Over $2 billion worth of Bitcoin has been sold off. Should retail investors follow suit or hold their ground?

Author: 10x Research

Compiled by: Wenser, Odaily Planet Daily

Editor’s Note: The well-known research institution 10X Research has once again expressed its latest views on the Bitcoin market. Combining recent developments regarding Bitcoin ETFs, miners, listed mining companies, and the sell-off by early Bitcoin holders, 10X Research has provided a price forecast for the next phase of the market, which may determine the market's subsequent direction. Odaily Planet Daily will compile this article for readers' reference.

Four-Year Cycle and Supply-Flow Model as Key Tools for Price Prediction

As the basis for estimating Bitcoin prices, the four-year predictive parabolic cycle model is crucial, and it serves as the foundation for 95% of cryptocurrency forecasts. However, this model is often overstated, suggesting that Bitcoin's value will rise indefinitely. Another key tool is the "supply-flow model," which predicts Bitcoin's infinite value by emphasizing the reduction in supply.

As usual, most experts this year still predict that Bitcoin prices will reach new highs, with forecasts ranging from $100,000 to $150,000 or even higher.

Two major factors, technological innovation and human psychology (especially the interplay of greed and fear), are key catalysts in the cyclical cryptocurrency market. Nevertheless, the market is essentially a momentum game—most participants actively push prices up and maintain a consistently bullish stance. This self-fulfilling prophecy emphasizes the necessity of decisively seizing upward momentum when opportunities arise. At the same time, this phenomenon suggests that more cycles may occur in the future.

The practical value of Bitcoin and its valuation based on cash flow should be addressed in discussions. Unlike other assets, if valued according to the production cost curve, Bitcoin is similar to gold. Over time, the psychology of purchasing Bitcoin has become more complex, as a Bitcoin purchased at a high price (e.g., $70,000) seems less attractive than acquiring a billion units of cryptocurrency for $100. Meme coins exploit this psychology, and publicly traded companies achieve the same effect through stock splits.

Comparison of Bitcoin (purple) and fund flow indicators (white)

Three Major Groups Selling Bitcoin, Hedge Fund Arbitrage Opportunities May Have Disappeared

Although the current market structure is not entirely bullish, we speculated three weeks ago that Bitcoin would attempt to break through near the $70,000 price point based on the idea that "a parabolic rise usually occurs after reaching a historical high"; when the breakout fails, risk management becomes crucial. At that time, we estimated that lower inflation data would serve as a catalyst for Bitcoin price increases, and indeed it did, but Bitcoin faced significant sell-offs.

First, contrary to the previous positive buying of Bitcoin ETFs due to inflation changes, Bitcoin ETFs sold off $1 billion in assets over the past eight trading days.

Second, the over-the-counter sales by Bitcoin miners surged to the largest single-day trading volume since March, with sales exceeding 3,200 Bitcoins in one day. Listed mining companies hold a 3% market share but net sold 8,000 Bitcoins in May (June data has not yet been released, but miner sell-offs have significantly increased). Miners' Bitcoin reserves have decreased from $129 billion on June 5 to $118 billion now.

Finally, another group of sellers consists of early Bitcoin holders, who sold off $1.2 billion.

All three groups seem satisfied with selling Bitcoin at prices above $70,000.

We estimate that the average entry price for Bitcoin ETFs is between $60,000 and $61,000, and a return to this level could trigger a wave of liquidations. When Bitcoin dropped to $56,500 on May 2, BlackRock stated that "sovereign wealth funds and pension funds are about to enter the market." This somewhat prevented further declines in Bitcoin, but now BlackRock indicates that 80% of the purchases for their Bitcoin ETF IBIT come from retail investors rather than institutions (source see this report).

Currently, the $61,000 price level aligns with the 21-week moving average, and in previous cycles, this indicator has been a good risk management metric for buying (when Bitcoin prices are above the 21-week moving average) or selling. We estimate that 30% of the $14.5 billion in Bitcoin ETFs comes from hedge funds seeking arbitrage, and the eight-day ETF liquidation suggests that these funds may not have continued their arbitrage trades (going long on ETFs against shorting CME futures) as the arbitrage opportunity has disappeared.

