Market analysis with Mike Ermolaev
In this week's GoMarket Weekly, our resident crypto market expert Mike Ermolaev maps the subtle shifts in macroeconomic trends that resurface in Bitcoin's ecosystem. With U.S. CPI data looking strong and no major macro data on the horizon, various experts are now sharing their forecasts for the months ahead. Bitcoin isn't the only topic we'll be focusing on in this edition – we'll also be looking at stablecoins and regulatory changes that might impact the market. Besides, we'll examine how the U.S. presidential election is affecting sentiment in the market. Let's GoMarket!
U.S. CPI and Fed Rate Cut Expectations
The latest U.S. CPI report came in as expected, with core inflation edging up to 0.3% month-on-month, slightly above the 0.2% forecast. With the figure coming in at as expected, the odds of a Fed rate cut increased. According to the current target rate probabilities for the upcoming September 2024 Fed meeting, there is a 41% chance that the rate will be lowered to the 475-500 basis points (bps) range, while there is a 59% probability that the rate will fall to the 500-525 bps range. This indicates that while markets are heavily favoring a slight rate cut as reduced interest rates often lead to greater risk-taking, benefiting high-risk assets like Bitcoin, there is still considerable uncertainty around how aggressive the Fed might be in its easing policy.
Bitcoin's Rebound and Market Sentiment
Over the past seven days, Bitcoin has traded within a range of $53,304 to $58,386. The original cryptocurrency has made a solid recovery to the $58,000 threshold, creating a bullish sentiment among market experts.
Thus, analysts at LookOnChain have noted a direct correlation between U.S. inflation trends and Bitcoin price movements. As per the on-chain analytics firm, there is a notable pattern where Bitcoin's price tends to rise as inflation trends show signs of cooling. Throughout 2022 and into 2023, as inflation peaked around 9%, Bitcoin struggled to maintain momentum. However, as inflation gradually declined, particularly during the latter half of 2023, Bitcoin saw a significant rebound, with its price nearing $70,000 at one point.
Source: X
According to Bitwise CIO Matt Hougan, the potential end of macroeconomic and political uncertainty in the United States could lead to a significant rally for Bitcoin in Q4. However, September has historically been a difficult month for Bitcoin, with average price declines of around 4.5%. As Bitwise CIO Matt Hougan explains, this is part of the “back-to-school blues” that tends to impact high-risk assets. In fact, Bitcoin has recorded negative returns in nine out of the 13 Septembers since it started trading in 2010.
Source: Bitwiseinvestments.com
Several factors are believed to contribute to this "September Effect." One explanation is that September has historically been a tough month for all risk assets, with the Nasdaq-100 typically underperforming during this period as well. Additionally, the SEC's enforcement calendar, which concludes in September, often results in heightened regulatory actions against the crypto market, as seen with recent settlements and lawsuits. For the last reason, cautious sentiment is spreading among traders and investors, who're bracing themselves for a rough ride this month and adjust their positions accordingly. Despite these challenges, the outlook improves significantly as the market moves into October (nicknamed “Uptober”) and November, months that have historically been strong for Bitcoin, with average gains of around 30%.
Declining Investor Activity and Low Volatility Signal a Low-Risk Environment
Options activity reflects this positive sentiment, with QCP Capital observing increased demand for call options expiring in October through December. According to analysts, Bitcoin volatility dropped by 12 points this week, driven by the CPI release and the U.S. presidential debate. With no major macroeconomic events on the immediate horizon, volatility is expected to decline further ahead of the upcoming FOMC meeting.
Meanwhile, according to Glassnode analysts, there's been a sharp decline in speculative trading volume on major exchanges, signaling a calmer market climate. This suggests a decreased appetite for speculation among investors, as evidenced by the 30-day moving average of exchange inflows and outflows falling well below the yearly trend.
Source: Glassnode
Spot trade volumes have also decayed, and the Cumulative Volume Delta (CVD) metric shows increasing sell pressure over the past 90 days, contributing to the downward price action. Overall, the market sentiment remains relatively low-risk according to the sentiment heatmap, with diminishing sell volume and gradually declining price action.
Source: Glassnode
Strong Confidence Among Bitcoin Miners
Additionally, the bullish sentiment among Bitcoin miners is palpable. On September 10th, the required hashrate to produce a block surged to 338,000 EH, marking the second-highest level in Bitcoin's history, according to Glassnode. The 14-day moving average of the hashrate reached 666.4 EH/s, just 1% shy of an all-time high (ATH), further underscoring the significant capital investment miners are making in new ASIC hardware.
Despite declining revenues (block subsidies providing $824 million and transaction fees contributing $20 million), miners have transitioned from net sellers to retaining a portion of newly mined Bitcoin, further emphasizing their long-term conviction in the asset.
Source: Glassnode
USDT Surge, Retail Investor Growth, and Tether-TRON Financial Crime Unit Formation
On the stablecoins front, since August, the volume of USDT on crypto exchanges has surged, following several months of relative stagnation from March to July. CryptoQuant analysts have observed a notable shift, with retail investors (holding $1,000 to $10,000) increasing their balances, while larger holders remain relatively unchanged. Increasingly, the influence of smaller investors in the stablecoin market grows, a clear indication of their heightened engagement.
