Markets
Is the bear market back? The data says yes
The research contradicts the consensus view that ETFs, Bitcoin halving, and Fed policy were behind the asset’s price action.
In 2024, the consensus in crypto is that The price of Bitcoin was primarily influenced by the emergence of Bitcoin ETFs, the protocol halving, and the Fed’s monetary policy, but data shows otherwise.
According to research from André Dragoschhead of research at ETC Group, more than 80% of the asset’s price movement can be explained by changes in global growth expectations over the past six months.
Bitcoin Macro Correlation
Another key observation from Dragosch is that global crypto hedge funds have reduced their exposure to BTC to the lowest level since October 2020. This “significant reduction in net long exposure,” he said, coincides with an acceleration in net outflows from global exchange-traded crypto products. (AND P).
For example, CoinShares reported that capital outflows from institutions over the past week reached a record high. the enormous sum of 600 million dollars. This, however, comes after five consecutive weeks of net buying by large entities.
What is the end result? “Due to increased macroeconomic risks, and recession risks in the United States in particular, Bitcoin and cryptocurrencies could face further declines in the near term,” Dragosch told The Defiant.
Macroeconomic outlook looks bleak
According to Dragosch, the macroeconomic environment does not appear convincing.
He explained that, in general, U.S. economic data has continued to fall short of market expectations, and the market is now catching up to what he calls “this worst reality in macroeconomic data.” Dragosch added that Bloomberg’s “surprise index,” which measures whether market participants are more optimistic or pessimistic about the real economy than the data indicates, is at its lowest level since 2019 .
In other words, pessimism is at its highest level in five years.
Additionally, a report by the U.S. House of Representatives Budget Committee shows that fears of a looming recession continue to grow as consumer confidence continues to decline for the second straight month.
The report shows that the expectations index – based on consumers’ short-term outlook for income, business and labor market conditions – is below 80, a level that suggests a recession is looming. come.
For riskier assets like cryptocurrencies, this type of sentiment could dampen crypto investors’ drive to return to the upward trajectory the market has seen since the launch of Bitcoin ETFs on January 11.
Angel investor Jason Choi echoes this bearish sentiment. On June 21, Choi explain on Twitter that his investment firm, Tangent, had liquidated all of its ETH positions and taken a “defensive stance” in the market.
According to Choi, we are back in the beginnings of a bear market – which he describes as a general three-month downtrend, absence of new highs and decreasing volatility – and crypto is “at the mercy of influences macro”.
Others point the finger at the Fed
James Butterfill, head of research at CoinShares, disagrees with Dragosch.
Butterfill, who writes a weekly institutional report, told The Defiant that the lack of price appreciation was actually due to the Fed. “It remains stubbornly hawkish,” which appears to offset potential gains from capital inflows, he said. He expects the Fed to cut interest rates by 50 basis points instead of 25. In other words, “the Fed is reacting late,” Butterfill said.
In the meantime, and despite all the macroeconomic factors highlighted by Dragosch, Bitcoin prices will remain limited.
Expect “chopsolidation”
As the summer months approach, investors should prepare for mostly sideways volatility, sprinkled with new downsides.
“The “consolidation” fits perfectly with the standard seasonality of BTC: below-average returns in June, July, August and especially September; above-average performance in the fourth quarter towards the end of the year,” Dragosch said.
But while Dragosch may come off as a bear, he has a positive outlook for the rest of the year. He points to three main reasons: The halving effect, which typically moves the needle around the 100-day mark. After it takes place and the possible re-election of Donald Trump. Trump was decidedly pro-crypto on the campaign trail, which could translate into a bright future for crypto investors.
Finally, he highlighted the likely continuation of inflows into Bitcoin ETFs and the imminent launch of Ethereum AND F. Although Dragosch predicts that ETH ETFs will receive only 12.5% of the flows attracted by Bitcoin instruments – he bases his figure on the predictions of Bloomberg ETF expert Eric Balchunas – he believes that this should also influence positively the price.
Important sales context
As 2024 got off to a hot start, enthusiasm for ETFs has waned, at least in terms of price appreciation.
According to Coin Shares, May and June were marked by a significant degree of accumulation on the part of large entities. But that hasn’t translated into the kind of price surge we saw earlier in the year, when Bitcoin hit an all-time high of $73,000, pulling the broader market higher.
Instead, net buying volumes on spot exchanges have turned negative, implying significant selling in the background. As data from ETC Group and Glassnode show, intraday spot purchases of Bitcoin have turned negative in recent months and have been trending downward.
Butterfill points out that while large entities have sold short, likely due to the FOMC, year-to-date net inflows for ETFs remain at all-time highs of $15.6 billion. Some of the best Bitcoin ETFs generate the majority of capital flows into the institutions that provide the instrument.
Still, Dragosch is tentatively optimistic. “I am a little cautious in the short term due to increasing macroeconomic risks and declining risk appetite, but I remain very optimistic in the medium and long term,” he concluded.