Is the bottom of BTC price approaching? The buying power of ETFs is the key force to stop the decline

Author: SoSoValue Research

Today, after Bitcoin's price quickly fell below the important support level of $56,000, it has become difficult to make investment judgments from a traditional technical perspective. Where is the bottom of this round of decline? has become the most concerning question for all investors. Whenever the market encounters such large-scale panic moments, let us return to the fundamental mechanisms of price formation using first principles, analyzing the supply and demand relationship of Bitcoin. We hope that through studying the states and dynamics of both buyers and sellers, we can help investors find the best buying point in a market filled with various opinions and overwhelming emotions.

• Selling Pressure: Sales from the German government, compensation from Mt. Gox exchange, and potential profit-taking at the beginning of the year, as well as miners following suit, mainly occurring on cryptocurrency exchanges, can be monitored and tracked through on-chain behavior.
• Buying Pressure: Investors in the U.S. Bitcoin spot ETF, mainly participating through stock accounts ( U.S. markets will be closed for 1.5 days from July 3 to July 4 for Independence Day, trading will resume tonight ), can be tracked through the intraday trading volume and post-market net inflow/outflow indicators.

Buying Pressure: Driven by optimistic sentiment in the U.S. stock market, the Bitcoin spot ETF may bring the first wave of bottom-fishing buying. July 5, being the first trading day after the holiday, will see ETF trading volume and net inflow as the most noteworthy.

There is already a lot of information about selling pressure online, so we won't elaborate on that. Instead, let's start analyzing potential buying pressure.

First of all, we believe that the strength of long-term buying pressure will remain throughout this year. This mainly stems from the macro backdrop in the second half of the year: 1. U.S. interest rate cuts leading to rising prices of risk assets; 2. Trump's significant chances of winning the election, which is favorable for the regulatory environment of cryptocurrencies. So what is the specific relationship between the macro environment and BTC prices? As seen in the chart below, by comparing the correlation between BTC prices and U.S. stocks over the past six months, we can conclude that the rapid decline in the past two days is related to the main buying pressure behind this round of Bitcoin's rise, as the Bitcoin spot ETF is in a closed state and cannot be subscribed.

Figure 1: Correlation Analysis of Bitcoin Prices and Nasdaq 100 (Data Source: SoSo Value)

Observing the CME futures trading volume, institutional investors' sentiment appears stable, possibly waiting to bottom-fish. The CME's Bitcoin futures trading volume today did not fluctuate significantly with the price, indirectly proving that institutional investors remain relatively calm and are in a wait-and-see state. Given the macro positives and the special selling pressure left in the market due to historical reasons, we believe that this non-repetitive event will provide buying motivation for long-term Bitcoin bulls.

Figure 2: CME Bitcoin Futures Trading Volume on July 5 (Data Source: Bloomberg, as of July 5, UTC 8:00)

Figure 3: Historical Trading Volume and Open Interest of CME Bitcoin Futures (Data Source: CME)

So when will the buying point be? The Bitcoin spot ETF on July 5 may provide indicative signals. After the U.S. markets were closed for 1.5 days from July 3 to July 4 for Independence Day, the Bitcoin spot ETF will resume trading tonight. Recently, sentiment in the U.S. stock market has been very optimistic, with Nvidia, Microsoft, and Apple hitting new historical highs, and investors bottom-fishing Tesla, which has seen nearly a 40% return in two weeks. Will buyers of the Bitcoin spot ETF follow the price drop or the bottom-fishing in the U.S. stock market? We will wait and see. Among them, the real-time trading volume during the day and the net inflow data after hours are key observation indicators. Higher trading volume represents stronger bottom-fishing enthusiasm, which is expected to send a stop-loss signal to the market; if it can directly lead to net inflows into the chain, changing the slight net outflows of the past two trading days (see Figure 4), it will also bring actual incremental funds to the chain, further enhancing the confidence of crypto investors.

Figure 4: Historical Net Inflows of Bitcoin Spot ETF (Data Source: SoSo Value)

Selling Pressure: Nearly 200,000 Bitcoins from the German Government and Mt. Gox?

The clear selling pressure mainly comes from two key sources: 1. Bitcoins seized by the German government; 2. Bitcoins for compensating creditors from Mt. Gox.

From the German government, the potential short-term selling pressure is significant, and when they stop reducing their holdings is crucial. The German government has seized a total of 50,300 Bitcoins, and from June 19 to July 5, approximately 8,080 Bitcoins have been transferred out, leaving a remaining holding of 42,270 BTC, with 83.94% of the holdings yet to be sold. Whether this portion will continue to be sold in large quantities in the short term remains uncertain, and the selling pressure has considerable unpredictability.

Figure 5: Summary of Bitcoin Transfers from the German Government Wallet (Data Source: Arkham)

Figure 6: Bitcoin Holdings and Transfers of the German and U.S. Governments, Mt. Gox (Data Source: Public Information Compilation)

From Mt. Gox, the selling pressure may be far lower than market expectations. It is expected to compensate creditors with 142,000 Bitcoins. According to news from the Japanese crypto community, over 70% of the claims have already been transferred through several rounds of OTC transactions and acquired by institutional buyers. This portion of Bitcoins is expected not to bring significant selling pressure. The remaining 30% of Bitcoins, which may bring large-scale selling pressure, amounts to about 40,000 to 50,000 Bitcoins. According to on-chain data monitoring, on July 5, Mt. Gox transferred about 50,000 Bitcoins, of which 1,544 were transferred to exchanges, and 47,228.7 Bitcoins were moved to a new address starting with 1L7Xbx, with no further actions yet. Overall, the actual selling pressure generated by Mt. Gox may be lower than market expectations.

• July 4 : Multiple Mt. Gox wallets conducted small transfer tests.
• July 5 : Mt. Gox transferred over 47,228.7 Bitcoins (approximately $2.71 billion) to a new address starting with 1L7Xbx. Subsequently, this address distributed these Bitcoins to two addresses: 16 ArP 3…VqdF address 44,500 BTC ($2.55 billion); 1 JbezD…APs 6 address 2,700 BTC ($154.8 million), and currently, these two addresses have not yet taken any action.
• July 5 : Another 1,544 Bitcoins were transferred to address 1 PKGG, valued at $84.87 million. This address belongs to the exchange Bitbank, which is one of the five platforms supporting repayments from Mt. Gox.
• July 5: Several creditors of MT.GOX in Japan told crypto media that they have received BTC/BCH repayments from MT.GOX, and the funds have entered Bitbank or Kraken exchange accounts. Additionally, some have stated they have received cash payments sent via international wire transfer.*

Potential miner selling has also become a factor affecting this round of decline, but this portion of selling pressure is expected to stop along with Bitcoin's price stabilization. Due to the Bitcoin mining reward halving at the beginning of the year, the profitability of Bitcoin miners has dropped to its lowest level in two years. According to F2pool data on July 4, based on the current Bitcoin mining difficulty and a power cost of $0.06 per kilowatt-hour, mainstream mining machines like Antminer S19 have reached the "shutdown price," and some unprofitable miners have been squeezed out, with liquidations also bringing potential selling pressure.

Figure 7: Bitcoin Mining Shutdown Costs (Data Source: f2pool)

In summary, buying pressure is based on long-term positives, while selling pressure stems from emotional panic caused by special events. We believe that these non-repetitive events will provide buying opportunities for long-term Bitcoin bulls. Historically, the market's digestion of selling pressure from such non-repetitive special events generally does not exceed two months. This round of Bitcoin's decline started on June 7 and may gradually be digested after August 7, while the significant drop in the past two days may represent the lowest point of this round of decline.