After 15 years of development, the BTC and crypto industry has transitioned from technological research and development to large-scale adoption. The path and form of its realization have often been unexpected, from being little known and infamous to experiencing rapid growth and success.
Following the approval of the BTC ETF in January, the US SEC unexpectedly announced the approval of 8 ETH ETFs on May 23. This positive news unexpectedly pushed BTC and ETH, which were in a weak state, to rebound by over 11.4% and 24.83% respectively.
In the long process of BTC and crypto adoption, the transformation of traditional financial and regulatory institutions has brought great momentum to the development of the crypto industry and market. In terms of crypto, the unexpected shift of the Democratic Party has shown the significant influence of the 50 million crypto holders in the US and the policy impact brought by traditional financial institutions such as BlackRock entering the industry.
US Policy
On May 23, the US House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21). In the long term, the passage of the FIT21 Act will have a greater impact on the development of the crypto industry than the approval of BTC and ETH ETFs.
For the crypto industry, the FIT21 Act will have a profound impact on institutional recognition and protection. The Act provides a path for blockchain projects to launch securely and efficiently in the US, clarifies the regulatory boundaries of the SEC and CFTC based on whether regulated targets are securities or commodities, and establishes regulations for cryptocurrency exchanges to protect US investors.
After being passed by the House of Representatives, the FIT21 Act will be reviewed by the Senate and then undergo presidential review. The approval of the FIT21 Act will take time, and its implementation will be even longer. However, its breakthrough significance has already been demonstrated, indicating that the crypto industry, which has overcome the legitimacy crisis, has become one of the key industries in the US.
Macro Finance
In May, the US released its April economic data, which showed that the unemployment rate and non-farm payroll data were much lower than market expectations. This led to an increase in rate cut expectations, causing the US dollar index to decline and the three major US stock indices, which had experienced a sharp decline in April, to rebound strongly. Additionally, with Nvidia’s better-than-expected financial report, the Nasdaq index rose 6.88% in a single month, recovering from its April decline and reaching a new historical high.
In May, the Nasdaq index rose 6.88%, recovering all of its April decline and reaching a new historical high.
In the middle of the month, the Federal Reserve continued to release hawkish remarks, suppressing expectations of rate cuts and the frequency of rate cuts, causing the market to fluctuate. However, with the partial mild recession in the US economy, market participants believe that interest rate hikes are unlikely to occur, and rate cuts are only a matter of time. Goldman Sachs predicts that the rate cut will be postponed from July to September, and the current market trend can be seen as reflecting this expectation.
Unless there are abnormal economic data in the future, it is expected that the bullish trend of US tech stocks will not change.
Crypto Market
In May, BTC opened at $60,621.20 and closed at $67,472.41, with a monthly increase of $6,850.31 or 11.3% and a volatility of 25.54%.
BTC Monthly Trend
Unlike the strong recovery of the Nasdaq index, BTC showed relative weakness in May. The trading volume did not increase significantly after the large fluctuations, leaving long upper and lower shadows on the chart. The biggest achievement was the effective recovery after falling out of the top range at the beginning of the month, returning to the range of $58,500 to $69,500.
Although the fundamentals of on-chain activity continued to deteriorate, the price rebounded effectively, supported by macro finance, industry, and fund dimensions, temporarily putting aside concerns about the end of the bull market.
BTC Daily Trend
In this cycle, the upward momentum of BTC went through three stages: replenishing inventory, speculation on the approval of BTC ETFs, and the inflow of funds driven by the operation of BTC ETFs. By the end of May, apart from the ETF channel, the inflow of on-exchange funds had significantly slowed down. EMC Labs believes that in May, the price rebound of BTC was mainly driven by the ripple effect of the strong rise of ETH.
There are signs of industrial capital flowing from BTC to ETH, as evidenced by the increased trading volume of the ETH/BTC pair after May 15.
ETH/BTC Trading Pair Volume Increase
The reverse flow of industrial capital indicates that the price discovery of BTC in the future will mainly depend on the inflow of funds from the BTC ETF channel and the on-exchange inventory funds.
During the bull market, long-term holders gradually sold their BTC in batches, while short-term traders, attracted by the price, kept increasing their positions.
