Crypto Downturn, FOMC Meeting, Hong Kong Spot ETFs & CZ Sentenced to 4 Months in Prison

What Happened This Week

The Fourth Red Weekly Close in a Row

Bitcoin closed last week at $63’100, down almost 3%, marking the fourth down week in a row after closing the month of March above $71’000. The weekend price action once more did not bear many surprises, at least when it comes to Bitcoin with its sideways price action before starting to sell off early Monday morning. While Bitcoin was sleeping, its little cousin Ethereum took its chance and started rallying on Saturday, reaching a high of $3’350 on Sunday evening and closing last week in the green, up more than 3.5%. The chart below showcases the weekend outperformance of ETH versus BTC.

Last week was once again accompanied by outflows for digital asset investment products, with a total of $435 million flowing out of the crypto products, marking the third consecutive week with outflows. According to CoinShares, Bitcoin saw weekly outflows of $435 million and Ethereum $38 million, respectively.

The total crypto market closed the last week with a downward move of -1.5%, which is less than the weekly correction of Bitcoin, and like mentioned above, Ethereum even closed the week in the green while the Bitcoin dominance experienced a weekly loss of almost 1.5%. This price action over the weekend seemed to hint towards a shift from Bitcoin to altcoins, but the trend reversed quickly on Monday morning, stifling the hope of altcoiners across the board.

Hopeful Monday

While the crypto market overall started with a downtrend early Monday morning, a little bit of hope started to return during the day with Bitcoin finding a temporary bottom around $62’000 and in the evening BTC eventually rallied into last Thursday’s highs just below $65’000. U.S. equities did not experience much price action on Monday, with the S&P 500 and the Nasdaq trading sideways.

In other news, the Rune transactions following the Bitcoin halving have generated a cumulative total of $117 million in revenue fees, of which $62.4 million was reached on the day of the halving itself. The number faded quickly, however, with current fees from Rune TXs resulting in only roughly $1 million.

While the price action on Monday was a tad more positive than last week, the spot ETFs in the U.S. continued their streak with total net outflows on Monday, with a total of $51.5 million in outflows.

Tuesday: Market Crash on the Hong Kong Spot ETF Listing Day

We woke up to a reversal of Monday’s price action on Tuesday morning. Bitcoin and the broader crypto market traded to the downside in a more or less straight line over the course of Tuesday and Wednesday, but not only crypto traded downward; Tuesday was a red day for U.S. equities as well, with investors and traders likely being worried about the U.S. interest rate decision and the FOMC statement, which were due for release on Wednesday evening.

The Bitcoin and Ethereum spot ETFs started trading in Hong Kong on Tuesday, and while we have shared in a previous Weekly Wrap, that one should not expect too much from the flows and volumes of these new spot ETFs, the market overall seemed to have been disappointed with the low total trading volume of $12 million on the first day over all the new spot ETFs in Hong Kong.

While the crypto market was trading to the downside, CZ, the founder, and former CEO of Binance, was sentenced to 4 months in prison. U.S. prosecutors had recommended a 36-month sentence, but the judge rejected this request by the Department of Justice. Following the sentencing, CZ posted on X that he will do his time, conclude this phase and focus on the next chapter in his life, but also that he will remain a passive investor and holder in crypto. He highlighted that our industry has entered a new phase.

The Jerome Powell Show on Wednesday

On Wednesday, all eyes were once again on the Federal Reserve’s interest rate decision, especially since the recent economic data hinted towards stickier than expected U.S. inflation. As mentioned earlier, U.S. equities and the crypto markets traded to the downside into the announcement on Wednesday evening. The FOMC announced that it will keep interest rates unchanged, which was expected by market participants. The Federal Reserve Chairman, Jerome Powell, acknowledged recent setbacks in fighting inflation but also said that the Fed is not looking to hike rates and announced the slowing of quantitative tightening (QT) from $60 billion to $25 billion. Powell also remarked that an unexpected weakness in the labor market could prompt the Fed to cut rates in the future. Overall, the market interpreted Powell’s speech as more dovish than expected and initially reacted positively to Powell’s remarks during the press conference but then retraced the up move again before the market closed, as seen in the chart below.

