Market analysis with Mike Ermolaev
In this 26th edition of GoMarket Weekly, Mike Ermolaev, our resident crypto expert, takes us through another week for Bitcoin and its peers in the markets. In this report, we're about to uncover the surprisingly complex interplay between holding behaviors of Bitcoin owners, CEX liquidation data and Ethereum's pulse. Regulatory news and adoption breakthroughs are regularly resetting the trajectory of the digital asset market – and we're going to examine these latest developments as well.
Bitcoin's Trading Range and Market Outlook
This past week, Bitcoin's price fluctuated between $56,004 – $59,804, reflecting the continued volatility in the market. Historically, September tends to be a challenging month for Bitcoin and other asset classes. However, there's good news on the horizon—typically, the market has bounced back strongly after September, with Bitcoin often showing robust performance in the subsequent months. Year-to-date, Bitcoin has returned an average of 31.88%, signaling resilience despite external market pressures.
The Erosion of CEX Liquidation Data Transparency - A Misleading Market Picture
A notable development comes from a K33 Research analyst, who has cast doubt on the accuracy of liquidation data provided by centralized crypto exchanges. According to analyst platforms like Binance, Bybit, and OKX have altered their WebSocket APIs to report only one liquidation per second, which significantly underrepresents actual market activity. For instance, Binance and Bybit implemented this change in 2021 under the guise of optimizing user data streams, while OKX follows a similar practice, resulting in a vast underreporting of liquidation volumes. The report suggests this is a PR strategy to avoid deterring traders by reducing the visibility of large liquidation events, which could create the perception of excessive risk.
Source: X
With market volatility in flux, Lunde notes that liquidation data, once a reliable gauge of risk appetite, now falls short in delivering useful insights. Instead, Lunde recommends monitoring open interest changes relative to the previous day as a better metric to gauge market de-leveraging. However, even this approach has limitations, as it doesn't account for traders opening new positions during volatile periods. Ultimately, Lunde concludes that the current liquidation data is more for "entertainment" than serious market analysis, underscoring the need for a return to greater transparency.
Source: CoinGlass
Institutional Outflows, Labor Market Slowdown, and Rising Rate Cut Expectations
According to CoinShares, the past week saw a net outflow of $305 million from digital asset investment products. Institutional investors' expectations for a 50-basis-point interest rate reduction by the Federal Reserve this September seem to be slipping away.
However, new U.S. job data revealed weakening in the labor market. In July, job openings in the US decreased more than anticipated, signaling a continued decline in demand for workers as the labor market cools down. According to the latest data from the Bureau of Labor Statistics, the number of available jobs dropped for the second month in a row, falling to 7.67 million from 7.91 million in June. This marks the lowest level of job openings since January 2021.
Retail investors have reacted by increasingly betting on a rate cut. According to the latest Polymarket data, retail investors overwhelmingly expect the Federal Reserve to cut interest rates in September 2024, with 64% of bets predicting a 25 basis point decrease and 33% anticipating a more significant cut of 50 or more basis points. Only 3% of participants believe the Fed will keep rates unchanged, while less than 1% are betting on a rate increase.
Source: Polymarket
Short-Term Bitcoin Holders Face Losses, Pressuring Market Stability
Glassnode's latest report highlights that while the broader Bitcoin market remains relatively stable, short-term holders (STH) are facing substantial unrealized losses, making them the most vulnerable group in the current market conditions. Although the average BTC investor holds smaller unrealized losses compared to previous cycles, STHs are bearing the brunt of recent price stagnation, particularly with the STH-MVRV ratio falling below the critical breakeven point of 1.0. This indicates that most new investors are sitting on losses, with the average cost basis for STHs ranging from $59.0k to $65.2k, depending on when the positions were opened. As the spot price remains below these levels, STHs are expected to exert sell-side pressure if market conditions worsen. Despite this, the total unrealized losses for the broader market remain low at 2.9% of Bitcoin's market cap, suggesting that long-term investors are still in a relatively favorable position.
Source: Glassnode
The report also reveals that profit-taking activities have been remarkably light, with the Sell-Side Risk Ratio indicating that most coins being transacted are near their original acquisition price. This suggests a degree of equilibrium in the market but also hints at the potential for heightened volatility. Historically, low Sell-Side Risk Ratio values have preceded periods of increased market turbulence. In particular, current market dynamics resemble the choppy conditions of 2019 rather than full-scale bear market scenarios. Despite these risks, Bitcoin's current price action, which is around 22% below its all-time high, is still considered a shallow drawdown compared to previous cycles. However, the $51k level remains a critical support zone that must hold to prevent further downside risks.
Bitcoin's Historical October Gains Suggest Potential Opportunity
QCP Capital has advised accumulating Bitcoin ahead of potential gains in October or later in the year. Historically, the first month of fall has been negative for most asset classes, including Bitcoin. However, October has consistently delivered, with Bitcoin posting an average gain of 22.9% in eight of the last nine years. This trend, coupled with current market conditions, suggests an attractive opportunity for those looking to capitalize on Bitcoin's long-term upward trajectory.
