Daily analytical reviews of the crypto market by StormGain

Jan 25, 2024
43
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Bitcoin's new records in investment inflows

Investment interest in Bitcoin is reaching new heights. The net inflow of investments into ETFs last week was a record-high $2.45 billion and $5.2 billion in total since the beginning of the year.



Freshly launched spot ETFs performed well, with BlackRock leading the way with $6.2 billion under management, followed by a product from Fidelity with $4.5 billion. Combined, the two funds beat Grayscale's $7 billion outflow (GBTC).



It's worth remembering that the outflow from GBTC is not related to the investment appeal of the cryptocurrency but is caused by a significant discount on the shares against the underlying asset in 2023 and increased fund management fees if compared to competitors. The reduction in GBTC's 'blood-letting' is a positive factor.



The growth of open interest (the total volume of all open positions) in futures on the Chicago Mercantile Exchange (CME) to $6.8 billion was another record for Bitcoin. Like the growth of inflows into ETFs, this indicates increased interest in the cryptocurrency among institutional investors.



According to CryptoQuant, over 70% of all Bitcoin investments in recent weeks have been generated by US ETFs. As a result, the share of US capital by market depth has increased from an average of 40% in 2023 to 50%. And the indicator increased from $454 million to $539 million in 2024.

For reference, market depth is the total volume of open orders from the current price in both directions (in this case, by 2%). The greater the indicator is, the more resistant the asset is to market manipulations and the more restrained volatility is.



This surge of interest has led to Bitcoin's 22% growth in 2024. In addition, most forecasts predict a new all-time high and reaching the six-figure level as early as this year.



On 19 February, former US intelligence official Edward Snowden called Bitcoin the most significant achievement in the history of money.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
43
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Ethereum challenges Bitcoin for top growth rate in 2024

In its recovery from last year, Ethereum has shown excellent dynamics in the previous two months. Its price has increased by 31% and overcome the important $3,000 level. The altcoin's boom is due to both the revival of the DeFi sector and hopes for spot ETFs emerging as early as May.



Over the past five months, spot ETFs have been the undoubted driver of the cryptocurrency market's growth, which has led to Bitcoin's market share strengthening to 52%.



Several signs point to the imminent return of the altcoin season, with the initial momentum spreading from Bitcoin to other coins. After a brief pause, altcoin capitalisation returned to growth, which reset Glassnode's indicator on 4 February.



Among altcoins, the most notable is Ethereum, which leads the DeFi sector in capitalisation, number of active validators and staked funds (TVL). This year, TVL grew by 54% to $46.4 billion.



The DeFi revival is due to the growing popularity of new projects. For example, the EigenLayer platform has managed to raise $6.8 billion since the beginning of the year, thanks to the emergence of a new type of liquid restaking tokens or LRT. These tokens are designed to displace the leadership of stETH, which Lido issues in exchange for ETH locked in staking.

Simply put, both stETH and LRT increase the profitability of ETH staking by re-lending funds. First, ETH is locked, and platform tokens are issued, which users can deposit or sell on another platform. All of this significantly increases the associated risks but also allows you to make the most out of the available ETH.

Without such tricks, the annual yield from ETH staking is less than 4%. Yield floats since it's affected by the number of validators and transaction processing fees.



The Ethereum network's deflationary nature is another reason for its growth. Since the switch to PoS, the number of coins in circulation has decreased by 362,000 ETH (~$1.1 billion) because part of the reward paid by the sender for processing transactions is burned.



However, speculation surrounding the approval of Ethereum spot ETFs in May should be treated with caution. The SEC has always spoken of Bitcoin as a commodity, which has helped promote exchange-traded funds. The regulator labelled Ethereum as a security immediately after it switched to PoS and even forced a number of cryptocurrency exchanges to stop staking it.


StormGain Analytical Group
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Jan 25, 2024
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Stablecoins are losing significance

Stablecoins are the bridge between fiat money and cryptocurrencies. When trading crypto, traders would inevitably turn to stablecoins, which ensured the growth of this segment as demand for Bitcoin increased.



