Evolving Crypto Market - A Crossroads of Possibilities
In recent times, Bitcoin's correlation with stocks has gone down, despite the fact that the crypto market has been rising along with stocks, metals, and bonds. Despite this alignment, leading cryptocurrencies Bitcoin and Ethereum have struggled with key resistance levels. The market's current state indicates a potential overextension, hinting at an imminent major correction.
Bitcoin, in particular, has been stagnant, with investors long on BTC experiencing slight losses over the past month. Ethereum, while looking technically a lot cleaner than Bitcoin versus the USD, ETHBTC is still below its 200 WMA. Although it has swept its lows across all platforms, it hasn’t been able to have a major breakout. Bitcoin's recent sideways movement hints at a potential significant price shift. Several indicators point towards an overheated market, suggesting that Bitcoin and Ethereum might be entering a bearish phase or distribution cycle.
Nonetheless, there's still room for an interim rally, potentially seeing a 10-20% increase in Bitcoin and Ethereum's value. In the short term, Bitcoin prices could soar to between $49,000 and $53,000, primarily driven by the anticipated ETF approval. Following this surge, a correction seems probable, with Bitcoin's price potentially declining to the $31,000 to $33,000 range in the subsequent months.
In contrast, altcoins have been outperforming Bitcoin, signaling a shift in market dynamics. The anticipation of the Bitcoin halving and the ETF, along with the excitement around Bitcoin Ordinals, initially pushed altcoins down relative to BTC until late October 2023. Their situation had started improving with the win of XRP, the win of Grayscale, the potential for an ETH ETF, the potential for a Coinbase win vs. the SEC, the Binance settlements with the DoJ and CFTC, and finally all the wins of Tether because of its collaboration with the FBI and Treasury. At the same time, as the halving and the ETF are somewhat priced in (in the short term), Ordinals moved on other chains and, as usual, extremely high fees on Bitcoin boosted the price of many other protocols.
(Bitcoin dominance - Stablecoins excluded)
This altcoin breakout against Bitcoin is attributed to increased mainstream adoption and strength in sectors such as AI, computing, memes, and gaming. Despite appearing bullish, top altcoins like Ethereum have recently underperformed. However, pairs like ETHBTC and BNBBTC are showing signs of bottoming out, with SOLBTC notably breaking out. This trend suggests that altcoins may continue to rise over the short term.
The resilience of major altcoins, deviating from previous market cycles at a similar juncture, indicates a new market dynamic. This change is bolstered by the first-time legitimate adoption of crypto projects, backed by significantly more mature technology than was available three years ago. While the performance across various crypto sectors is uneven, many smaller altcoins have outperformed, leading to what appears to be a mini alt season with the total market cap of coins excluding BTC, ETH, XRP, BNB, and stablecoins more than doubling.
However, we have to be aware that a lot of the price appreciation has also occurred due to excess speculation. Bitcoin and Ethereum options open interest being at all-time highs while their price is a lot lower than their all-time highs is a sign that investors are really betting on something big. The extremely high open interest in crypto assets excluding Ethereum, whose Open Interest is larger than that of Bitcoin, despite their market cap being a lot smaller than that of Bitcoin. Funding rates in the market have also skyrocketed and are indicating excess speculation. Positioning on CME futures also indicates that retail traders are really going long into the ETF announcements.
The Bitcoin ETF discussion is another critical aspect of the market. The ETF's potential impact remains uncertain, with a decision expected within the next 10 days. In our opinion, the ETF news is being front-run significantly, although there is still some doubt on whether the ETF will be approved or not. Funds and investors have been buying stuff like Microstrategy, Coinbase, funds, miners, ETFs, and ETPs, and have gotten exposure in all sorts of ways. What we think is certain is that we will see massive outflows from these products and a rush into the ETFs, something that could create an initial spike in the price of Bitcoin, as the overall impact on the market will be neutral.