Comparison of Bitcoin (white) and its 21-week moving average (purple)

The existence of arbitrage opportunities is due to high interest rates allowing exchanges to sell futures at a premium, and most crypto traders tend to be bullish (on the buyer side), which drives up the cost of capital. The average annualized funding rate for Bitcoin in 2024 is 16%, while this figure has only been 8-9% in recent days. Therefore, this single-digit funding rate may not sustain the arbitrage game, leading to continuous outflows from Bitcoin ETFs. This is another aspect of the arbitrage signal effect we explained in articles such as March 8 (the first cautious statement since Bitcoin reached $40,000) and April 5.

Our market structure analysis breaks down the liquidity components, sometimes providing cautious views contrary to potential bullish (parabolic) narratives. In fact, despite a noticeable slowdown in Bitcoin ETF inflows since March 12 (when CPI data rose rapidly), a significant drop in altcoin trading volume, and a corresponding decrease in funding rates, Bitcoin prices have still maintained a 15% wide range of fluctuations over the past three months.

Since April 21 (when the Bitcoin halving was completed), the minting of stablecoins has significantly slowed. These factors (the slowdown in Bitcoin ETF inflows and stablecoin minting, along with the decline in altcoins and funding rates) have led us to worry about Bitcoin prices dropping to the $52,000-$55,000 range, which is only about 3% off the market's actual performance (with Bitcoin prices dropping to a low of $56,500).

On May 15, following the release of lower CPI data, Bitcoin ETF inflows reached $3.8 billion over the next 20 days. If this growth continues, we expect lower CPI data to drive a market rebound and anticipate that CPI data will fall below 3.0% later this year. In July 2019, the Federal Reserve cut interest rates due to declining inflation and weak economic growth, during which Bitcoin fell by as much as 30%, so the reasons for rate cuts are significant.

However, due to the diminishing appeal of arbitrage (funding rates), the buying volume for this Bitcoin ETF failed to grow. When the U.S. Securities and Exchange Commission (SEC) hinted on May 20 that an Ethereum ETF might be approved, the market structure improved significantly with the increase in futures positions. Over about three weeks, the market purchased $4.4 billion in Ethereum futures positions (a 50% increase) and $3 billion in Bitcoin futures. Combined with the CPI data from May 15, this effectively improved the market structure and helped Bitcoin prices rebound to $70,000, prompting early holders, miners, and ETFs to actively choose to sell their Bitcoin holdings.

Key Levels: Can We Hold Above $61,000 and $65,000?

Trading is always a "risk-reward game," and we pointed out on June 3 that if Bitcoin prices fail to reach a historical high in June, excessive ETH futures positions would face associated risks. Since the SEC approved the 19 b-4 filing on May 23 (the S-1 filing is still under review), leveraged futures traders have been the main, if not the only, buyers. Their capital flows pushed Bitcoin back to the upper range, and combined with lower CPI data, the risk/reward ratio tends to favor a Bitcoin breakout.

Lower inflation data, the U.S. elections, and a rebound in U.S. stocks are non-crypto market catalysts supporting a rise in Bitcoin prices later this year. However, without more stablecoin minting, Bitcoin ETF inflows, and an increase in futures leverage or other liquidity (market structure) indicators, Bitcoin bulls may miss out on upward opportunities.

Each time the price attempts to break through fails or Bitcoin trading returns below the historical high of the previous cycle (with $68,300 as the dividing line), we need to redefine a horizontal line for risk management of positions.

In several previous cycles, the $61,000 21-week moving average has somewhat prevented larger pullbacks.

Another key level is $65,000, which is the midpoint of the price consolidation over the past three months and may indicate the formation of a larger cycle top.

We do not blindly trust baseless claims; we rely more on the information reflected by data. From the perspective that the number of market participants (including early holders, Bitcoin ETF buyers, miners, stablecoin issuers, etc.) has not significantly increased, the current market situation is concerning.

Therefore, everyone needs to decide their own risk tolerance. By combining risk management and data analysis, traders can "stay in the game." As an old trader told us 15 years ago—"The market opens every day," which means there will always be another opportunity, another cycle.

Comparison of Bitcoin (white) and its monthly stochastic indicator (purple)