Selling Pressure for BTC, Lack Of Narrative & Lower Inflation: The Way Forward?

You can now listen to a summary of this week's Weekly Wrap on Spotify and Apple Podcasts. It is a summary with the help of AI-voices. 

What Happened This Week

We Are Back!

Did you miss us? We certainly missed you and are excited to continue delivering you our Weekly Wrap with the most significant news from the crypto and traditional markets, peppered with charts, analyses and much more. So, what did we talk about in our last Weekly Wrap on June 14, 2024?

We mentioned that the crypto market seemed to lack a narrative, that Ether spot ETFs were expected to start trading by the end of summer, and that U.S. equities were trading to the upside while Bitcoin and crypto were looking to the downside. We highlighted President Trump’s engagement with Bitcoin and crypto and shed light on the slowing of U.S. inflation. Not only that, but we ended the Wrap with a statement that the market is eager for a new narrative and that crypto traders might have to wait a little longer for a new narrative, maybe until the ETH spot ETFs start trading by the end of summer.

Now, what has happened since then? Let us take a look at the Bitcoin chart in relation to U.S. equities and some altcoins.

The chart shows a clear picture, U.S. equities have performed extremely well over the course of the last few weeks, while Bitcoin has corrected to the downside, being down 14% since the middle of June, while ETH is down 11% and SOL is down 8%, after a volatile month of ups and downs.

U.S. Equities Up And Crypto Down

While Bitcoin and the crypto markets have been trading more or less in sync with the U.S. equity market over the course of Q4 2023 and Q1 2024, this relationship came to an end during the last few months, with stocks trading to the upside and Bitcoin and crypto correcting to multi-month lows last week.

One of the reasons for this crypto correction could be the increased selling pressure coming from the German government and Mt. Gox’s creditor repayments. The German government has been selling hundreds of millions of dollars worth of Bitcoin over the last few weeks after the police in the Eastern German state of Saxony announced in January 2024 the seizure of close to 50’000 Bitcoin, worth around $2.2 billion at the time. The funds were seized from the operators of Movie2k.to, a movie piracy site that was active in 2013.

In addition to that, Bitcoin likely also reacted to the news that the bankrupt Bitcoin exchange Mt. Gox is distributing BTC and BCH repayments in July, as they announced on June 24, in a notice sent by Rehabilitation Trustee Nobuaki Kobayashi. The market further reacted on July 5, after they announced the actual start of the repayments. Mt. Gox creditors may however have to wait up to three months until all the BTC and BCH will be distributed to all creditors.

The German Government Continues to Sell Bitcoin

The German government has continued to transfer large chunks of Bitcoin to exchanges and market makers this week. In total, they have transferred over 35’000 BTC this week alone, some of these BTC were sent back to them, but they still seem to have used this week to sell a large amount of their holdings. At the time of writing, they are left with roughly 7’000 BTC.

Germany’s selling spree has gotten a lot of attention over the course of the last three weeks, and there are also some voices within the country who are criticizing or at least questioning the government’s decision to get rid of all the Bitcoin. As Joana Cotar, a member of the Bundestag, for example, has tweeted.

While Germany is Selling, Someone Is Buying

Last week was accompanied by $441 million of inflows into digital asset investment products, with the BTC spot ETF of Fidelity accounting for almost $200 million of said inflows. Bitcoin alone saw net inflows of $398 million, and ETH saw inflows of roughly $10 million last week. Switzerland is still in third place, with $23.8 million of inflows, after Hong Kong with $32.2 million and the U.S. with $384 million.

When looking at this week’s inflows for the U.S.-based spot ETFs, you see a very strong start to the week, with almost $300 million of inflows on Monday, the largest amount since the beginning of June, followed by $200 million on Tuesday and $150 million on Wednesday. So, despite the selling pressure from Germany and Mt. Gox, buyers of the spot ETFs are showing significant interest this week.

Ether and Solana ETFs News

On Monday, the last issuers of the upcoming Ether spot ETFs have filed their amended S-1 registration statements. As a reminder, the SEC approved 19b-4 forms for eight spot Ethereum ETFs on May 23. However, issuers still need their S-1 statements to become effective before trading can begin, as part of a two-step process. And now, 21Shares, BlackRock, Fidelity, Franklin Templeton, Grayscale, VanEck and Bitwise have all filed their amended S-1s. Even though some of the filings are still missing the information regarding fees, this will be interesting to observe, another “fee war” seems likely.

