June Crypto Market Report: The US dollar's ​​high interest rate environment is about to end, and BTC will most likely start its autumn market

Written by: 0xWeilan

The market, project, currency and other information, opinions and judgments mentioned in this report are for reference only and do not constitute any investment advice.

After the COVID-19 crisis, the "story" of the United States taking advantage of the US dollar's status as the world's largest reserve currency to harvest other economies in a "dollar tide" seems to be becoming a fact. Economies are under pressure, and the yen has fallen to 1986 lows against the dollar.

——On June 5, Canada cut interest rates, and on June 6, the euro cut interest rates. Why hasn’t the Fed cut interest rates yet?

– Because only the yen exchange rate has collapsed, it’s not full yet.

Europe can’t hold on, Canada can’t hold on, only the United States can hold on. The U.S. dollar index continues to rise, causing the equity market to come under tremendous pressure.

Under the huge macro-financial pressure, the crypto asset market in June ended the rebound in May and fell by 7.12%, continuing the in-depth consolidation after BTC hit a record high. This consolidation has lasted for nearly 4 months. There are few sectors in the entire crypto market that have independent trends.

Although stablecoin inflows on the capital side have recovered somewhat from May and reached US$856 million, they still remain at a low level. ETF channel funds were 641 million, far lower than last month’s 1.9 billion.

The activities on the chain are divided into two levels. On the one hand, BTC data continues to deteriorate, on the other hand, public chains such as Ethereum and Solana are still active. These data make people believe that the bull market is still there and the blood is not cold yet.

Macro Finance

On June 12, the United States released the May CPI, which fell another percentage point from April to 3.3%, lower than the expected value of 3.4%. So far, the U.S. CPI has fallen for two consecutive months in a high interest rate environment. At the same time, the PMI data on the corporate side fell from 49.2% to 48.7%, accelerating the contraction, which also provided support for the downward trend of CPI.

The decline in economic data exceeded market expectations and increased interest rate cut expectations, causing the Nasdaq to continue to price in on interest rate cut expectations. In the end, the Nasdaq closed up 5.69% in June, achieving two consecutive months of gains. Although the S&P 500 index did not hit a record high as strongly as the Nasdaq, it also maintained its monthly upward trend.

The new non-farm employment data released on June 7 greatly exceeded the forecast value (182,000), reaching 272,000. The market pointed out that this data has major problems in terms of statistical caliber, and is suspected of suppressing expectations of interest rate cuts.

The market is choosing the direction it wants to believe in, such as interest rate cuts. There are still funds in the interest rate swap market betting on two interest rate cuts in 2024. UBS claims that the market has underestimated the extent of this round of interest rate cuts, and even predicts that the "first cut" will still be in September. In the context of the U.S. dollar index breaking through 106, the Nasdaq continues to hit new highs. This is because these long funds are placing bets based on their own judgment.

The "hawkish" remarks released by the U.S. government and the Federal Reserve in June may have reached the largest dose this year. U.S. Treasury Secretary Yellen said "there are no signs that the U.S. is about to enter a recession," while Federal Reserve Governor Bowman emphasized that "there are still upward risks to inflation, and there may be no interest rate cut in 2024."

Although the CPI has been declining for two consecutive months, the strong employment data allows the Federal Reserve to buy more time to maintain high interest rates and wait for the CPI to move closer to 2%.

The high interest rate environment of the US dollar has put global capital markets under tremendous pressure, and the crypto market is no exception.

EMC Labs believes that as BTC reaches a record high, some investors lock in profits and continue to sell, while high U.S. dollar interest rates have significantly reduced the flow of funds into the crypto asset market, ultimately resulting in the selling pressure being unable to be absorbed by sufficient purchasing power. This is the fundamental reason why the current encryption market cannot effectively break through, and even constantly challenges the adjustment of the lower edge of the box.