Source: CryptoQuant
In another significant development, joining forces, Tether, TRON, and TRM Labs have announced the formation of the T3 Financial Crime Unit, tackling illicit activities centered around USDT on the TRON blockchain. In the weeks since its inception, the T3 FCU has already frozen over $12 million USDT tied to criminal schemes.
Surge in Crypto Adoption Driven by Asia and Stablecoins
A significant surge in global crypto adoption has been documented by Chainalysis, with the fourth quarter of 2023 seeing a massive spike in transaction volumes that surpassed even the unprecedented levels of 2021. The launch of Bitcoin ETFs in the U.S. and the rapid rise in stablecoins, particularly in countries with limited financial resources, is significantly driving this growth. According to the 2024 Global Crypto Adoption Index, Central and Southern Asia and Oceania (CSAO) lead the way in crypto adoption, with India ranking first overall, followed by Nigeria and Indonesia. The CSAO region is notable for its high levels of activity on local exchanges, use of merchant services, and participation in decentralized finance (DeFi).
Between Q4 2023 and Q1 2024, global crypto activity surged, driven by countries across all income brackets. Lower-middle-income countries, particularly in Sub-Saharan Africa and Latin America, saw a significant increase in stablecoin use for real-world transactions, while institutional-sized Bitcoin transfers grew markedly in higher-income regions like North America and Western Europe. A dramatic spike in DeFi activity electrified Sub-Saharan Africa, Latin America, and Eastern Europe, triggering a tidal wave of altcoin investment in these regions.
Source: Chainanalysis
FBI Reports 45% Surge in Crypto Fraud Losses for 2023
However, alongside this increased adoption comes rising concern over crypto-related fraud. The FBI's 2023 Cryptocurrency Fraud Report shows a 45% increase in losses due to crypto scams, amounting to $5.6 billion, with seniors over 60 being the most frequent victims, suffering losses totaling $1.65 billion. The report highlights that cryptocurrency investment fraud is the most common scam, accounting for nearly 71% of all crypto-related losses, with confidence-enabled fraud schemes being particularly prominent. Criminals often use dating apps, social media, and messaging platforms to build trust with victims before persuading them to invest in fraudulent crypto schemes, which leads to devastating financial losses.
U.S. Debate Disappoints on Crypto, Harris Gains Support, Trump Win Could Boost Bitcoin
Crypto market watchers were left underwhelmed by the U.S. presidential debate, where both candidates skirted the issue of economic and crypto policy, failing to provide a clear stance. Despite the lack of concrete policy discussion, it appears Kamala Harris came out on top in public opinion. According to a CNN poll conducted by SSRS, registered voters broadly agreed that Harris outperformed Donald Trump, leaving him notably flustered by her remarks. This shift in perception was reflected in online betting markets, where Harris' odds of winning the election increased to 50%, compared to Trump's 49%.
Source: Polymarket
From an investment perspective, analysts at Bernstein predict that if Donald Trump wins the election, Bitcoin could surge to $90,000 by the end of the year. On the contrary, Harris is seen as a less favorable outcome for the market.
SEC Investigated for Hiring Practices, UK to Classify Cryptocurrencies as Property
In the U.S., House Republicans have launched an investigation into the Securities and Exchange Commission (SEC), with suspicions arising that the agency is engaging in politically motivated hiring practices. Lawmakers on the House Judiciary Committee, joined by their colleagues on other panels, are voicing concerns about possible missteps that could be in breach of the 1978 Civil Service Reform Act. A key example cited in the investigation involves the hiring of Dr. Haoxiang Zhu as SEC Director of Trading and Markets, where political affiliation may have influenced the decision. An email from Dr. Zhu to SEC Chair Gary Gensler affirmed his political alignment, which has sparked scrutiny. In the spotlight now is the SEC's hiring process, with lawmakers clamoring for transparency around political affiliations.
Source: Judiciary.house.gov
In the UK, the newly introduced Property (Digital Assets etc) Bill aims to classify digital assets like Bitcoin, NFTs, and carbon credits as personal property, providing greater legal protection for owners.
This is the first time such assets will be recognized under English and Welsh property law, addressing previous legal ambiguity. In response to the Law Commission's 2023 findings, a new bill promises to bring order to the previously unregulated realm of digital assets in court. With the UK's £34 billion legal services market hanging in the balance, Justice Minister Heidi Alexander insisted that this legislation updates the law to account for the latest technological advancements.
Closing Thoughts
This week in GoMarket Weekly, Bitcoin takes center stage as it makes a comeback, with its price dynamics responding to the economic inflation rate swings. As we head into Q4 2023, the potential for a Fed rate cut and the impact of the U.S. presidential election inject an element of unpredictability into investors' plans. Still, Bitcoin's future looks promising, with miners feeling confident. With the market in a relatively low-risk environment, investors are keeping a close eye on October and November, months that have historically been strong for Bitcoin. Join us next time when Mike will share more of his insight into the major shifts transforming the crypto market.