After VanEck and 21Shares filed for permission to offer Solana spot ETFs in the last week of June, Cboe BZX has now filed the Form 19b-4 for both products on Monday, which puts the final deadline for approval to mid-March 2025. 

President Donald Trump at the Bitcoin Conference 2024

On Thursday, the Bitcoin Conference, one of the world’s largest conferences, which will take place in Nashville from July 25-27, announced that President Donald Trump will officially be speaking at the 2024 edition of the event. The presidential candidate has been talking about Bitcoin and crypto during his 2024 election campaign, and this speech will be a step further in his direction of trying to make the U.S. the global leader in Bitcoin and crypto.

U.S. Inflation Falls 0.1% in June

On Thursday, the U.S. CPI data revealed that the U.S. inflation had declined in June for the first time since May 2020. The CPI, a broad measure of costs for goods and services across the U.S. economy, declined 0.1% from May, putting the yearly rate at 3%, around its lowest level in more than three years. The June inflation data has had an impact on the probability of a rate cut at the September meeting. Before the CPI data, the expectation for a rate cut was roughly 70%, and at the time of writing, the market now expects a rate cut in September with a probability of 86%. In the chart below, you can see the U.S. CPI data monthly changes over the last four years, highlighting the first decline in over four years in June.

Now, you might wonder how the markets reacted to this positive news regarding U.S. inflation data. Probably not the way you expected: The Nasdaq ended sharply lower on Thursday, hit by losses in Nvidia, Apple and Tesla as investors rotated into smaller companies after softer-than-expected inflation data. The SPX also closed slightly in the negative, while the Russell 2000 closed up more than 3% on the day. The Russell 2000 has been lagging for quite a bit in 2024, but now market participants seem to think that upcoming rate cuts will make the lives of smaller companies easier in the coming months. This will be interesting to observe.

Market Sentiment: Remember our Last Update?

In our last update, we mentioned that people on X were starting to question the reliability of the crypto fear & greed index, because it was still in greed territory even though prices moved flat or to the downside. Well, guess what? It’s in extreme fear (25) now, and it turned out to be quite reliable after all. The stock market is still in neutral territory, as it has been for the last month. Interestingly, investors turned a little more bullish this week, as the number of investors on AAII who are bullish jumped to 49.2% from 41.7% in the previous week. We will see whether they are right or just fell victim to FOMO right before the market starts correcting.

Our Take

The crypto market has experienced some rough weeks with increased selling pressure from the German government and Mt. Gox accompanied by the lack of a narrative within the sphere of digital assets. Market participants are still waiting for the approval of the Ether spot ETFs, which might bring a new narrative and turn around for the market overall. Interestingly, we are starting to see some shift in news, with the announcement of Donald Trump as an official speaker at the Bitcoin Conference in Nashville or the Solana spot ETF filings in recent weeks. Some market participants are even happy about the selling and distribution of BTC from large entities like the German Government, Genesis, or Mt. Gox, because it might clear the way for a more sustainable price action afterward, with these issues out of the way.

When it comes to the traditional markets, it will be interesting to observe how June’s drop in U.S. inflation has changed the Fed’s stance when it comes to rate cuts and how the market continues to react to it. Is this rotation into smaller-cap companies a real move? Time will tell, but since the summer months are historically rather slow, we are not expecting much over the coming weeks, we could see a slowdown and quieter phase.

The market sentiment in crypto is rather bad at the moment, with it being in extreme fear territory for the first time in months, while the stock market is still in neutral territory. The selling pressure in the Bitcoin market might continue to be around for a couple of weeks, and it will be interesting to see how the market develops after the Mt. Gox distributions are done.

The Week Ahead

Sunday, 14 July 2024

• CNY – China GDP Q2 QoQ and YoY

Monday, 15 July 2024

• CHF – PPI
• ASI Token Deployment (expected)
• U.S. – Fed chair Powell Speaks

Wednesday, 17 July 2024

• EUR – CPI, core CPI
• Web3 Future 2024 in Berlin, Germany

Thursday, 18 July 2024

• U.S. – Initial Jobless Claims