Original title: "EMC Labs June Report: The high interest rate environment of the US dollar is about to end, and BTC will most likely start the autumn market"

Original author: 0xWeilan, EMC Labs

After the new crown crisis, the "story" that the United States used the status of the US dollar as the world's largest reserve currency to harvest other economies in the form of "dollar tide" seems to be becoming a reality. All economies are under pressure, and the exchange rate of the Japanese yen against the US dollar has fallen to a low level in 1986.

——On June 5, Canada cut interest rates, and on June 6, the euro cut interest rates. Why hasn't the Federal Reserve cut interest rates yet?

——Because only the Japanese yen exchange rate has collapsed, it is not full yet.

Europe can't hold on, Canada can't hold on, only the United States can hold on. The continued rise of the US dollar index has caused huge pressure on the equity market.

Under the huge pressure of macro-finance, the crypto asset market ended the rebound in May and fell 7.12% in June, continuing the deep consolidation after BTC hit a record high. This consolidation has lasted for nearly 4 months. There are few sectors in the entire crypto market that have gone out of independent market conditions.

Although the inflow of stablecoins on the capital side has recovered to 856 million US dollars compared with May, it still remains at a low level. The ETF channel funds are 641 million, far lower than 1.9 billion last month.

There is a two-level differentiation in on-chain activities. On the one hand, BTC data continues to deteriorate, and on the other hand, public chains such as Ethereum and Solana are still active. These data make people believe that the bull market is still there and the blood is not cold.

Macro Finance

On June 12, the US released the May CPI, which fell by another percentage point from April to 3.3%, lower than the expected value of 3.4%. So far, the US CPI has fallen for two consecutive months in a high interest rate environment. At the same time, the PMI data on the corporate side fell from 49.2% to 48.7%, accelerating the contraction, which also provided support for the downward trend of CPI.

The downward trend of economic data exceeded market expectations, increased expectations for interest rate cuts, and caused the Nasdaq to continue to price in expectations for interest rate cuts. In the end, the Nasdaq closed up 5.69% in June, achieving two consecutive months of gains. Although the S&P 500 index did not hit a record high as strong as the Nasdaq, it also maintained a monthly upward trend.

In June 1111, the Nasdaq rose 5.96%, setting a new record high

The new non-farm payrolls data released on June 7th greatly exceeded the forecast (182,000), reaching 272,000. The market pointed out that there were major problems with the statistical caliber of this data, and there was a suspicion of suppressing expectations of interest rate cuts.

The market is choosing the direction it is willing to believe, such as interest rate cuts. There is still money betting on two interest rate cuts in 2024 in the interest rate swap market. UBS claims that the market underestimates the extent of this round of interest rate cuts and even predicts that the "first cut" will still be in September. Against the backdrop of the US dollar index breaking through 106, the Nasdaq continues to hit new highs, which is these long funds betting based on their own judgment.

The "hawkish" remarks released by the US government and the Federal Reserve in June may have reached the largest dose since the beginning of this year. US Treasury Secretary Yellen said that "there is no sign that the United States is about to enter a recession", while Federal Reserve Board member Bowman emphasized that "inflation still has upside risks, and there may be no interest rate cuts in 2024."

Although CPI has been declining for two consecutive months, the strong employment data allows the Fed to buy more time to maintain high interest rates and wait for CPI to approach 2%.

The high interest rate environment of the US dollar has put tremendous pressure on the global capital market, and the crypto market is no exception.

EMC Labs believes that as BTC hits a record high, some investors continue to sell to lock in profits, and the high US dollar interest rate has greatly reduced the funds flowing into the crypto asset market, ultimately resulting in the inability of selling pressure to be absorbed by sufficient buying power. This is the fundamental reason why the current crypto market cannot effectively break through and even constantly challenges the lower edge of the adjustment box.

Crypto Market

In June, BTC opened at $67473.07 and closed at $62668.26, down $4804.15 or 7.12% for the whole month, with an amplitude of 20.10%, and the trading volume has shrunk for 3 consecutive months.