Since December, this trend of “from long to short” has continued until May when it reversed. This month, the overall long-term holders switched from selling to accumulating, increasing their BTC holdings by 93,400, while short-term traders began to reduce their positions and sold 38,200 BTC.
Long-term holders, short-term traders, CEX, miner holdings (EMC Labs chart)
In the first month after the halving of miners’ rewards, both block rewards and transaction fee income decreased, resulting in a significant reduction in income to $963 million (according to The Block). EMC Labs found that under the pressure of sharply reduced income, miners were forced to take two actions this month: selling the accumulated 6,000 BTC to the market and reducing mining power supply.
With the price decline, the Bitcoin network lost up to 28% of its computing power after reaching its peak on April 23.
Bitcoin Network Computing Power Statistics
Currently, the miner community holds 1.8 million BTC and has not conducted large-scale selling since the current bull market began. If the market experiences a decline in the future, the miner community may sell to maintain their operations, which could push the market, which is in a weak balanced state, downward.
Market Supply
During the bull market, long-term holders gradually sold their BTC in batches, while short-term traders, attracted by the price, kept increasing their positions.
Since December, this trend of “from long to short” has continued until May when it reversed. This month, the overall long-term holders switched from selling to accumulating, increasing their BTC holdings by 93,400, while short-term traders began to reduce their positions and sold 38,200 BTC.
Long-term holders, short-term traders, CEX, miner holdings (EMC Labs chart)
In the first month after the halving of miners’ rewards, both block rewards and transaction fee income decreased, resulting in a significant reduction in income to $963 million (according to The Block). EMC Labs found that under the pressure of sharply reduced income, miners were forced to take two actions this month: selling the accumulated 6,000 BTC to the market and reducing mining power supply.
With the price decline, the Bitcoin network lost up to 28% of its computing power after reaching its peak on April 23.
Bitcoin Network Computing Power Statistics
Currently, the miner community holds 1.8 million BTC and has not conducted large-scale selling since the current bull market began. If the market experiences a decline in the future, the miner community may sell to maintain their operations, which could push the market, which is in a weak balanced state, downward.
Capital Flow
Since the start of this cycle, stablecoins have seen net inflows since October 2023, providing liquidity support for the market’s upward momentum. The inflow reached a record high in March and April, serving as an important force to absorb the liquidity impact caused by the large-scale realization of BTC profits (the other force being fiat funds from BTC ETF channels).
By May, with significant chip exchanges and intense market fluctuations, coupled with the delay in rate cuts, the inflow speed of stablecoin channels has significantly slowed down. EMC Labs statistics show that the inflow of stablecoin funds in May was only $341 million, much lower than the $8.9 billion and $7 billion in March and April respectively.
Major Stablecoin Supply Monthly Changes (EMC Labs chart)
In comparison, USDT had an inflow of $1.394 billion this month, while USDC saw an outflow of $973 million for the first time in five months, indicating that the trend in US stablecoin channels is more sensitive to changes than the Asian stablecoin channels.
5月11只BTC ETF Flows(SoSo Value制图)
EMC Labs observed the fiat funds in the ETF channel and found that out of the 22 trading days in May, there were outflows on 5 days and net inflows on 17 days, with a total net inflow of $1.905 billion for the month, far higher than the $341 million inflow in the stablecoin channel.
By the end of May, the 11 BTC ETFs in the US held assets totaling $58 billion, accounting for 4.32% of the total BTC supply of 8,522,560. They are becoming an important force influencing BTC prices.
Conclusion
In our April report, we concluded that the market had entered a continuation phase of the bull market, and the first wave of large-scale chip exchanges (March-April) had already occurred. In May, the buying and selling by long-term and short-term traders decreased significantly, indicating that the market supply had shifted from “short to long”. On-exchange BTC inventory returned to the outflow state, indicating that the BTC market had entered a weak balanced state after the excitement.
We maintain our judgment that there is a trend of capital shifting from BTC to ETH, and the “Ethereum time” will continue. The future trend of BTC depends on US macroeconomic data and the Federal Reserve’s market voice.
BTC, which is in a weak balanced state, does not require a large amount of capital to push it upward. Possible buying pressure comes from the ripple effect of the approval of ETH ETFs and the fiat funds in the BTC ETF channel. With its growing scale and synchronous rhythm with the Nasdaq, the fiat funds in the BTC ETF channel may become an independent force affecting BTC prices.