All the Bitcoin-related companies that have a premium will lose it post-ETF, and this could initially help the Bitcoin price rally. Analysts estimate 50B moving into the Bitcoin ETF in the first year, but the products we mentioned already give an exposure of about 50-100B. Finally, as GBTC still has a discount and we don’t know when it will convert into an ETF, we might not see as much buying pressure as everyone is estimating. In the end, liquidity, risk appetite and other catalysts like the US government selling its Bitcoin after the ETF launch could be more important than the ETF at this point.
What’s interesting is that the launch of an ETF, could lead to a more significant impact on altcoins than on Bitcoin. Why? Well, so far, we haven’t had a full-fledged alt season, and for that to be triggered we’d need to see some key developments:
1. Approval of Bitcoin ETFs – Buy the rumor (bitcoin), buy the news (alts on ETF approval). Sell Bitcoin to buy alts.
2. Progression beyond the Bitcoin halving event (another buy the Bitcoin and then sell for alts).
3. Speculation on likely approval of Ethereum ETFs.
4. Coinbase's potential victory in its legal battle with the SEC, signifying a major win for crypto assets.
5. Resolution of all issues between all US agencies and Binance
6. Bitcoin reaching a milestone value of $100,000, potentially redirecting investment into altcoins as Bitcoin investors secure profits and everyone is talking about crypto
7. ETHBTC hitting 0.04
8. The distribution of funds from bankrupt entities like Mt.Gox and FTX to their creditors.
9. The SEC providing clear regulatory guidelines for the cryptocurrency sector.
In summary, while Bitcoin and the broader crypto market appear poised for potential interim rallies driven by anticipated regulatory approval of Bitcoin ETFs, the market also shows signs of overextension indicating an imminent correction. Key catalysts like the Bitcoin halving and ETF news seem largely priced in already. Ultimately, the crypto market outlook remains uncertain and volatile in the near term. However, growing mainstream adoption could drive a legitimate altcoin breakout, potentially triggering a mini alt season, especially if essential catalysts like SEC regulatory clarity transpire. Nonetheless, investors would be prudent to temper expectations and maintain cautious optimism given excess speculation and mixed signals across Bitcoin, Ethereum and altcoins.
Bitcoin, in particular, has been stagnant, with investors long on BTC experiencing slight losses over the past month. Ethereum, while looking technically a lot cleaner than Bitcoin versus the USD, ETHBTC is still below its 200 WMA. Although it has swept its lows across all platforms, it hasn’t been able to have a major breakout. Bitcoin's recent sideways movement hints at a potential significant price shift. Several indicators point towards an overheated market, suggesting that Bitcoin and Ethereum might be entering a bearish phase or distribution cycle.
Nonetheless, there's still room for an interim rally, potentially seeing a 10-20% increase in Bitcoin and Ethereum's value. In the short term, Bitcoin prices could soar to between $49,000 and $53,000, primarily driven by the anticipated ETF approval. Following this surge, a correction seems probable, with Bitcoin's price potentially declining to the $31,000 to $33,000 range in the subsequent months.
In contrast, altcoins have been outperforming Bitcoin, signaling a shift in market dynamics. The anticipation of the Bitcoin halving and the ETF, along with the excitement around Bitcoin Ordinals, initially pushed altcoins down relative to BTC until late October 2023. Their situation had started improving with the win of XRP, the win of Grayscale, the potential for an ETH ETF, the potential for a Coinbase win vs. the SEC, the Binance settlements with the DoJ and CFTC, and finally all the wins of Tether because of its collaboration with the FBI and Treasury. At the same time, as the halving and the ETF are somewhat priced in (in the short term), Ordinals moved on other chains and, as usual, extremely high fees on Bitcoin boosted the price of many other protocols.
(Bitcoin dominance - Stablecoins excluded)
This altcoin breakout against Bitcoin is attributed to increased mainstream adoption and strength in sectors such as AI, computing, memes, and gaming. Despite appearing bullish, top altcoins like Ethereum have recently underperformed. However, pairs like ETHBTC and BNBBTC are showing signs of bottoming out, with SOLBTC notably breaking out. This trend suggests that altcoins may continue to rise over the short term.
