10x Research: Pessimistic about ETH prospects, expects new highs for BTC

Author: Markus Thielen, 10x Research

Compiled by: Azuma, Odaily Planet Daily

Editor’s Note: This article is a compilation of two market analysis articles published by the well-known research institution 10x Research last night and this morning. In the first article, 10x Research primarily analyzed the pessimistic reasons for ETH's future market; in the second article, 10x Research predicted that a new high for BTC is imminent.

Below are the key excerpts from the two articles by 10x Research.

About ETH: Why are we firmly bearish?

In the past month, Ethereum's market capitalization has grown by 22%, reaching $454 billion, while Ethereum's fee revenue has decreased by 33%, amounting to only $128 million. Fundamentally, this is because Ethereum has become relatively "irrelevant" in terms of trading activity, with most meme activity shifting to Solana or Layer 2 networks, which may not be news to deep value investors.

From a technical analysis perspective, if ETH breaks below the $3725 level, it could trigger a large number of stop-loss trades. The current trend of ETH appears very weak, failing to rise further, and many newly established long positions have reached or fallen below the breakeven point. Cryptocurrency enthusiasts generally refer to this technical pattern as "Bart," where the price of a token needs to consolidate after a significant rise, during which the price may sharply decline due to the triggering of stop-loss trades. All three of our reversal indicators have turned bearish.

Historically, June is the second worst month for ETH performance, with an average return of only -7% (September is the worst at -12%), while the average return for the other ten months is positive.

In summary, from various perspectives including fundamentals, technical analysis, and cyclical patterns, now is not the best time to hold ETH. Another testament to this conclusion is the excessive positioning in the futures market (leaning towards long).

Note: In financial market terminology, "excessive positioning" is typically used to describe a phenomenon in which there are a large number of positions held in a specific direction (long or short) for a particular asset or investment product. When the majority of participants in the market tend to take the same trading direction, "excessive positioning" implies the risk of being overly biased in that direction.

Open interest in futures contracts has increased from $8 billion in mid-May to $12.8 billion, with financing rates exceeding 20% on some days, but have now dropped to 11.9% as no new longs have been deployed, making the cost of holding long positions very expensive. Due to the uncertainty of the ETF approval timing, more traders may choose to close their positions.

The net inflow of spot Ethereum ETFs may also be disappointing. Similar to GBTC, we may see a $4-5 billion outflow from Grayscale's ETH E, while the inflow levels for other ETFs may only reach 20% of the BTC ETF ($13.5 billion over five months), around $2.7 billion. An inflow of $2.7 billion against an outflow of $4 billion from ETH E may put pressure on ETH's price.

For institutions or asset managers, the rationale for adding ETH to their multi-asset portfolios is also insufficient. ETH is not positioned as digital gold, and its trading volume is only a small fraction of Bitcoin's, presenting certain liquidity risks. The current risk-free rate in traditional finance is about 5.2%, while ETH's staking yield is only 2.6%, thus providing little incentive for traditional finance to purchase ETH ETFs, not to mention that current ETFs do not allow staking.

It remains uncertain when the SEC will finally approve the spot Ethereum ETF (S-1), and President Biden has just vetoed Congress's attempt to overturn the SAB-121 resolution, reaffirming the government's opposition to cryptocurrencies. ETFs must wait for the S-1 form to become effective before they can start trading, but the timeline for the SEC to approve these S-1s is still uncertain (it could be today or several months later). Following the positive impact of the approval of 19b-4 on May 23, ETH jumped from $3000 to $3600 and climbed to $3800 in the following days. Considering that the U.S. government has just conveyed less friendly new information regarding cryptocurrencies (Biden's veto), is this over 25% increase reasonable?

We prefer Bitcoin; even if the S-1 is approved, the conversion outflow from ETH E will exert selling pressure on ETH. Overall, "long Bitcoin, short Ethereum," "sell Ethereum call options, buy Bitcoin call options" may be more favorable trading strategies.

For ETH, $3725 will be a critical level (at which point we will close all long Ethereum positions). If ETH breaks below this level, we may see a large number of stop-loss trades triggered, pushing ETH's price further down, which could even drag Bitcoin down from reaching new highs.

About BTC: Will a new high come?

We have emphasized our bullish reasons for BTC in our reports on May 21, May 26, and May 30.

For traders, now is the time to take risks for greater Beta. As we predicted, Bitcoin mining-related stocks are also rising. Influenced by Tether's $100 million financing (potentially increasing by another $50 million), Bitdeer rebounded by 13% last night, while Bitfarms, as one of the major players in the industry, also saw a rebound.

The U.S. economy is slowing down, but this currently seems to be a good thing. GDP growth is just above 1%; the ISM manufacturing index has been in contraction for several months; employment is continuously weakening, negatively impacting consumer spending; and last night there was another key leading employment indicator—job vacancies have significantly slowed. All of these will lead to a decrease in inflation.

We will receive more employment data this Friday, and next week we will get the CPI inflation report. Bitcoin's trend will adjust direction based on the CPI's highs and lows (CPI rising means bearish for Bitcoin; CPI falling means bullish), and if the CPI growth rate is 3.3% or lower, it is likely to push Bitcoin to a new all-time high.

On May 15, when the inflation rate reached 3.4%, down from 3.5% the previous month, we turned bullish, and at that time Bitcoin's price was close to $62,000. This price also coincided with our model, which originally predicted that if Bitcoin's price could reach $65,000 on May 16, it would turn bullish, and if the closing price exceeded $71,500 (recent price was $70,500), it would trigger another buy signal.

Bitcoin has currently broken through the smaller triangular range shown in the chart below (purple line), and the larger triangular range (purple dashed line) may also be broken around $71,500. If the decline in U.S. employment or the decrease in inflation can allow Bitcoin's price to close above this line, we will firmly set our target price at a new high, which may be achieved between this Friday and next Wednesday. Therefore, we expect Bitcoin to reach a new all-time high (above $73,500) by next weekend.

The SEC recently issued a risk warning regarding cryptocurrencies, a pattern that previously appeared before the approval of Bitcoin spot ETFs and other SEC-regulated crypto products, which may indicate that the S-1 form for the spot Ethereum ETF will be approved soon. Nevertheless, we still prefer Bitcoin, and our positions will return to Bitcoin again.

Since Saturday, the additional exposure of Bitcoin futures contracts has increased by $1.6 billion. Last night, Fidelity's spot Bitcoin ETF saw inflows of $378 million, Ark's ETF saw inflows of $140 million, and BlackRock saw inflows of $275 million (a total inflow of $880 million in one day), marking the second highest in history.

The options market anticipates that by next weekend, Bitcoin's volatility will be around ±6.6%, with a target price of $76,000 if it rises. Implied volatility remains relatively expensive, around 52-53%. Building long leverage through perpetual futures or Bitcoin mining companies may be a better strategy.

In summary, Bitcoin may soon set a new historical high, and now is the time to take on more risk and build larger positions.