For example, during the 2020-2021 bull run, Bitcoin grew six-fold, while the capitalisation of stablecoins increased 33 times to $166 billion over the same time.



The emergence of spot ETFs has weakened this relationship, as many traders and investors have gained access to cryptocurrency through brokers. There's no longer a need for stablecoins when Bitcoin is of purely investment/speculative interest.

A bizarre event occurred on 20 February, when the trading volume of VanEck's HODL fund shares jumped more than 10-fold to $400 million in a day, and the number of trades rose from 500 to 50,000. Eric Balchunas of Bloomberg suggested that a recommendation from a popular blogger on Reddit or TikTok caused the hype.



The remarkable thing here is that such a surge demonstrates retail investors' strength and ease of entry. Previously, they would storm a crypto exchange. Now, these movements are seen in ETFs.

Speaking about the loss of significance of stablecoins, it's worth mentioning internal problems. Last year, USDC almost lost part of its reserves due to the bankruptcy of a US bank, and USDT is still being challenged due to the lack of a transparent audit and the presence of commercial papers in its reserves. These are the market's leading coins, with a combined share of 90%.



Two days ago, Circle (the issuer of USDC) refused to further mint on the Tron blockchain, which is headed by scandal-plagued Justin Sun. Last year, the SEC sued Sun and the Tron fund for illegal and manipulative securities trading. Given the impending proceedings, Circle probably decided to withdraw from this network.

However, Tether's (the issuer of USDT) connection with Tron is getting stronger every year, and there are now more USDT minted on this blockchain than on Ethereum: $52 billion vs. $45 billion, respectively.



Last year, Paxos was the #3 issuer, issuing BUSD for Binance until the NYDFS Department of Finance filed a pre-enforcement action notification. The problem was that Paxos was minting BUSD on Ethereum while Binance issued the stablecoin in parallel on the BSC network. This caused a gap of over $1 billion between reserves and supply. Both companies decided to stop supporting BUSD starting in 2024.



It's little wonder that in such conditions, more and more market participants prefer to avoid stablecoins. Legislators are also busy. In the EU, from mid-2024, the MiCA legislation will be implemented, including regulation of stablecoin transparency. Meanwhile, in the US, a similar bill is being discussed in relevant committees.


StormGain Analytical Group
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Jan 25, 2024
43
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What Is Bitcoin Halving? How Does It Work, and Will Bitcoin Go Up After Halving 2024?

Bitcoin halving is a term that often pops up in discussions about the world's most famous cryptocurrency, often accompanied by speculation and anticipation. But what exactly does it mean, and why does it matter? In this article, we'll explore Bitcoin halving, how it works, its dates and what effect it can have on the price of Bitcoin, especially as we approach the next halving event in 2024.

There are 3 eras of currency: Commodity based, politically based, and now, math based.— Chris Dixon, technology investor.

What is Bitcoin halving?

Basics of the Bitcoin network and mining


The Bitcoin network operates as a decentralised digital ledger, or blockchain, that records all transactions made with the cryptocurrency. Each block in the blockchain contains a set of transactions, and blocks are linked together in a sequential and immutable chain. At its core, Bitcoin utilises a peer-to-peer network of computers called nodes, which store a copy of the blockchain and collectively maintain the blockchain through a process known as mining.

Mining plays a crucial role in maintaining the security and integrity of the Bitcoin network. Bitcoin mining involves the process of solving complex mathematical puzzles to validate and record transactions on the blockchain. The difficulty of the mining puzzles adjusts periodically to ensure that blocks are mined consistently, approximately every 10 minutes. Miners compete to find a solution to these puzzles using specialised equipment, with the first one to find a valid solution being rewarded with newly minted BTC and transaction fees. This reward serves as an incentive for miners to contribute their computational resources to secure the network.

Mechanism of Bitcoin halving

Miners are rewarded with newly created BTC for successfully mining a block. But this block reward isn't constant. It decreases at certain intervals in a process known as halving.

