had anticipated.

U.S. Employment and FOMC Developments

There is significant focus on U.S. employment data, with the ADP payroll expected to reveal a slight weakening in the labor market. This data typically serves as a precursor to the official employment statistics released a week later, which also indicate a softening, with the unemployment rate holding at 3.8%. The JOLTS and Challenger layoff reports further provide insights into hiring and layoff conditions.

Among these releases, the FOMC's press conference is particularly critical, with Chair Jerome Powell discussing ongoing inflation concerns and the Federal Reserve's interest rate strategy.

Tensions in the Treasury Market and U.S. Fiscal Quarterly Report

This month, the Treasury's quarterly report revealed key financial strategies, detailing upcoming bond issuance plans and adjustments to overall fiscal policy, directly impacting market liquidity. This update is also reflected in the Treasury market, as liquidity has decreased and volatility has increased since the end of 2021, drawing close attention from investors. Additionally, the report highlighted the Treasury's expected borrowing adjustments for the second quarter, now $41 billion more than previously anticipated, totaling $243 billion. While this increase appears substantial, it is relatively small compared to the U.S.'s massive national debt (currently exceeding $34.5 trillion and continuing to rise).

Global Perspective

The global economy is also worth monitoring. Japan's monetary market operations suggest that the government may intervene to support the yen. Essentially, the "yen bounce" (a sudden rise in the yen's value) coincided with a decline in the DXY dollar index, leading to speculation that the Bank of Japan may intervene in the currency market to influence the yen's value.

Source: TradingView

Meanwhile, South Africa is taking steps to regulate cryptocurrencies, indicating growing institutional interest in digital assets there. In contrast, Venezuela faces challenges in using USDT (a digital currency) for its oil transactions due to sanction risks.

Highlights of the Month

● Former Binance CEO Zhao Changpeng sentenced to four months in prison for anti-money laundering violations, highlighting regulatory actions in the crypto space.

● BlackRock's USD Institutional Digital Liquidity (BUIDL) Fund: The BUIDL fund manages assets exceeding $375 million, indicating strong institutional interest in digital assets.

● Spot Bitcoin and Ethereum ETFs in Hong Kong: Hong Kong launched six new Bitcoin and Ethereum ETFs, significantly expanding regulated crypto investment options in Asia, reflecting the trend of regulatory approval for crypto investments.

● MicroStrategy expands its Bitcoin holdings: MicroStrategy increased its total holdings to 214,400 BTC by purchasing more Bitcoin, continuing its investment strategy.

● Legal developments between Consensys and the SEC: Consensys faces regulatory challenges from the SEC, which may impact Ethereum's legal classification and broader regulatory treatment of cryptocurrencies.

● Potential spot Bitcoin ETF in Australia: Australia plans to launch its first spot Bitcoin ETF by the end of the year, potentially expanding the region's cryptocurrency investment market.

● Tether's expansion on the TON blockchain: Tether launched USDT and XAUT stablecoins on the TON blockchain to enhance liquidity and access for decentralized applications.

● Crypto leap in Hong Kong: Hong Kong plans to launch additional Bitcoin and Ethereum spot ETFs, further expanding regulated crypto investment options in the Asian market.

● Rise of South Korean cryptocurrencies: The South Korean won surpassed the dollar in Q1 2024, becoming the most traded currency in cryptocurrency transactions, showcasing the country's growing influence in the crypto space.

● Bored Apes NFT price crash: The price of Bored Ape Yacht Club NFTs plummeted, marking a significant downturn in the once-thriving digital collectibles market.

● Bitcoin miners activate long-dormant BTC: A Bitcoin miner moved long-dormant BTC worth $3 million, sparking speculation that early miners may be cashing out.

● BlackRock's spot Bitcoin ETF surge: BlackRock's IBIT spot Bitcoin ETF attracted $15 billion in inflows just three months after its launch, indicating increased investor confidence.

● Solana developers address network congestion issues: Solana developers are working to resolve network congestion to enhance transaction processing capabilities and alleviate bottlenecks.

● PayPal introduces PYUSD stablecoin for international payments: PayPal launched PYUSD stablecoin international remittance services for U.S. customers, waiving transaction fees.

● Sony Bank's stablecoin pilot on the Polygon blockchain: Sony Bank launched a stablecoin experiment on the Polygon network, integrating digital currency into gaming and sports ecosystems, reflecting Japan's evolving regulatory environment.

On-Chain Analysis

• Currently, despite Bitcoin's strong performance, overall interest in cryptocurrencies remains subdued, particularly for altcoins.

Source: Benjamin Cowen

• Despite challenges in the market, major Bitcoin miners have not significantly abandoned their operations, as those with efficient equipment and low-cost electricity remain profitable. However, retail miners using older equipment and facing higher electricity costs are struggling.

Source: CryptoQuant

• The surge in cryptocurrency projects has added complexity to the market. A recent CoinGecko report indicates that as of April 2024, the number of cryptocurrencies has risen to approximately 2.5 million, a 570% increase since 2022, although many projects may not be actively maintained or credible.

Source: Cpinguecko

• Glassnode's report indicates that Bitcoin's "frenzy phase" is cooling as the market restructures. Sell-offs led by newer investors suggest that as selling pressure nears its end, the market may be approaching a bottom. The report also notes that the local distribution pattern in March resembles previous bull markets.

Source: Glassnode

• In the current market downturn, Coinbase's Base Layer 2 (L2) has emerged as a strong on-chain platform. The platform attracts 50,000 to 100,000 new crypto users daily, with total users nearing 9 million.

Source: Dune Analytics

• Short-term holders are selling at a loss. Investors who purchased at higher prices within the past six months are currently at a loss and may panic sell below the SOPR, indicating that the market may be nearing a local bottom.

Source: CryptoQuant

• On-chain activity remains mostly calm, with only a few exceptions drawing attention, as shown in the chart. Trading volume is on a downward trend as caution persists. Typically, the effects of Bitcoin halving are delayed by 1-2 months.

Conclusion

April highlighted the delicate balance that the global economy is maintaining as central banks tackle the challenges of inflation and growth, while markets adapt to regulatory changes and geopolitical uncertainties. This ongoing challenge tests the flexibility and resilience of global economic strategies.

As April comes to a close, Bitcoin's price stabilizes, but Greythorn's research team believes BTC remains sensitive to broader economic indicators and changes in investor sentiment. The launch of Bitcoin and Ethereum spot ETFs in Hong Kong aims to broaden market access and enhance cryptocurrency knowledge and investment opportunities in the Asian region.

Potential drivers of positive trends in the cryptocurrency market include:

● The easing of SAB 121, which restricts major U.S. banks from providing crypto custody services under SEC regulations.

● Reports that sovereign funds are investing in cryptocurrencies.

● More corporate investment institutions incorporating Bitcoin into their financial reserves.