BTC Monthly Trend

In June, BTC diverged from the Nasdaq trend. Against the backdrop of a strong rise of 5.69% in the Nasdaq, it fell 7.12% for the whole month, losing most of the rebound in May.

Technically, affected by the news of BTC distribution by Mt.Gox exchange and the German government selling BTC, the BTC price retraced the upward trend line since October last year on June 24 and bottomed out. On the same day, the BTC price also completed the retracement of the lower edge of the new high consolidation range (that is, $58,000). The support of these two technical trend lines is relatively strong. After that, the BTC price rebounded to above $63,000. There is no short-term risk, but the mid-line is still confused.

BTC daily trend

Affected by the expectation that the ETF will be approved soon, ETH's trend is slightly stronger than BTC. This month, the ETH/BTC trading pair basically preserved the results of ETH's rebound in May and did not give up significantly, indicating that the industry capital in the market is still betting on the online trading of ETH ETF.

ETH/BTC trading pair basically preserved the results of ETH's rebound in May

ETH ETF is likely to be approved for trading in July. However, in the current context of severe shortage of funds, once the good news is realized, ETH may face greater selling pressure in a short period of time. After the official trading, can ETH ETF bring a considerable net inflow of funds like BTC ETF? At present, it is not optimistic.

Capital Flow

The bull market is first and foremost a capital phenomenon.

Based on the source of funds, we can divide the trend of BTC since last year into 4 stages -

2023.01~2024.06 BTC market in 4 stages

2023.01~09: Net outflow of stablecoins, buying power comes from the top-escaping funds in the market to cover positions, BTC price rose from 16,000 to 32,000 US dollars;

2023.10~2024.01: Driven by the approval of BTC ETF and the expectation of production cuts, the net inflow of stablecoins turned positive, and then continued to rise, pushing the BTC price from 32,000 US dollars to 49,000. USD;

2024.02~04: After the withdrawal of speculative funds approved by BTC ETF, the ETF channel fiat currency funds and stablecoin channel funds continued to flow in, pushing BTC to a new high of $73,000. Because the ETF channel funds exceeded expectations, BTC hit a new high for the first time before the production cut. Starting in January, long and short profit-taking began to sell off in large quantities to lock in profits. The selling peaked in early March, and then the BTC price peaked on March 18 and started to pull back.

Statistics of BTC sold by long-term and short-term investors

Although the stablecoin channel alone had a net inflow of more than 8.9 billion and 7 billion US dollars in March and April, the massive sell-off consumed all the buying power, and the BTC price stopped at 73,000 US dollars.

2024.05~06: BTC price entered a new high consolidation area after March. The previous large-scale clearing caused the market's long enthusiasm to be completely extinguished. Under the pressure of high US dollar interest rates, the capital inflow of the stablecoin channel and the fiat channel shrank rapidly to 341 million and 856 million US dollars in May and June. BTC built a new high and then sorted out the box at 58,000~73,000 US dollars, waiting for new funds to enter the market.

Monthly changes in the supply of major stablecoins (EMC Labs chart)

A bull market is a process in which new funds pour in under an optimistic background, revaluation pushes up asset prices, and long-term holders sell to lock in profits after prices rise. In the development of a bull market, selling often takes place in several times. The one that happened not long ago was just the first wave, and the next sell-off will occur again after a higher price is realized.

6 Statistics of capital inflows and outflows of 11 BTC ETFs in June (EMC Labs chart)

Since its approval for operation in January, BTC ETF has been regarded as an important channel for new capital inflows in the crypto asset market. Since January, a total of $13.882 billion has flowed into all channels, but since March, the scale of inflows has been gradually declining as the BTC price stopped at $73,000.

In June, the ETF channel had an inflow of $641 million, which is quite close to the $856 million of the stablecoin channel. In the May report, we proposed that "ETF channel funds are expected to become an independent force for pricing BTC." With the growth of scale and the gradual independence of decision-making will, the funds in this channel are expected to take on this important task. Its scale and behavior deserve continued attention, but it is not yet up to the task.