The U.S. spot Bitcoin ETFs recorded another outflow day with a record high total net outflow of $563.7 million on Wednesday, with IBIT the spot ETF of BlackRock, seeing its first outflow day since its inception. While it was clear that the inflows for the new spot ETFs were not going to be going up in a straight line, the market is very focused on these flows and seems to react strongly to such negative numbers. BlackRock, however, paints a different picture, as their head of digital assets mentioned that BlackRock has been helping educate pension funds, endowments, and sovereign wealth funds about the new spot bitcoin ETF products. Robert Mitchnick, head of digital assets for BlackRock, expects a new wave from a different type of investor to follow.

On Thursday, GBTC was the only spot ETF with net outflows, while ARKB saw a net inflow of $13 million. The total outflow on Thursday amounted to $34.4 million. In the chart below, the spot Bitcoin ETF flows since inception are visible, and one sees that the inflows started slowing down in the middle of March.

Coinbase reported its first-quarter earnings on Thursday evening after markets closed and communicated a better-than-expected revenue and a surge in profit. The net income of $1.18 billion in this year’s first quarter is the first profit in two years and is magnitudes higher than for example last year’s Q1 loss of $78.9 million.

An Overview of Two Macro Charts

Let us take a look at some important higher timeframe macro charts to get an overview of the current market situation. The U.S. Dollar Index (DXY) is set to close this week in the red, down more than 1% from its April high. The DXY has been trading in a range since the beginning of the year.

One of the most interesting charts of the last months and years is gold, which broke out of a multi-year range at the end of February, reaching a new all-time high in April but now down more than 5% from said all-time high.

COIN, MSTR and Bitcoin mining companies such as MARA closed up significantly yesterday, and today’s pre-market data, at the time of writing, is in the green as well.

How is the market sentiment?

The fear and greed index for the stock market has been in fear territory since April 15. Today's level of 39 shows a small uptick from Wednesday’s level, but the stock market has not seen levels of extreme fear since October last year. The crypto fear and greed index reached fear levels for the first time this year, reaching 43 yesterday, but is now back in the neutral zone (48) already.

The funding rates for the major crypto assets remain at healthy levels and have been low and even in the negative since the beginning of April. While there were some liquidations in the markets during the price drop this week, the total number of liquidations was by no means close to the big liquidation event in the middle of April. Leverage traders seem to be staying out of the markets; the market was fearful again for the first time in months; and funding rates have been in healthy territory for more than a month.

Our Take

Considering the recent developments in markets, the outlook for the coming weeks appears cautiously optimistic. Despite Bitcoin's four consecutive weekly declines, recent price action suggests a potential reversal, with BTC rallying back towards $60’000. ETH, on the other hand, outperformed BTC last week, closing positively and indicating a possible shift towards altcoins. The launch of Bitcoin and Ethereum spot ETFs in Hong Kong was met with low trading volumes, disappointing some market participants. However, positive news such as Coinbase's impressive Q1 earnings, BNP Paribas holding the BTC ETF, and Block allocating profits back into BTC, have contributed to a more positive sentiment. In terms of market sentiment, the fear and greed index for crypto has returned to the neutral zone, indicating a more balanced outlook. Moreover, funding rates remain healthy, suggesting a lack of excessive leverage in the market. Looking ahead, traders will likely keep an eye on US employment data next week, considering Jerome Powell's emphasis on data dependency. While the possibility of rate cuts remains remote, continued positive news flow and stable market fundamentals could support a gradual recovery in the crypto markets.

The Week Ahead

Tuesday, May 7, 2024

• AUS - RBA Interest Rate Decision

Wednesday, May 8, 2024

• U.S. - Crude Oil Inventories

Thursday, May 9, 2024

• U.K. - BoE Interest Rate Decision
• U.S. - Initial Jobless Claims

Friday, May 10, 2024

• U.K. - GDP Figures