Bitcoin as a Global Liquidity Proxy
Bitcoin and M2
Bitcoin's relationship and correlation with global liquidity have been intensively discussed during recent years, and analysts like Raoul Pal have used the context in their macro-level models.
Pal sees a tight correlation between bitcoin and global liquidity, estimating it rising to 87 percent. According to him, the correlation is driven by the fact that bitcoin's price is influenced by the same macroeconomic factors that affect liquidity, such as interest rate policy.
Source: Global Macro Investor (GMI)
From a long-term vantage point, the crypto market seems to follow Raoul Pal’s Exponential Age thesis, according to which technological development will accelerate the markets and change our perception of money.
According to Pal’s latest analysis, the global liquidity is at an inflection point and will recover towards the year of 2025. Historically the growing liquidity has been bullish for high beta assets like cryptocurrencies, as the "cheap dollar" flows into risk-on assets, uplifting valuations.
Source: Global Macro Investor (GMI)
Raoul Pal's another thesis, the Banana Zone, refers to a period of heightened volatility and exponential price increases in the crypto market, driven by global liquidity cycles.
Pal estimates the Banana Zone effect to be more pronounced in the crypto market compared to the tech industry, due to the unique characteristics of crypto, like its decentralized nature and rapid innovation. He forecasts the overall crypto market cap will at least quadruple before the cycle ends in 2025, going from the current $2.2 trillion to $8-$15 trillion.
A New AFR Epoch?
The crypto market has continued its moderate decline since last week, with bitcoin weakening by -2.5 and ether by -1.2 percent. Ether is currently supported by the anticipation of possible new spot ETFs, rumored to be launched in July.
Earlier in the spring, we forecasted bitcoin forming a double top structure in 2024. In this scenario, the market would calm down during the summer, but we’d see elevated price levels by Q3 and Q4.
In contrast to the recent spot price weakness, bitcoin's average funding rate (AFR) will likely move into its 5th epoch. After staying stagnant during the early summer, a new AFR epoch would support our double top thesis, and rising spot levels during the last two quarters.
Sources: Timo Oinonen, CryptoQuant
Cumulative volume delta (CVD) shows most investor segments remaining relatively inactive, while some whale level buyers are in accumulation mode. Large $100K - $1M and $1M - $10M category orders have been in an elevated role during the past weeks.
Source: Material Indicators
MSTR in Accumulation Mode
Profiled as the de facto Bitcoin institution, MicroStrategy (MSTR) continued its accumulation track this week, acquiring 11,931 new bitcoin units. The company's balance sheet currently holds a total of 226,331 units.
Source: 21metrics
MicroStrategy employs a dollar-cost averaging (DCA) strategy in its purchases, but has a tendency to cyclically weight its buying program. When spot prices sharply declined back in 2022, the company's purchases were modest at 8109 bitcoins, while in 2023, acquisitions rose to 56,650 units.
On an annual basis, the growth of MSTR's buying program from 2022 to 2023 was an impressive 599 percent. This year's purchases have climbed to 37,181 units, and MicroStrategy is on track to reach or exceed last year's numbers. The recent purchases, coinciding with a weakening spot price, can be considered as counter-cyclical.
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MicroStrategy's Purchase Program (BTC):
2022: 8109
2023: 56,650 (yearly increase 48,541 or 599%)
2024: 37,181
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Ethereum's Bull Scenario
During the past few days, the leading decentralized finance (DeFi) platform Ethereum has been decoupling from its bitcoin correlation. Ethereum has recently been supported by spot ETF speculations, as a repertoire of new spot ETFs is rumored to be launched as early as in July.
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Filed spot Ethereum ETF applications:
Ark
Bitwise
BlackRock
Fidelity
Franklin Templeton
Grayscale
Invesco Galaxy
VanEck
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In addition to the anticipated spot ETFs, Ethereum is uplifted by constrained supply, as mirrored by the chart below. Ethereum's supply reached its peak in mid-September 2022, topping at 120.5 ether units. Since then, the supply has decreased to the current 120.2 ETH and is projected to drop below 120 million units in the late 2024.
Source: ultrasound.money
Additionally, the Securities and Exchange Commission (SEC) has closed its Ethereum investigation. On June 7th Consensys sent a letter to the SEC, asking the agency to confirm that the May ETH ETF approvals, which were premised on ETH being a commodity, meant the agency would close its Ethereum 2.0 investigation.
The recent decision is significant because it brings clarity to the regulatory status of Ethereum, which had been uncertain. The SEC's decision not to pursue charges suggests that Ethereum is not considered a security. The regulatory clarity will likely increase institutional adoption: firms like BlackRock building public blockchains will likely use the Ethereum platform.
The Expanding PoW Mining Industry
Marathon Digital Holdings (ticker: MARA), the world's largest bitcoin mining company, has launched a pilot project in that uses the excess heat generated from bitcoin mining to warm the homes of over 11,000 residents in the Finnish Satakunta region.
The 2-megawatt pilot project to warm the community uses the heat generated from digital asset computing. The project employs a "district heating" method, where centrally heated water is distributed through an underground network of pipes to heat houses.
This allows Marathon to capitalize on the excess heat produced by bitcoin mining rigs, making it an innovative and potentially future-proof solution for residential heating. Marathon is the world's largest bitcoin mining company, worth over $5.84 billion, and controls 4.8% of the bitcoin network's hash rate.
Additionally, Deutsche Telekom, the parent company of T-Mobile, has announced plans to enter the bitcoin mining sector. This move marks a significant expansion of the company's cryptocurrency operations and services. The decision was revealed by Dirk Röder, Head of Web3 Infrastructure and Solutions at Deutsche Telekom, during the BTC Prague conference in June 2024.