If this seasonal pattern holds true for 2024, September presents an ideal time to accumulate Bitcoin during potential dips, ahead of a rally expected in October or potential upside leading into key events like the U.S. election.
Ethereum Faces Inflation Concerns Amid BLOB Object Introduction and Layer 2 Imbalance
In the Ethereum network, the recent introduction of BLOB objects following the Dencun hard fork has sparked inflation concerns. The community is now debating ways to restore the pre-fork burn rate of ETH, including increasing transaction fees for BLOB utilization. The core issue lies in the relationship between Ethereum Layer 1 (L1) and its Layer 2 (L2) networks, which is currently seen as imbalanced. L2s benefit from Ethereum's security but contribute little to the burning of ETH, as the cost for Data Availability (DA) blobs — used primarily by L2s — is nearly zero. Before the EIP-4844 upgrade, L2s were the largest consumers of gas on Ethereum, driving significant deflationary pressure. Now, with minimal fees for blobs and lower execution activity on L1, ETH has become inflationary again.
To address this, two potential solutions are being discussed within the community. The first is to increase the base fees for DA blobs, ensuring that L2s pay more for the security they derive from Ethereum. While some argue this might push L2s toward alternative DA solutions, proponents believe those that truly value Ethereum's security will be willing to pay the higher costs. The second approach is to drive greater usage of L2s, which would naturally increase demand for DA blobs and gas consumption on Ethereum L1. This could be achieved by fostering more consumer-facing applications that leverage L2 blockspace, creating a scenario where blob fees rise organically, leading to a healthier ETH burn rate. Both strategies aim to restore balance and address Ethereum's current inflationary trend.
Source: X
Meanwhile, Vitalik Buterin has introduced a proposal to improve the efficiency of the Ethereum Virtual Machine (EVM) using a "glue and coprocessor" architecture. This model separates computations into two parts: complex business logic that requires high generality but low efficiency, and structured, resource-intensive tasks that benefit from specialized, highly efficient modules. By applying this approach, tasks like storage reads, writes, and cryptographic operations—typically responsible for the majority of gas consumption—can be handled more efficiently. This strategy mirrors practices seen in artificial intelligence and cryptography, where highly optimized modules perform the bulk of the computational work, leaving general-purpose logic to be handled by less efficient but more flexible layers.
Source: Vitalik.eth.limo
SEC's Potential Challenge to FTX Repayments and Growing Crypto Adoption in U.S. Politics
On the regulatory front, the SEC recently told the U.S. Bankruptcy Court in Delaware that it reserves the right to challenge the use of stablecoins for creditor payments in the ongoing FTX bankruptcy case. While the agency hasn't explicitly declared such transactions illegal, it highlighted concerns about stablecoin-denominated repayments. The SEC's Aug. 30 filing emphasized that even though creditor repayments using U.S. dollar-pegged stablecoins may not breach federal securities laws, the regulator still “reserves its rights” to challenge any transactions involving crypto assets, particularly stablecoins.
FTX, following its collapse in November 2022, has explored multiple methods to repay creditors, including plans to distribute funds either in cash or stablecoins, pegged to the U.S. dollar value of assets at the time of bankruptcy. However, the SEC's stance has drawn criticism from figures in the crypto space, including Galaxy Digital's Alex Thorn and Coinbase's Chief Legal Officer, Paul Grewal, who called the SEC's actions an example of “jurisdictional overreach.” Thorn specifically criticized the regulator for continuing to treat stablecoins as potential “crypto asset securities,” despite having dropped a similar case against Paxos, the issuer of Binance USD (BUSD), in July.
Meanwhile, in a sign of growing crypto adoption, U.S. Democratic presidential nominee Kamala Harris is now accepting cryptocurrency donations through Coinbase Commerce, according to Coinbase CFO Alesia Haas. During a conversation at Citi's 2024 Global TMT Conference, Haas confirmed that Harris's super PAC, Future Forward, has onboarded with Coinbase Commerce to enable crypto donations for her campaign. This marks a notable milestone, as both major U.S. political candidates are now incorporating Bitcoin into their fundraising efforts. However, Harris's official campaign has yet to publicly confirm this integration, and her fundraising site does not currently show the crypto donation option.
Closing Thoughts
In conclusion, GoMarket Weekly #26 highlights the essentials of Bitcoin price cycle history, regulatory clarity, and emerging technical configurations that define the crypto space. From Bitcoin's unrealized losses among short-term holders to concerns about the accuracy of CEX liquidation data, crypto continues to be a complex market. With BLOB objects entering the scene, Ethereum is confronting a significant challenge of inflation. Furthermore, the SEC's stablecoin repayment scrutiny is fueling regulatory uncertainty. Despite these hurdles, the growing acceptance of cryptocurrencies in the U.S is not a passing phase – political campaigns are proof that digital assets are here to stay, with more and more people getting on board.