Crypto Market

In June, BTC opened at US$67,473.07 and closed at US$62,668.26. It fell by US$4,804.15 or 7.12% for the whole month, with an amplitude of 20.10%. The trading volume shrank for three consecutive months.

In June, BTC and the Nasdaq diverged from each other, falling 7.12% for the whole month against the backdrop of a strong 5.69% rise in the Nasdaq, losing most of the rebound in May.

Technically, affected by the news of the issuance of BTC on the Mt. Gox exchange and the German government's selling of BTC, the price of BTC stepped back on the upward trend line since October last year on June 24 and bottomed out. On the same day, BTC price also completed the push back to the lower edge of the new high consolidation range (i.e. $58,000). The support of these two major technical trend lines was relatively strong. Afterwards, the BTC price rebounded to above $63,000. There was no danger in the short term, but the midline was still confused.

Affected by expectations that the ETF is about to be approved, the trend of ETH is slightly stronger than that of BTC. This month's ETH/BTC trading pair has basically preserved the results of ETH's rebound in May and has not retreated significantly, indicating that industry capital on the market is still betting on the online trading of ETH ETFs.

ETH ETF has a high probability of being approved for trading in July. However, under the current background of severe insufficient funds, once the benefits are realized, ETH may usher in a short period of time. Large selling pressure. After the official transaction, can the ETH ETF bring a considerable net inflow of funds like the BTC ETF? The current situation is not optimistic.

Fund flow

The bull market is first and foremost a capital phenomenon.

Based on the source of funds, we can divide the trend of BTC since last year into 4 stages -

2023.01~09: net outflow of stablecoins, buying power comes from on-site flight Top funds were used to cover positions, and the BTC price rose from 16,000 to 32,000 US dollars;

2023.10~2024.01: Driven by the approval of the BTC ETF and the expectation of production cuts, the net inflow of stablecoins turned positive, and then continued to rise, pushing the BTC price to rise from 32,000 US dollars to US$49,000;

2024.02~04: After the BTC ETF approved the withdrawal of speculative funds, the ETF channel legal currency funds and stablecoin channel funds continued to flow in, pushing BTC to a new high of US$73,000. Because ETF channel funds exceeded expectations, BTC hit a new high before the production cut for the first time. Beginning in January, long- and short-term profit-taking began to sell huge amounts to lock in profits. The selling reached its peak in early March, and then the BTC price peaked on March 18 and started a correction.

Although in March and April, only the stablecoin channel had a net inflow of more than 8.9 billion and 7 billion US dollars respectively, the huge sell-off consumed all the purchasing power , BTC price stopped at $73,000.

2024.05~06: BTC prices entered a new high consolidation area after March. The previous clearing caused the market’s enthusiasm for long positions to be completely extinguished. Under the pressure of high U.S. dollar interest rates, the inflow of funds into the stablecoin channel and fiat currency channel was in the five-month period. , quickly shrunk to $341 and $856 million in June. BTC established a new high between 58,000 and 73,000 US dollars, then consolidated the box and waited for new funds to enter.

A bull market is when new money pours in on a backdrop of optimism, revaluations push asset prices higher, and long-term holders sell to lock in profits after price increases. process. During the development of a bull market, selling often occurs in several waves. What happened not long ago is just the first wave. The next selling will happen again after higher prices are realized.

Since being approved for operation in January, BTC ETF has been regarded as an important new capital inflow channel in the crypto asset market. Since January, the total inflow from all channels has been US$13.882 billion, but since March, as the price of BTC stopped at US$73,000, the inflow scale has gradually declined.

The fund inflow of the ETF channel in June was US$641 million, which is quite close to the US$856 million of the stablecoin channel. In the May report, we proposed that “ETF channel funds are expected to become an independent force in pricing BTC.” With the growth of scale and the gradual independence of decision-making will, the funds of this channel are expected to take on this important task. Its scale and behavior deserve continued attention, but it is currently unable to bear this responsibility.

