Bitcoin Halving, Turbulent Times in Crypto and Equity Markets

What Happened This Week

Bitcoin halving on Saturday

On Saturday, April 20th, the fourth Bitcoin halving was completed. As expected, Bitcoin and the broader crypto market did not react much to the actual completion of block 840’000 early Saturday morning, our time. Bitcoin traded around $64’000 the whole weekend, with a push above $65’700 on Sunday morning. The total crypto market cap recovered quite strongly from its Friday morning low at around $2.1 trillion and was up more than +10% over the weekend, with the Bitcoin market dominance experiencing one last push, shooting up more than 5% on Friday and Saturday, before trading to the downside for the rest of the week, as seen in the chart below.

A positive start to the week on a green Monday

While the Bitcoin spot ETFs saw inflows of $59.7 million on Friday last week, the digital asset investment products saw net outflows of $206 million in total last week, marking the second consecutive week of outflows. Ethereum is continuing its outflow streak as well, with $34 million in outflows during its 6th consecutive week with net outflows.

The spot ETFs started the week with $62.2 million inflows on Monday. BlackRock’s IBIT even entered the top 10 of exchange-traded funds with the longest daily streaks of daily inflows on Monday, with a total of 70 days on Monday, and continued its streak until Tuesday.

When it comes to price action, Bitcoin and the crypto market opened the week on a positive note. Bitcoin increased by almost 5% on Monday, reaching a high during Tuesday night at $67’000.

U.S. equities resembled the positive price action on Monday, with the S&P 500 moving up more than 1% from last Friday’s bottom. Gold, on the other hand, saw a decrease of almost minus 4% on Monday, reaching a low on Tuesday morning at around $2’300. COIN, the stock of Coinbase, and MSTR experienced a positive Monday too, MSTR up more than 10% and COIN up 5% on the day. While the start of the week was positive, the market sentiment in the traditional markets was still rather negative, with the stock fear and greed index from CNN showing scores below 40 – fear.

Quiet Crypto Tuesday and a Positive Day for Equities

The U.S. equities continued their positive movements on Tuesday, with the S&P 500 once again up almost 1% and the Nasdaq up 1.3% for the day. The crypto markets did not follow through with their moves to the upside and rather stayed flat for the day, moving rather sideways until Wednesday afternoon.

The Securities and Exchange Commission (SEC) announced on Tuesday the delay of deciding on the Ether spot ETFs from Franklin Templeton and Grayscale. Big-name firms, including Fidelity and BlackRock, have applied for a spot Ether ETF over the last few months, and the SEC has been delaying its decision on all of them in the last few weeks and months. The final deadline for the application from VanEck is set on 23 May 2024, and we are expecting the SEC to push back decisions until then.

On Tuesday night after market close, Tesla reported a 9% drop in revenue in the first quarter, the steepest year-over-year decline since 2012 and TSLA missed analysts’ estimates. The stock jumped during the extended trading hours after close on Tuesday and jumped 13% after Elon Musk mentioned that the company aims to start production of affordable new electric vehicles as early as 2025.

Red Wednesday for the Crypto Markets

After a sideways day, Bitcoin and the broader crypto market traded to the downside again on Wednesday, with Bitcoin losing more than 5% over the course of the day, finding a temporary bottom around $63’500 on Wednesday evening. The total crypto market cap also corrected around 5% on Wednesday, with ETH bottoming at around the $3’100 mark. ETH has interestingly gained around 2.5% against BTC since last Friday, and the total crypto market excluding Bitcoin (total2) and the total market cap excluding Bitcoin and Ether (total3) have performed better than the total market cap (total) over the last hours, as illustrated in the chart below.

After the positive net inflow day with $66.8 million of total inflows on Tuesday for the spot ETFs, Wednesday was accompanied by $120 million in net outflows and the first zero flow day for BlackRock’s IBIT, ending its inflows streak at 71 days, a historic result.

According to a HashKey spokesperson, the Hong Kong Bitcoin and Ethereum Spot ETFs will begin trading on April 30, 2024. While Hong Kong is trying to follow in the footsteps of the U.S. success story, it will be interesting to see how the ETFs in Hong Kong will perform, especially the Ether spot ETF, the first of its kind. The volume of U.S. spot ETFs has been declining since reaching a peak at the beginning of March.

In other news, U.S. prosecutors want Changpeng Zhao, the founder and former chief executive of Binance, the world's largest cryptocurrency exchange, to serve three years in prison. The prosecutors made the request in a Tuesday night filing in Seattle federal court.

Wednesday evening brought another high-caliber earnings call, this time from META, the parent company of Instagram, WhatsApp, and Facebook. Mark Zuckerberg spent a lot of time talking about future investments in AI and the Metaverse, and despite META beating expected profit and revenue for the first quarter, the stock tumbled as much as -19% in the extended trading hours on Wednesday evening. On Thursday, META opened roughly 15% lower and found a temporary bottom at around $440.