Essentially, Bitcoin halving is a programmed reduction in the reward that miners receive for adding new blocks to the blockchain. The halving event occurs after every 210,000 blocks mined, which is approximately every four years. This interval is hardcoded into the Bitcoin protocol.

When the predetermined block height is reached, the mining reward is halved. Initially set at 50 BTC per block when Bitcoin was launched in 2009, the reward is reduced by half, resulting in 25 BTC per block after the first halving, 12.5 BTC after the second halving, and so forth.

Bitcoin halving is a mechanism designed to control the rate at which new BTCs are created and introduced into circulation. By reducing the block reward that miners receive for adding new blocks to the blockchain, halving events serve to limit the inflation rate of Bitcoin. This controlled supply issuance is a key aspect of Bitcoin's deflationary monetary policy, ultimately leading to a maximum supply of 21 million BTC.


Bitcoin inflation chart

The history of Bitcoin halvings

The Bitcoin algorithm dictates that there will be a total of 33 halving events. Once these 33 halvings are complete, the fixed portion of the block reward will diminish to less than 1 satoshi, effectively reaching zero, and the only reward for mining will be the transaction fees.

Previous Bitcoin halving events

So far, there have been three Bitcoin halving events.


Bitcoin halving dates history

When is the next Bitcoin halving?

The exact timing of the next halving event is difficult to predict as it depends on the rate at which new blocks are mined, which can vary depending on fluctuations in the network hashrate. According to estimates, the nearest Bitcoin halving will occur in late April 2024.


The future Bitcoin halvings

You can watch the countdown to the next Bitcoin halving in real time if you wish. A Bitcoin halving countdown feature is available on various websites and apps and tracks progress towards the next Bitcoin halving event.


Bitcoin halving countdown

Will Bitcoin go up after halving 2024?

But what happens after a Bitcoin halving event? Does Bitcoin halving increase the price of Bitcoin? Well, let's try to figure it out.

Supply and demand dynamics

Halving reduces supply by lowering the rate at which new BTCs are created. However, while this reduction in supply growth was noticeable after the first halving, the reduction after each subsequent halving is less and less significant. As of now, 93.50% of Bitcoin's maximum supply has already been mined, and the day's supply growth reduction due to halving will amount to less than 0.1% of the daily trading volume.

Impact of the previous halving events on Bitcoin's price

Looking at the Bitcoin price behaviour after previous halvings, it's easy to notice a certain pattern. After a halving event, the Bitcoin price entered a period of consolidation or sideways movement that lasted from a few weeks to a few months. Following the consolidation phase, Bitcoin has historically entered into a bull market cycle characterised by sustained price growth and increasing investor optimism. This bull market cycle lasted from a few months to over a year, and the Bitcoin price reached new all-time highs in the process.

Nevertheless, correlation doesn't necessarily imply causation, and it's difficult to say how much influence the halving events themselves have on this pattern or if there is any at all.


Bitcoin halving price chart

Bitcoin halving 2024 price prediction

Given the historical pattern, many hope the halving will again trigger a bullish cycle in the market and push Bitcoin to new all-time highs. At the moment, the Bitcoin price is showing a clear bullish trend. Although Bitcoin's growth is fuelled, among other things, by investors' expectations of new all-time highs due to the approaching halving, one of the key drivers of Bitcoin's current growth is still the increasing demand from institutional investors with a steady inflow of funds into Bitcoin spot ETFs.

Given the optimistic expectations of investors, as well as economic and political developments in the world, there's a possibility that as early as 2024, the price of Bitcoin could exceed the current all-time high. However, this doesn't mean there will be no corrections, possibly quite deep ones, in the process.
 

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Jan 25, 2024
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Bitcoin ETF trade volume sets new record

New investment products remain one of the key catalysts for Bitcoin's growth in 2024. On 26 February, a new record was set for daily trade volume, reaching $2.4 billion. Among the ETFs, BlackRock (ticker IBIT) was in the top spot, with a trading volume of $1.3 billion on that day.



This strong performance from new ETFs suggests high interest in the underlying asset, Bitcoin. To fully appreciate it, it's worth looking at the net capital inflows into crypto ETFs, which attracted $600 million in investments over the past week.