Market Supply

In the bull market, long-term investors and short-term investor groups use different valuation systems for BTC targets. After the price rises, BTC flows from long-term investors to short-term investors, and the value is transferred accordingly.

According to this, two phenomena are bound to occur in the bull market, "capital inflow" and "BTC holder group transfer", which influence each other and jointly shape the market trend. In the previous section, we analyzed the capital inflow situation. In this section, we focus on the changes in the BTC holder group.

Analyzing the positions of long-term investors, short-term investors, exchanges and miners since last year, we found that in the first 11 months of 2023, long-term investors were increasing their positions, while short-handed investors were reducing their positions. The turning point occurred in December, when the BTC price approached the previous high, and the long-term investor group began to distribute chips, while the short-handed group began to increase its holdings. With the BTC price hitting a record high in March, this chip exchange game reached its peak. After that, the price began to collapse, and the scale of long-term investors' selling in April shrank rapidly. In May and June, this selling completely ended, and long-term investors began to increase their holdings again.

Analysis of long-term investors, short-term investors, exchanges and miners' position changes (EMC Labs chart)

From March to May, the exchange of chips by all parties in the market around the previous high price of BTC of $69,000 was one of the main activities in the market cycle, and its occurrence meant the first stage of the bull market. The chips held by low-frequency traders (long-term investors) flowed into the hands of high-frequency traders (short-term investors), and the market liquidity suddenly flooded. The new funds were consumed by the hard work, the price fell, the speculation cooled, and the market returned to the stage of hesitation after the passion.

Will the bull market come to an abrupt end? We will look at the previous rounds of bull markets.

BTC distribution statistics for long-term investors

As indicated by the green box in the above figure, we have observed that in the past three bull markets, long-term investors will conduct two rounds of large-scale selling of chips to lock in profits after taking advantage of the price increase. The first wave of selling will press the pause button on the price increase, and the second wave of selling will destroy the market. The first wave of selling in history lasted for 3 months, 9 months and 4 months in chronological order. This round from December to March last year is also 4 months, the same as the previous cycle.

According to historical laws, after the first wave of selling, the long-hand group returns to the accumulation state and waits for the price to rise. As shown in the red box in the above figure, when the price continues to hit a record high, it will return to the state of reducing holdings and sell ruthlessly. This method of selling in batches to lock in profits is consistent with the behavior pattern of long-term investors and the laws of market movement. Therefore, we believe that this selling law is still applicable to the current crypto asset market.

Based on this, EMC Labs judged that the recent big sell-off was only the first wave of sell-offs in the bull market. With the long-term investor group returning to the accumulation state, the market selling pressure has decreased, and the market will pick up the upward trend again after the funds return to the inflow. At that time, the market will usher in the second and most fertile and violent stage of the bull market. The end of the high interest rate environment of the US dollar is likely to occur in the second half of this year. Therefore, although the market confidence is low and the trading is light, we are still optimistic that BTC is likely to start the market in advance in the fall.

Conclusion

Market movement is a process of interaction between internal and external factors.

In the first half of 2024, long-term investors in the market locked in tens of billions of dollars in profits in the first wave of sell-offs, and have now returned to accumulation.

After the approval of 11 BTC spot ETFs in the United States, nearly $14 billion flowed into the ETF channel, with an additional 240,000 BTC holdings, and a cumulative holding of 860,000 BTC, totaling $53.1 billion.

Considering that this record was achieved in a high-interest rate environment for the US dollar, such a market performance is already very outstanding.

The US dollar has not yet started to cut interest rates, and the capital pressure in the global capital market has reached an unprecedented level.

The first stage of the bull market is ending, and the second stage has not yet begun. We judge that the variables are likely to occur in the fall.

The biggest risk is the unexpected rate hike by the Federal Reserve and the increase in the scale of selling US bonds, the issuance of Mt.Gox BTC and the sale of BTC held by the US government.

Now should be the most depressing and painful moment before the heavy rain.

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