The resilience of major altcoins, deviating from previous market cycles at a similar juncture, indicates a new market dynamic. This change is bolstered by the first-time legitimate adoption of crypto projects, backed by significantly more mature technology than was available three years ago. While the performance across various crypto sectors is uneven, many smaller altcoins have outperformed, leading to what appears to be a mini alt season with the total market cap of coins excluding BTC, ETH, XRP, BNB, and stablecoins more than doubling.
However, we have to be aware that a lot of the price appreciation has also occurred due to excess speculation. Bitcoin and Ethereum options open interest being at all-time highs while their price is a lot lower than their all-time highs is a sign that investors are really betting on something big. The extremely high open interest in crypto assets excluding Ethereum, whose Open Interest is larger than that of Bitcoin, despite their market cap being a lot smaller than that of Bitcoin. Funding rates in the market have also skyrocketed and are indicating excess speculation. Positioning on CME futures also indicates that retail traders are really going long into the ETF announcements.
The Bitcoin ETF discussion is another critical aspect of the market. The ETF's potential impact remains uncertain, with a decision expected within the next 10 days. In our opinion, the ETF news is being front-run significantly, although there is still some doubt on whether the ETF will be approved or not. Funds and investors have been buying stuff like Microstrategy, Coinbase, funds, miners, ETFs, and ETPs, and have gotten exposure in all sorts of ways. What we think is certain is that we will see massive outflows from these products and a rush into the ETFs, something that could create an initial spike in the price of Bitcoin, as the overall impact on the market will be neutral.
All the Bitcoin-related companies that have a premium will lose it post-ETF, and this could initially help the Bitcoin price rally. Analysts estimate 50B moving into the Bitcoin ETF in the first year, but the products we mentioned already give an exposure of about 50-100B. Finally, as GBTC still has a discount and we don’t know when it will convert into an ETF, we might not see as much buying pressure as everyone is estimating. In the end, liquidity, risk appetite and other catalysts like the US government selling its Bitcoin after the ETF launch could be more important than the ETF at this point.
What’s interesting is that the launch of an ETF, could lead to a more significant impact on altcoins than on Bitcoin. Why? Well, so far, we haven’t had a full-fledged alt season, and for that to be triggered we’d need to see some key developments:
1. Approval of Bitcoin ETFs – Buy the rumor (bitcoin), buy the news (alts on ETF approval). Sell Bitcoin to buy alts.
2. Progression beyond the Bitcoin halving event (another buy the Bitcoin and then sell for alts).
3. Speculation on likely approval of Ethereum ETFs.
4. Coinbase's potential victory in its legal battle with the SEC, signifying a major win for crypto assets.
5. Resolution of all issues between all US agencies and Binance
6. Bitcoin reaching a milestone value of $100,000, potentially redirecting investment into altcoins as Bitcoin investors secure profits and everyone is talking about crypto
7. ETHBTC hitting 0.04
8. The distribution of funds from bankrupt entities like Mt.Gox and FTX to their creditors.
9. The SEC providing clear regulatory guidelines for the cryptocurrency sector.
In summary, while Bitcoin and the broader crypto market appear poised for potential interim rallies driven by anticipated regulatory approval of Bitcoin ETFs, the market also shows signs of overextension indicating an imminent correction. Key catalysts like the Bitcoin halving and ETF news seem largely priced in already. Ultimately, the crypto market outlook remains uncertain and volatile in the near term. However, growing mainstream adoption could drive a legitimate altcoin breakout, potentially triggering a mini alt season, especially if essential catalysts like SEC regulatory clarity transpire. Nonetheless, investors would be prudent to temper expectations and maintain cautious optimism given excess speculation and mixed signals across Bitcoin, Ethereum and altcoins.