Bitcoin Market analysis — June 13th-19th

It was a week to remember for all the wrong reasons across crypto markets last week. Bitcoin, the world’s most popular cryptocurrency, led the dip by falling to pre-2021 price levels, creating a sense of panic among the industry. There has been a lot of negative macro economic news developing over the past couple of weeks, and the most significant impacts so far were felt in the week just passed. If you want a detailed understanding of just how the Bitcoin market came to fall as much as it did in the week that passed, look no further.

What Happened Last Week?

The price of Bitcoin accelerated downwards, mainly affected by two factors: first, the constantly tightening monetary environment at the macro level; second, the number of institutions that were forced liquidated.

The tightening monetary environment appears to have aggravated the reduction of market liquidity, and the worsening of U.S inflation data depressing investor confidence. For the foreseeable months ahead, interest rate hikes and a focus on the reduction of the balance sheet will stil;

Many institutions have been liquidated, and some smaller exchanges have faced problems opening their withdrawal services. This triggered on-chain liquidation and price liquidation in the secondary market, which negatively impacted the price of Bitcoin further.

In the external macro environment, U.S inflation data still exceeds market expectations, and inflation is unlikely to be contained in the short term. To that end, there are signs of it gradually getting out of control. It is highly probable that the Federal Reserve will raise interest rates by 50 basis points at each of their next two meetings, and it cannot be ruled out that there will be a few FOMC meetings that will raise interest rates by 75 basis points. In the short term, inflation remains the main upward pressure on risk assets.

From June 12 to June 19, the balance of BTC in its exchange decreased from 2.49 million to 2.41 million, and the net withdrawal of coins in a single week was more than 80,000, among which the net withdrawal of coins in a single day on June 17 was more than 50,000. The increase in coin withdrawals is mainly related to the recent wave of coin withdrawals caused by large-scale movements as a consequence of on-chain liquidation, and negative news coming from some small exchanges.

We believe that it is difficult for funds to return to an optimistic situation in the short term, and we need to keep watching. However, the chain data also reflects that most of the current long-term holders still choose to sell with small amounts, and only a small number of long-term holders were forced liquidated. The current market price has fallen into the shutdown price area; historically, the shutdown price area is usually the market surrender bottom.

A word on the US market…

In last week’s report, we noted that the next few U.S inflation reports will determine whether the pace of tightening will slow down. According to the latest U.S inflation data, the upward trend in inflation is still not effectively contained. The latest economic forecasts from the New York Fed’s DSGE model suggest there is only a 10% chance of U.S successfully “soft landing” — a soft landing is defined as positive GDP growth in four out of 10 quarters.

The model is much more pessimistic than it was in March. The New York Fed expects the U.S. core PCE index to remain high at 3.8% in 2022, up a full percentage point from its March forecast, and gradually decline to 2% thereafter (2.5% in 2023 and 2.1% in 2024). Specifically, the model also predicts modest negative GDP growth in both 2022 and 2023, at -0.6% in 2022 and -0.5% in 2023, compared with 0.9% and 1.2% respectively in March.

The New York Fed said the recent change in its forecasts for GDP growth and the core PCE index reflected two factors: first, the continuation of cost shocks since early 2021, resulting in higher inflation expectations and a decline in output growth expectations; The second factor is tightening monetary policy in 2022 and 2023, with the Fed funds rate on a much steeper course over the next year and a half than forecast in March. Fears of a recession have sent stocks tumbling, as the Federal Reserve tightens monetary policy more aggressively to curb inflation. The S&P 500 fell 5.8% this week, marking the index’s biggest weekly decline since March 2020, as the Fed announced a faster pace of interest rate hikes on Wednesday, while cryptocurrency markets accelerated their losses following recent U.S inflation data.

At a press conference this week, Jerome Powell noted that the Fed will remain strongly in anchoring its inflation target at 2%. The Fed is highly concerned about the risks of high inflation, and is strongly committed to bringing it down, stating that Fed policy has been adapting and will continue to do so. This means that monetary tightening will remain oppressive in the near term, which is generally negative for risk assets.

Fundamentals:

Exchanges have seen a surge in bitcoin withdrawals in the past week. From June 12 to June 19, the balance of BTC in the exchange decreased from 2.49 million to 2.41 million, and the net withdrawal of coins in a single week was more than 80,000 — among which the net withdrawal of coins in a single day on June 17 was more than 50,000. The increase in coin withdrawals is mainly related to the recent wave of coin withdrawals caused by large-scale movement due to on-chain liquidation and negative news from some small exchanges.

After hitting a new high of 65.7% in early June, bitcoins held for more than a year have continued to decline. As of the date of issue of this report, the value was 64.97%, indicating that some long-term holders could not tolerate the price decline and started to move bitcoins recently, and may even have sold bitcoins.

Nearly two-thirds of bitcoins that have been held for more than a year have not moved. Such a large number of remaining bitcoin positions indicates that long-term investors are still confident in the market, or are at least holding out for brighter days ahead. Although some long-term holders have transferred or sold their positions, most long-term investors have little willingness to sell their chips at current prices.

There are a lot of bitcoins in dormancy, which means a lot of bitcoins are not actually in circulation, so the flow index of dormant bitcoins held by entities is at a new low. When large amounts of Bitcoin are not moved on chain the chain or traded on exchanges, it means that most of the coins are held by long-term holders, which makes the market even scarcer for tradeable chips. While the fall in bitcoin’s price has been volatile, it is still dominated by chips held by short-term traders and some long-term holders, which account for a small percentage of the total number of coins in circulation. Therefore, as long as the market digests some of the selling pressure and puts it into a “cold storage” state, the market chip structure will be more unbalanced, which will lay a solid supply and demand foundation for the future bull market.

Looking ahead, optimism remains limited among the market. A significant fear index grips traders, and this won’t shift anytime soon. If we are looking for positives, trends show that Bitcoin is significantly undervalued, and this may present an opportunity for traders looking to take advantage of vastly reduced prices. All eyes remain on the United States for further economic developments before the market will take its lead.

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