21metrics weekly: Turbulence Ahead
A Funding Reset
During the past seven days the crypto market has faced escalating volatility, leading to bitcoin dropping -8 percent at its lowest point. Despite the technical correction, some altcoins, like Solana (SOL), have already recovered from the drop.
The crypto market is going through a funding reset, in which $357,74 million worth of long and $100,91M worth of short bitcoin positions were liquidated on Tuesday (2.4). The combined sum of these liquidations rises to $458,65 million. The futures market has a tendency to overheat and funding reset is the main mechanism to flush out excessive derivative positions.
From a purely technical perspective, bitcoin is still in its price discovery cycle, pointing towards the psychological 100 000 USD level. We expect bitcoin to reach six figures before the end of 2024.
Sources: Timo Oinonen, CryptoQuant
Bitcoin's realized price (orange wave) has reached its highest point ever, rising to $28 107,15. The realized price is important because it represents the average price of all bitcoin purchases. At the same time, the realized price illustrates that bitcoin buyers are making a profit on their investments on average.
Is the Spot ETF Market Cooling Down?
"Given the macro view, crypto's performance depends almost entirely on bitcoin ETF inflows. It is these inflows that trickle down all over crypto, and thus enable the levels of degenerate gambling we have been experiencing." - Alex Krüger
While February and March saw a huge inflow of new money into the eleven spot bitcoin ETFs, the interest has since declined, at least for now. The latest data shows -85,8 million US dollars worth of negative netflow for Monday (1.4) and $40,2M of positive net flow for Tuesday.
For April 2024, the statistics mirror a $113,5M worth of positive netflow, which certainly looks modest compared to previous months. During March 12th alone, the spot bitcoin ETFs saw over a one billion dollars worth of positive netflow.
The decline seems to continue despite the listing of a new spot bitcoin ETF, called Hashdex Bitcoin ETF. The newcomer uses a slightly misleading ticker of "DEFI" and differs from others by its high management fee of 0,9 percent. Only Grayscale's GBTC has currently higher management fee (1,5%) than the DEFI ETF.
Source: BitMEX Research
One interesting ETF metric is the projected supply absorption, found on the 21metrics dashboard, under the ETFs tab. Following the decline of ETF inflows, the projected supply absorption was negative at the turn of March and April, however the percentage might now turn slightly positive.
If the ETFs can't absorb the new supply coming from the miners, the demand for the approximately 900 bitcoins issued daily must come from other sources. Although retail investors have shown growing interest towards bitcoin, their focus might now be on the new Solana-based tokens and "meme coins".
Source: 21metrics
However, the supply absorption will become less relevant in 21 days, as the scheduled halving approaches. The halving literally halves bitcoin's block reward, reducing it from the current 6,25 to 3,125, increasing the asset's scarcity.
Before the retail truly makes its comeback, the spot bitcoin (and potentially ether) ETFs will continue to act as leading indicators of the market. In order to reach $100K levels and beyond, bitcoin will need a new surge of money from the main street.
Bitcoin's Halving: Buy the News or Sell the News?
The halving event of the leading cryptocurrency bitcoin is scheduled to occur after fifteen days, on April 20th. As the halving will happen at a block height of 840 000, there are only 2198 blocks left to mine.
The halving will radically alter bitcoin's supply, reducing the block reward from the current 6,25 to 3,125. While the block reward reduction will enhance bitcoin's scarcity, the halving event is also a challenge to miners.
In addition to earning fewer bitcoins for the same amount of computational work, the miners have to cope with higher difficulty adjustment. As the block reward decreases, miners need to find ways to offset these rising operational expenses to remain profitable. This may involve optimizing their mining operations, investing in more efficient hardware, or finding cheaper sources of electricity.
Additionally, the spot price doesn't have a historical tendency to immediately compensate for the halved block reward. In 2020, it took bitcoin approximately six months to move into a positive cycle, and 1,5 years to reach a cycle all-time high. In this shifting environment, miners may find it increasingly challenging to cover their operational costs and remain profitable.
Sources: Timo Oinonen, CryptoQuant
In a bigger picture, bitcoin's halvings are essential and positive events for the ecosystem, but they might cause challenges to the miners. We're not expecting the halving to cause an instant spot price surge, instead it could be a moderate sell the news event.
While the halving might turn out to be a sell the news event in the short term, the long term effect will be positive, vice versa. Bitcoin will likely reach new spot price highs 6-18 months after the halving, mimicking the trajectory of the 2020-2021 cycle.
Is the Stock Market Overvalued?
Correlating with the stagnant spot ETF flows, the stock market is also showing signs of exhaustion. According to Capriole Investment's Three Factor Model, the S&P 500 index has entered overvaluation for the first time since February 2020.
When bitcoin has become institutionalized, its correlation with the stock market has been rising. If the upcoming halving turns out to be a sell the news event, bitcoin's possible downturn might happen vis-à-vis the S&P.
Source: Capriole Investments
21metrics Building New Features
Our team is constantly developing the 21metrics platform in order to make it more valuable to users. One of our recent additions is the cryptocurrency classification table, which mirrors the regulatory status of each cryptoasset, including SEC and CFTC statements.
Source: 21metrics
