The Bitcoin spot ETF ended eight consecutive days of net outflows. Will the market turn bullish from here?
When can we see a real bull market?Author: Arain, ChainCatcher
Editor: Marco, ChainCatcher
From August 27 to September 7, Bitcoin continued to decline, falling below $60,000 and triggering panic in the market. According to Coingecko data, Bitcoin dropped from about $64,265 per coin on August 26 to $53,923 per coin on September 7. During this period, the U.S. spot Bitcoin ETF experienced net outflows for eight consecutive trading days, with a cumulative net outflow of about $1.2 billion, and the total net assets of the ETF shrank by about $8.8 billion, marking a rare situation since the launch of the U.S. spot Bitcoin ETF.
On the evening of September 9, Bitcoin stopped falling and began to rise. At the same time, Sosovalue data showed that the daily net inflow of the U.S. spot Bitcoin ETF turned positive, indicating an improvement in market sentiment. However, Trading View's technical analysis showed that the market sell signals remained strong.
The digital asset research platform 10x Research released a report today, predicting that Bitcoin's price will drop to $45,000. The Bitcoin financial services platform NYDIG stated that Bitcoin investors should prepare for a "seasonal downturn" in September, "as historically, September has the worst average return."
Grayscale Research's report pointed out that the selling pressure from large market institutions has basically passed, and the fundamentals of Bitcoin are improving. Future price performance will need to pay attention to the Federal Reserve's interest rate cuts and the political changes in the U.S. surrounding the cryptocurrency industry.
On-chain data shows risks are not fully cleared
From various on-chain indicators, market risks are not fully cleared, but the current position may be in the early stages of a bull market.
According to Glassnode data, the 7-day moving average SOPR (Spent Output Profit Ratio) of Bitcoin has fallen below 1.0, indicating that market sellers are still making profits on blockchain transactions. However, it should be noted that historically, SOPR tends to drop below 1.0 before market consolidation occurs. The current decline is similar to the bear market phases of 2018 and 2019, where SOPR remained below 1.0, suggesting that the market may experience a reversal.
SOPR is used to view the ratio between the dollar value at the time of UTXO (Unspent Transaction Output) creation and the dollar value at the time of UTXO spending. A ratio of 0 is the dividing line; above 0 indicates overall profits from transfers between wallets, while below 0 indicates losses from sales.
On September 4, Glassnode released a research report indicating that in terms of the ratio of unrealized profits to unrealized losses, profits are still six times the total losses. About 20% of trading days have this ratio above the current value, while short-term holders (STH), representing new market demand, bear most of the market pressure, as their unrealized losses dominate the market and have been increasing over time. However, the magnitude of these unrealized losses relative to market capitalization indicates that the market has not entered a full bear market but is closer to the volatility period of 2019.
Based on on-chain data pointing to key indicators such as seller risk rates, Glassnode's research suggests that market volatility may intensify in the near future.
According to Dune data, the number of active Bitcoin addresses has significantly decreased compared to before this year's halving, which may indicate that market sentiment is cooling.
Accordingly, 10x Research stated that Bitcoin may drop to $45,000 in this cycle. The head of the research institution, Markus Thielen, noted that after Bitcoin addresses peaked in November 2023, there was a sharp decline later in the first quarter (Q1) of 2024. "Short-term holders began selling their BTC in April, while long-term holders took profits, indicating that the market has reached a cyclical peak."
Dan Tapiero, founder and CEO of 10T Holdings, stated on X that historically, Bitcoin's performance in September has typically been poor or faced increased selling pressure.
Focus on macro-level positive news
With the launch of cryptocurrency spot ETFs, Wall Street funds are entering the market, increasing the correlation between the crypto market and macroeconomic factors.
Grayscale Research stated in a report on September 3 that the selling pressure from the German government, Mt. Gox asset management, and other institutions has basically passed, and the fundamentals are expected to improve. At the same time, the research report pointed out that investors should closely monitor the U.S. labor market, the Federal Reserve's interest rate cuts, and political changes in the U.S. surrounding the cryptocurrency industry.
The market generally expects that the Federal Reserve is likely to announce its first interest rate cut in September.
Generally speaking, interest rate cuts are positive news for risk assets. Boosted by macro-level news, global risk assets, including Bitcoin, experienced a brief rise.
The Federal Reserve's next meeting is on September 18, and it is currently in a quiet period where officials will not publicly comment on monetary policy unless in special circumstances.
On September 6, the U.S. Labor Department released August statistics showing that non-farm employment increased by 142,000, below expectations, and the unemployment rate fell by 3 basis points to 4.22%, outperforming the expected 3.7% and the previous value of 3.6%. Average hourly earnings in August increased by 0.4% month-on-month, slightly above expectations.
Standard Chartered's global chief strategist Eric Robertsen stated that the data is insufficient for the Federal Reserve to cut rates by 50 basis points. Goldman Sachs believes that comments from Fed Governor Waller and New York Fed President Williams indicate that the Fed leadership considers a 25 basis point cut at the September meeting to be a basic expectation, but they are open to a 50 basis point cut at subsequent meetings if the labor market continues to deteriorate.
Arthur Hayes, co-founder of BitMEX, stated on X that an interest rate cut will not bring short-term benefits to Bitcoin, as the reverse repurchase agreement (RRP) plays a regulatory role in this dynamic. Currently, the RRP rate is 5.3%, higher than the 4.38% yield on Treasury bills. Hayes believes that the interest rate differential will lead large money market funds to shift capital from Treasury bills to RRP, thereby reducing the amount of funds available for higher-risk investments like cryptocurrencies.
Hayes also pointed out that in the two weeks before the actual interest rate cut arrives, market liquidity may be further constrained. "Bitcoin will, at best, fluctuate around current levels, and at worst, slowly decline below $50,000, as funds are being withdrawn from Treasury bills back into the reverse repurchase plan."
Analysts at Bitfinex stated that due to the sluggish price trends over the past few months, cryptocurrency investors originally expected the Federal Reserve's September interest rate cut to drive a bull market. However, escalating concerns about economic recession may bring deeper corrections. "If the easing cycle coincides with an economic recession, Bitcoin could drop 15%-20% after the September rate cut, assuming BTC's price is around $60,000 before the cut, with a potential bottom between $40,000 and $50,000."
Regarding the recent fluctuations in Bitcoin's market, crypto OG Shen Yu stated on X to "prepare for another 16-19 months of waiting."
Investor Ni Sen @Phyrex_Ni expressed on X that there is no rush to discuss Shen Yu's comments, "If there really is a final drop, it is likely during an economic recession… 16-19 months should be the average interest rate cut cycle of the Federal Reserve, and if an economic recession occurs after this cycle, it will enter a phase of easing."
Ni Sen believes that the fourth quarter of 2024 and the first quarter of 2025 may present an opportunity for Bitcoin for four reasons:
- Interest rate cuts, although not QE, are expected to activate funds in the market;
- The upcoming election has presidential candidates publicly supporting cryptocurrencies and making commitments;
- The BTC halving effect has not yet been proven to not occur;
- The new version of FASB will take effect in December 2024, allowing cryptocurrencies to adopt fair accounting standards and implement fair valuation.
It is worth noting that on April 19, 2024, Bitcoin will undergo its fourth halving. Historically, Bitcoin's price has often risen after halving, but this time the situation is special, as Bitcoin's price fell on the day of halving, underperforming expectations, leading to market speculation that the Bitcoin halving effect may be ineffective.
Grayscale Research stated that this Bitcoin halving is different from previous ones, as price increases occurred before the halving, related to changes in on-chain activities such as inscriptions (ordinals) and ETF fund flows.
