Phyrex(aka Ni Da), an analyst who frequently analyzes the cryptocurrency market, released an article this morning stating that the recent data indeed indicates that the market is heading towards a bear market. However, he remains optimistic about the cryptocurrency market’s performance in the second half of the year. Let’s dive into the details.
In the past few months, the data has consistently shown that the market is moving closer to a bear market. The primary reason behind this is the continuous decline in liquidity. As the purchasing power in the market gradually decreases, the liquidity also decreases. There are two main reasons for the decline in purchasing power: the lack of new positive driving factors.
The first half of this year has seen several positive developments, including the emergence of spot ETFs, the Bitcoin halving, and three interest rate cuts in March. The financial reports in April and May were also robust. However, in the second half of the year, the only positive development that can be expected is the approval of an ETF for Ethereum, which is divided into two phases. Additionally, the expected interest rate cuts in June have been reduced from three times to once. The only remaining potential positive factor is the upcoming US presidential election. Therefore, when expectations decrease, a significant amount of capital will inevitably exit the market, leading to a decline in purchasing power. We should consider that if there were no approved spot ETFs, Bitcoin’s price might still be around $30,000. In that case, the current liquidity corresponding to $30,000 would be considered normal.
Analyzing Bitcoin’s on-chain data, even at 3 AM Beijing time, the turnover on the chain in the past 27 hours remains similar to when Bitcoin’s price was below $20,000 at the end of 2022. Interestingly, this period coincided with the speculation about when the Federal Reserve would enter the phase of pausing interest rate hikes. It was announced at the end of 2022, and the market gradually started to strengthen in early 2023. Therefore, these two stages are very similar.
However, the decrease in liquidity does not necessarily mean that prices will decline. In fact, a significant part of Bitcoin’s drop to $16,000 is attributed to Luna and FTX. Actual negative news will cause massive panic selling. Therefore, even though the data has returned to the end of 2022, there are still very few participants involved in the turnover. Most people are still speculating on Bitcoin’s halving cycle, Federal Reserve interest rate cuts, and the US presidential election.
Looking at the exchange inventory, it slightly decreased yesterday, but today’s liquidity shortage has increased Bitcoin’s inventory on exchanges. Currently, it is about 14,000 BTC higher than the lowest inventory level in the past six years. It has been a whole week, and it has not been digested yet. This is the current pressure.
What can we expect for the second half of the year? The data indeed indicates a bear market, but a bear market in data does not mean a complete bear market in prices, especially for Bitcoin and Ethereum. On the one hand, they have the support of spot ETFs (anticipated for Ethereum), which drives fund purchases. Looking at Bitcoin’s data, over 900,000 BTC has already been bought. Considering that the market’s liquidity is about 3.3 million BTC, this accounts for over 27%.
In simple terms, if this 27% is still participating in the market turnover, Bitcoin’s price would not be hovering around $64,000. Therefore, as long as this portion of chips is not sold due to panic, the market will be relieved of 27% of selling pressure. It is worth noting that these investors did not panic even when the price was at $56,000.
Additionally, long-term investors holding for more than six months have seen gains in the past three months. This indicates that as the price fluctuates around $65,000, more holders are not panicking but holding on. These investors are not ETF holders, as the ETFs have been around for less than six months. Therefore, these investors are real market participants, which aligns with our recent turnover data.
Furthermore, positive factors for the second half of the year include the effects of the halving cycle and the anticipation of interest rate cuts. Moreover, the upcoming US presidential election, if the Republican Party takes office, would be favorable for the cryptocurrency market. Lastly, the FASB at the end of the year allows listed companies to use fair prices of BTC and ETH in their financial statements. Therefore, I maintain the view that there might be opportunities in the fourth quarter.
However, the explosive potential in the fourth quarter depends on whether it is based on $80,000, $70,000, $60,000, $50,000, or $40,000. Who knows? The results will be completely different.
Related Articles
Bank of Japan may sell $450 billion worth of US bonds! Arthur Hayes: Will accelerate the new cryptocurrency bull market
Learning from the “bear market investment”: Identifying the best opportunities and utilizing the additional value of the bull market
How does the current development of NFTs and Memecoins differ from the previous bull market?
