This article is a compilation of two market analysis articles published by 10x Research yesterday and this morning. In the first article, 10x Research analyzes the bearish reasons for the future market of ETH, while in the second article, 10x Research predicts a new high for BTC.
ETH: Why are we bearish?
In the past month, Ethereum’s market value has grown by 22%, reaching $454 billion, while its fee revenue has decreased by 33% to only $128 million. Essentially, this is because Ethereum has become relatively “insignificant” in terms of transaction activity, with most meme activities shifting to Solana or Layer 2 networks. This may not be news for deep value investors.
From a technical analysis perspective, if ETH falls below the $3,725 level, it may trigger a large number of stop-loss trades. The current trend of ETH appears very fragile, failing to further rise, and many newly established long positions have reached or fallen below breakeven. Crypto enthusiasts generally refer to this technical pattern as a “Bart,” where the price of a token needs to consolidate after a significant increase and may sharply decline due to triggered stop-loss trades. All three of our reversal indicators have turned bearish.
Historically, June is the second worst-performing month for ETH, with an average return of only -7% (September being the worst at -12%), while the average return for the other ten months is positive.
In conclusion, from various perspectives such as fundamentals, technical analysis, and cyclical patterns, it is not the best time to hold ETH. Another piece of evidence supporting this conclusion is the excessive long positions in the futures market.
Odaily Note: In financial market terms, “excessive long positions” is usually used to describe a phenomenon in which there are a significant number of positions in a particular asset or investment product that are biased towards one direction (long or short). When the majority of participants in the market tend to take the same trading direction, excessive long positions imply the risk of being overly biased towards that direction.
The open interest in futures contracts has increased from $8 billion in mid-May to $12.8 billion, and the financing rate briefly exceeded 20% but has now fallen to 11.9% as no new longs are being deployed. The cost of holding long positions is very expensive, and more traders may choose to close positions due to the uncertainty of ETF approval.
ETF inflows for spot Ethereum may also be disappointing. Similar to GBTC, we may see outflows of 50% ($4-5 billion) in Grayscale’s ETHE, while the inflow levels for other ETFs may only reach 20% of BTC ETF ($2.7 billion). The inflow of $2.7 billion compared to the outflow of $4-5 billion in ETHE may put pressure on ETH’s price.
For institutions or asset managers, the reasons to add ETH to their multi-asset portfolios are not compelling enough. ETH is not positioned as digital gold, and its trading volume only accounts for a small part of Bitcoin’s, posing liquidity risks. The current risk-free interest rate in traditional finance is about 5.2%, while the staking yield for ETH is only 2.6%. Therefore, the incentive for traditional finance to buy ETH ETFs is small, not to mention the current ETFs do not allow staking.
It is still uncertain when the SEC will finally approve the spot Ethereum ETF (S-1), and US President Biden has just vetoed the congressional resolution to overturn the SAB-121 resolution, reaffirming the government’s opposition to cryptocurrencies. ETFs can only start trading after the effectiveness of the S-1 form, but the timetable for SEC approval of these S-1 forms has not been determined yet (it could be today or several months later). With the positive impact of the May 23 19b-4 approval, ETH jumped from $3,000 to $3,600 and climbed to $3,800 in the following days. Considering the recent unfriendly signals from the US government (Biden’s veto), is this over 25% increase reasonable?
We prefer Bitcoin, even if the S-1 is approved, the conversion outflows from ETHE may put selling pressure on ETH. Overall, the trading strategies of “long Bitcoin, short Ethereum” and “sell Ethereum call options, buy Bitcoin call options” may have better winning prospects.
For ETH, $3,725 will be a critical level (we will close all long ETH positions at this level). If ETH falls below this level, we may see a large number of triggered stop-loss trades, further pushing down the price of ETH, which may even hinder Bitcoin from reaching new highs.
BTC: Will there be a new high?
In our reports on May 21, May 26, and May 30, we emphasized the bullish reasons for BTC.
For traders, it is time to take risks for greater beta. As we predicted, Bitcoin mining-related stocks are also rising. Influenced by a $100 million financing from Tether (possibly increasing by $50 million), Bitdeer rebounded 13% last night, and Bitfarms, as one of the major participants in the industry, also rebounded.
The US economy is slowing down, but this is actually a good thing for now. GDP growth is only slightly above 1%; the ISM Manufacturing Index has been in a contraction state for several months; employment is weakening, negatively affecting consumer spending; and last night, another key and forward-looking employment indicator, job vacancies, significantly slowed down. All of these will lead to a decrease in inflation.
We will get more employment data this Friday, and next week we will get the CPI inflation report. The direction of Bitcoin’s trend will adjust based on the change in CPI (if CPI rises, Bitcoin will be bearish; if CPI falls, it will be bullish). If the growth rate of CPI is 3.3% or lower, it is likely to push Bitcoin to a new all-time high.
On May 15, when the inflation rate reached 3.4%, lower than the previous month’s 3.5%, we turned bullish when Bitcoin’s price was close to $62,000. This price coincided with our model, and our midterm trend model originally predicted that if Bitcoin’s price could reach $65,000 on May 16, it would turn bullish, and if the closing price exceeded $71,500 (the recent price was $70,500), it would trigger another buy signal.
Bitcoin has already broken out of the smaller triangle range (purple line) in the chart below, and the larger triangle range (purple dashed line) may also be broken around $71,500. If the decline in US employment or the decrease in inflation can make Bitcoin’s price close above this line, we will firmly set the target price at the new high, which may be achieved between this Friday and next Wednesday. Therefore, we expect Bitcoin to reach a new all-time high (over $73,500) by the end of next week.
The SEC recently issued a risk warning about cryptocurrencies, a pattern that has occurred before the approval of Bitcoin spot ETFs and other SEC-regulated crypto products, which may indicate that the S-1 form for the spot Ethereum ETF will be approved soon. Nevertheless, we still prefer Bitcoin, and our positions will return to Bitcoin.
Since Saturday, the additional open interest in Bitcoin futures contracts has increased by $1.6 billion. Fidelity’s Bitcoin ETF saw an inflow of $378 million last night, Ark’s ETF saw an inflow of $140 million, and BlackRock saw an inflow of $275 million (a total of $880 million in one day), the second-highest in history.
The options market expects Bitcoin’s volatility to be around ±6.6% until the end of next week, and if it rises, the target price will be $76,000. Implied volatility is still relatively expensive at around 52-53%. It may be a better strategy to build long leverage through perpetual futures or Bitcoin mining companies.
In conclusion, Bitcoin may soon reach a new all-time high, and now is the time to take on more risks and build larger positions.
