Bad Economic News is Once Again Bad Bitcoin News - Cryptoasset Weekly Update (August 3 2024)

BTC/USD & ETH/USD Key Points

• Supply overhang and a “sell the news” reaction to Trump’s speech at a Bitcoin conference were the dominant storylines this week.
• Traders now fear that the Fed is “behind the curve” and risks tipping the US economy into recession – bad (economic) news is once again bad news (for Bitcoin and other risk assets).
• BTC/USD remains above its 200-day MA, but ETH/USD has dropped below this key measure of the long-term trend.

Cryptoasset Market News

Supply overhang was once again a key theme in the cryptoasset markets this week. Roughly 40% of the 142K Bitcoin recovered from Mt. Gox has now been distributed from the original Bitcoin exchange’s 2013 hack. With another 60% (or ~86K Bitcoin) still to be distributed, it may be more difficult for Bitcoin to stage a meaningful rally. That said, Bitcoin’s price action (see below) has not diverged meaningfully from other risk assets, accounting for its higher “beta,” so perhaps recipients aren’t as keen to sell their long lost Bitcoin as some had feared.

Perhaps not surprisingly for those who have been following the space for long, traders used Donald Trump’s ostensibly supportive speech at last weekend’s Bitcoin conference as an opportunity to “sell the news.” In his speech, Trump vowed that the US Government would never sell seized Bitcoin and hinted at the potential for a strategic Bitcoin reserve, though some question whether this proposal will ever be enacted. At the same time, a recovery in presumed Democratic Candidate Kamala Harris’ poll figures vs. Trump have traders on edge about a continuation of Democrats’ anti-crypto policies after the November election.

Macroeconomic Backdrop

“There are decades where nothing happens; and there are weeks where decades happen” – Vladamir Lenin

From a macroeconomic perspective, this was one of those weeks where at least a couple months’ worth of news happened. At a high level, the market has shifted from believing that the US Federal Reserve could pull off a “soft landing” where it could gradually moderate interest rates without the US economy slowing dramatically or tipping into a recession, to expecting a “hard landing.” After a series of weak readings on the labor market, highlighted by Friday’s soft NFP report, traders now feel the US central bank is falling behind the economic curve and risking a recession.

As the chart below shows, Fed Funds futures traders now believe it’s more likely than not that the Fed will have to cut interest rates by at least 125bps across its three remaining meetings this year; in other words, the Fed may have to cut rates by 50bps…twice. Central bankers generally prefer to make small adjustments to interest rates, and only opt for more aggressive tweaks when its clear that inflation (rate hikes) or unemployment (rate cuts) are missing their targets badly. Fed speakers come off their post-meeting media “black out” periods this week, so it will be interesting to see how they characterize the recent deterioration in the labor market and whether more aggressive 50bps rate cuts are put on the table.

Source: CME FedWatch

Sentiment and Flows

The sentiment gauge we watch most closely, the “Crypto Fear and Greed Index,” slipped slightly last week, though perhaps not as much as you’d expect given the bearish price action, though it remains far from the extremes that tend to mark major tops. Overall, it remains in-line with the average range seen over the last year, failing to provide a major contrarian reversal signal.

Source: Alternative.me

Another way of gauging sentiment, flows into exchange-based cryptoasset investment vehicles, slowed dramatically but remained positive last week. As of writing before the release of Friday’s data, Bitcoin ETFs have seen “just” $156.7M in inflows, well below the 4-day average of $520M that they’ve seen since the ETFs launched in January. Over the long-term, these inflows from “tradfi” investors provide incremental demand for Bitcoin and could help support the price.

Source: Farside Investors

Meanwhile, the outflows from Ether ETFs (namely the higher-fee legacy Grayscale product (ETHE)) have started to moderate slightly. These outflows, which have already totaled nearly 25% of the fund in just 8 days, could still continue for the next several weeks until it reaches a more appropriate level of assets given its fee structure.

Bitcoin Technical Analysis: BTC/USD Daily Chart

Source: StoneX, TradingView

Bitcoin got caught up in the risk-off trade that dominated last week, falling from the upper-60K area into the lower-60Ks. From a bigger picture perspective, the cryptocurrency continues to consolidate within its broad post-March range, leaving a neutral near-term outlook and a longer-term bullish outlook intact for now, though a break below 60K would call that perspective into question.

Ethereum Technical Analysis: ETH/USD Daily Chart

Source: StoneX, TradingView

Like Bitcoin (and most risk assets) Ether had a rough week as well, falling back to test the $3,000 level as of writing on Friday afternoon. ETH/USD has now broken below its 200-day MA, a development that may call the longer-term uptrend into question. Traders will be looking for a bounce off strong previous support in the $2875 area if we fall much further; a break below that key level would shift the longer-term bias to the downside, regardless of the fundamental considerations.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos and be sure to follow Matt on Twitter: @MWellerFX