The figure could have stopped at the $1 billion mark were it not for continued outflows from the Grayscale (GBTC) fund. Its negative performance is due to a significant discount on the underlying asset in 2023, which attracted speculators, and a high management fee of 1.5% versus the 0.2% to 0.3% fee offered by other ETFs.



On the positive side of the story, however, the rate of daily outflows from GBTC slowed from an average of $500 million in the first week after it converted from a trust fund to a spot ETF to $50 million in the last two days.



In total, spot ETFs have now accumulated $6 billion in investments. Significant capital inflows have renewed talk of Bitcoin replacing gold among investor preferences. Gold ETFs currently boast $90 billion. Bloomberg analyst Eric Balchunas believes Bitcoin will overtake gold funds in less than two years.

This alone will cause Bitcoin's price to rise above the six-figure level.



Michael Saylor, head of MicroStrategy, the largest public holder of Bitcoin, also thinks the current price is low. On 25 February, MicroStrategy acquired an additional 3,000 BTC at a price of around $51,800. The company now has in its reserves 193,000 BTC purchased at an average purchase price of $31,500, with unrealised gains approaching $5 billion.

In a recent interview with Bloomberg, Saylor said he has no intention of selling assets in the foreseeable future since the cryptocurrency is competing with gold, the S&P index and the real estate market as a means of savings. He clarified that "Bitcoin is technically superior to those asset classes. And that being the case, there's just no reason to sell the winner to buy the losers".


StormGain Analytical Group
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Jan 25, 2024
43
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The total count of active Ethereum validators approaches 1 million

Despite the efforts of its competitors, Ethereum maintains its status as the leading smart contract platform. Its share of the DeFi sector has returned to growth in 2024, reaching 60.8% in terms of Total Value Locked (TVL).



Ethereum is the most secure network after Bitcoin due to the large number of validators. There are currently 965,000 validators, and the milestone of 1 million will soon be reached.



This year we are seeing renewed interest in staking for two reasons. First, several new projects have been launched offering tokens to replace blocked ETH. These tokens can be pledged in the same way on another platform, thereby improving the overall performance of staking. For example, since January, EigenLayer's TVL has increased 8-fold to $8.8 billion.



Second, Ethereum is outperforming Bitcoin by 6.9% this year, which makes investing in cryptocurrency (including staking) even more tempting.



Ethereum trades low bandwidth and high fees for unrivalled security. This has provided blockchains like Solana and Avalanche the opportunity to significantly expand their market presence. However, the expected Dencun upgrade in March will give a second wind to Ethereum-based Layer 2 (L2) networks. Fees are expected to drop to $0.01 or less from the current $0.2-0.3.



In many cases, L2 will be preferable when choosing a platform to implement a project as security and fault tolerance will be provided by Ethereum, and speed and fees will be similar to Solana.

If Dencun makes an impact as anticipated, Ethereum may outperform Bitcoin in 2024.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
43
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Open interest in Bitcoin hits a record $31 billion

The excitement around the world's first cryptocurrency is gaining momentum, as evidenced by a record high of $31 billion in terms of open interest (total number of outstanding Bitcoin futures or options contracts in the market). The previous record of $24.3 billion was set in April 2021.



The funding rate has been at record levels for at least the last six months, suggesting a significant preponderance of buyers in the derivatives market.



The second-highest weekly net inflows into exchange-traded crypto funds this year ($1.8 billion) also points to the high demand. Some 94% of the inflows came into Bitcoin. Record-breaking weekly inflows of $2.45 billion were registered two weeks ago.



This was not without a spoonful of tar in a barrel of honey – the Grayscale crypto fund, which switched from a trust to spot, experienced heightened outflows again. This is now predominantly driven by the high fund management fee of 1.5% versus 0.2–0.3% for competitors. Last week, Grayscale's GBTC posted $1.4 billion in withdrawals, and the fund has lost a total of $9 billion since the relaunch.