Equities opened lower on Thursday and came back strong

The crypto markets traded to the downside on Thursday morning, with Bitcoin pulling back -3% until U.S. equities opened in the afternoon, finding a bottom at around $62’700. The disappointing U.S. GDP numbers in the early afternoon were likely the reason for the spike below $63'000. The gross domestic product in the USA increased at a 1.6% annualized rate last quarter; forecasts saw a GDP rise to 2.4% after it grew 3.4% in the fourth quarter of last year. With the U.S. economy growing less than expected in the first quarter, all eyes are now on today’s PCE Price Index figures, set to be released at 14:30 CEST this afternoon.

The overall market reacted to the release of the GDP numbers with the U.S. equities slumping in pre-market trading. The GDP numbers arrive as markets remain tense regarding the status of monetary policy and the anticipated timing of the Federal Reserve's decision to reduce its benchmark interest rate. Currently, the federal funds rate, determining interbank overnight lending rates, rests within a targeted range of 5.25% to 5.5%, marking its highest level in approximately 23 years.

Despite all that, the U.S. stock market bounced back very strongly after the market opening yesterday, and the major indices closed the day just slightly below Wednesday’s closing prices, with the S&P 500 closing above the 5’000 mark once again.

In the crypto world, the news that Morgan Stanley may allow its 15’000 brokers to advise clients to buy the new Bitcoin spot ETFs broke the market. The company is currently laying the groundwork for tender purchases, including risk tolerance requirements and restrictions on allocations and trading frequencies.

Do you remember the “Buy Bitcoin” sign that was shown during a 2017 Janet Yellen hearing? Well, that sign was sold for over $1 million at an auction.

Bitcoin and the crypto market profited from the positive price action on the U.S. stock market on Thursday afternoon and also recovered some ground. Bitcoin increased by more than 4%, reaching a daily high above $65’000 last night, and is trading at $64’400 at the time of writing.

ConsenSys communicated yesterday that they are suing the U.S. Securities and Exchange Commission for the regulation of Ethereum. Consensys expressed its aim to seek confirmation from the court regarding the SEC's lack of legal jurisdiction over the Ethereum blockchain. The company wants a federal court to declare that Ether is not classified as a security.

While the crypto markets traded to the upside alongside U.S. equities, the Bitcoin spot ETFs once again saw outflows of $217.6 million on Thursday. BlackRock’s IBIT saw its second zero-flow day in a row, while Fidelity’s FBTC saw outflows for the first time. In the chart below, the BTC spot ETF inflows and volumes are visible on the Bitcoin CME Futures price action chart. It's interesting to see that outflows often coincide with Bitcoin trading to the downside, and how the volume has been decreasing since early March.

How is the crypto market sentiment?

Same procedure as every week, let us have a look at some metrics to assess the overall sentiment in the crypto markets. When looking at the crypto fear & greed index, we can observe that we are returning to the 70s area – indicating greed in the markets. While this has often been the case in previous bull markets, there were still always movements into lower fear levels throughout the course of the bull. This is certainly something to keep in mind: you can take a look at the historic data and see that, for example, in September 2020 or January 2021, we visited levels below 40 on the index.

While we are in greedy territory when it comes to the fear & greed index, the funding rates for the major crypto assets have been low and even negative for many coins over the last few weeks, meaning, that traders get paid funding fees for staying long in the markets with the current funding fees. Liquidations have also been low since the big liquidation events on April 12th and 13th due to the escalation in the Iran-Israel conflict. The exchange BTC futures open interest has not increased much since the above-mentioned liquidation events, either. These numbers paint a healthy picture for the current crypto markets; there seems not to be a lot of leverage in the markets, and even though we are still in greedy territory, market participants seem to be cautious and are refraining from touching leverage at the moment.

Our Take

The crypto market seems to be experiencing a mix of positive and cautious sentiments in the past weeks. Despite the recent Bitcoin halving, the market didn't show a significant reaction initially, but Bitcoin and the broader crypto market have seen positive movements. However, the consecutive weeks of outflows from digital asset investment products, including Bitcoin and Ethereum, indicate some investor caution. Additionally, the delay in the SEC's decision on Ether spot ETFs might prolong uncertainty in the market. With U.S. equities displaying positive movements, the crypto market seems to be influenced by these developments. While the fear & greed index suggests greed in the crypto market, low funding rates and low leverage indicate a healthy market, though caution should still be exercised given the uncertainty surrounding regulatory decisions and market dynamics.

The Week Ahead

Monday, April 29, 2024

• Ger - CPI figures

Tuesday, April 30, 2024

• CN - Manufacturing PMI
• EUR - Eurozone CPI figures
• EUR - GDP figures

Wednesday, May 1, 2024

• U.S. - Federal Reserve Interest Rate Decision

Thursday, May 2, 2024

• U.S. - Initial Jobless Claims

Friday, May 3, 2024

• U.S. - Nonfarm Payrolls
• U.S. - Unemployment rate