Market supply

In the bull market, long-term investors and short-term investor groups adopt different valuation systems for BTC targets. After the final price rise, BTC flows from long-term investors to the short-term investor group, and the value also transfers accordingly.

According to this, two phenomena will inevitably occur in the bull market, "capital inflow" and "BTC holder group transfer". The two phenomena interact with each other and jointly shape the market trend. In the previous section we analyzed capital inflows, and in this section we focus on the changes in the BTC holder group.

Analyzing the positions held by long-term investors, short-term investors, exchanges and miners since last year, we found that in the first 11 months of 2023, long-term investors are increasing their positions, while short-term investors are reducing their positions. The turning point occurred in December. In this month, the price of BTC approached the previous high. Long-term investor groups began to distribute chips, while short-term investors began to increase their holdings. As the price of BTC hit a record high in March, this chip exchange game reached its peak. After that, the price began to collapse, and the scale of selling by long-term investors in April shrank rapidly. In May and June, this selling completely ended, and long-term investors began to increase their holdings again.

From March to May, the exchange of chips by market parties around BTC’s previous high price of $69,000 was part of the market cycle One of the main events, its occurrence means the first stage of the bull market. The chips held by low-frequency traders (long-term investors) flow into the hands of high-frequency traders (short-term investors). Market liquidity suddenly floods, new funds are exhausted by hard work, prices fall, speculation freezes, and the market resumes after the passion. Back to the hesitation stage.

Will the bull market come to an abrupt end? We set our sights on previous bull markets.

As marked by the green box in the picture above, we have observed in the past three rounds of bull markets that long-term investors will conduct two rounds of large-scale chip selling after taking advantage of price increases. Profit locked in. The first wave of selling will press the pause button on the price increase, and the second wave of selling will destroy the market. The first wave of selling in history lasted for 3 months, 9 months and 4 months respectively in chronological order. The current round from December to March last year also happened to be 4 months, which is the same as the previous cycle.

According to historical rules, after the first batch of selling, the long-term group returns to the accumulation state and waits for the price to rise. As shown in the red box in the picture above, when the price continues to hit record highs, it returns to the reduction state and sells ruthlessly. This method of selling in batches to lock in profits is in line with the behavioral patterns of long-term investors and the laws of market movements. Therefore, we believe that this selling law is still applicable to the current crypto asset market.

According to this, EMC Labs determines that the big sell-off that occurred not long ago is just the first wave of sell-offs in the bull market. As the long-term investor group returns to the accumulation state, the market selling pressure decreases. After funds return to inflow, the market will resume its upward trend and continue to rise. . At that time, the market will usher in the second and most fertile stage of the bull market. The end of the U.S. dollar's high interest rate environment is likely to happen in the second half of this year. Therefore, although market confidence is currently low and trading is light, we are still optimistic that BTC is likely to start its market early in the fall.

Conclusion

Market movement is the process of interaction between internal and external factors.

In the first half of 2024, long-term investors on the market carried out the first round of selling, locking in tens of billions of dollars in profits, and have now returned to accumulation.

After the approval of 11 BTC spot ETFs in the United States, nearly 14 billion US dollars have flowed into the ETF channel, and 240,000 new BTC positions have been added, with cumulative positions reaching 860,000 US dollars worth 53.1 billion US dollars.

Considering that this record was achieved in an environment of high U.S. dollar interest rates, this market performance is considered outstanding.

The U.S. dollar has not yet started to cut interest rates, and the financial pressure on global capital markets has reached unprecedented levels.

The first phase of the bull market is ending, and the second phase has not yet begun. We judge that the variable is likely to occur in the autumn.

The biggest risks are the unexpected interest rate hike by the Federal Reserve and the increase in the selling of US debt, the issuance of Mt. Gox BTC and the US government’s selling of BTC holdings.

Now should be the most depressing and painful moment before the heavy rain.

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