Bitcoin's potential is also evidenced by outflows from gold ETFs. Recently, investors have increasingly contrasted these assets, which have similar limited reserves and store of value status.



However, Bitcoin ETFs are showing much more vigour. For example, a BlackRock fund took just 39 days from launch to rack up 10 billion in investments. The first gold ETF in the U. S. took more than two years to achieve such a feat.

Price dynamics in 2024 are also not in favour of gold, which is up just 2.6% compared to 58.3% for Bitcoin.



Forecasts are being revised upward as quickly as Bitcoin breaks new records. Bitwise Chief Investment Officer Matt Hougan believes that due to strong demand, the price could reach $200k or higher before the end of this year.


StormGain Analytical Group
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Jan 25, 2024
43
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Confirmed: Bitcoin's price rises every four years

It took Bitcoin 846 days to set a new high and confirm a key investment thesis: the cryptocurrency's price grows every four years. In other words, when an investor buys Bitcoin, this is the longest they'll have to wait to see a profit.

Just two and a half years have passed since Bitcoin hit its previous peak, and the price has already set a new high above the $69,000 mark. The rule was confirmed ahead of schedule, leaving sceptics at a loss.



This rapid growth was fuelled by the launch of spot ETFs in the US, giving investors easier access to the cryptocurrency. Now, investment companies are actively incorporating the new instrument into their trading platforms, an action that is reflected in the crypto funds' growth in total portfolio and trade volume. For example, among banks, Wells Fargo, Bank of America and Merrill Lynch already offer clients access to Bitcoin spot ETFs, while Morgan Stanley is still considering it.

On 5 March, Bitcoin spot ETFs broke the record for total volume, hitting the $10 billion mark. Among them, BlackRock's IBIT, Fidelity's FBTC, Bitwise's BITB and Ark Invest's ARKB have reached new highs.



Immediately after setting a new high, Bitcoin rushed downwards. The forced liquidation of positions in the futures market reached $1 billion. Short-term holders and speculators aside, miners remain the main selling group. This year, their reserves are down 15,000 BTC to 1.82 million BTC.



However, news that whales are starting to stir has yet to be confirmed. In contrast, the number of addresses with more than 1,000 BTC is up 3.4% this year to 2,094.



Most market participants expect Bitcoin's price growth to continue to at least break the $100,000 mark in the current four-year cycle.



The local high limited by the $1 million model is expected in the second half of 2025.


StormGain Analytical Group
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Jan 25, 2024
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2024 could be the best year ever for Ethereum

Bitcoin has had a landmark year in 2024, with institutional and retail investors now enjoying easier access to the cryptocurrency. However, the year could become more significant for Ethereum thanks to upcoming changes. Investment inflows into crypto ETFs have started to increase again, suggesting a shift in sentiment towards the altcoin.



Ethereum is the most trusted environment for executing smart contracts. The network is backed by around 1 million active validators and has a 59% or $54.3 billion share of the decentralised finance sector. The closest competitor, Tron, has just $9.8 billion.



The downside to high reliability is low speeds and high network fees. This year, the average user cost has risen from $5 to $29, which is making it harder to adopt new projects directly on Ethereum or attract a wider audience.



However, the development of Layer-2 (L2) networks that use Ethereum as a guarantor of reliability and security offers a way out. Simply put, by conducting fast, cheap transactions within the network, L2s commit them to L1 in a more compressed form.

Ethereum now has 44 L2s with a total staked amount of $36.8 billion. Arbitrum holds the first place with a 42% share. The average commission at Arbitrum is over $0.20, which is still a lot compared to competitors like Solana or Avalanche.



However, the situation will change significantly with the Dencun hard fork, which is scheduled to roll out on 13 March. The update will allow transaction data to be packaged even more densely, resulting in a 5-10x cost reduction for L2. L2's low expenses will attract new projects, which will eventually affect demand in L1, as well.



Another positive change for Ethereum is the increased likelihood that it will no longer be seen as a security. Recent litigation shows how hard it is for the US Securities and Exchange Commission (SEC) to defend the status, and there are contradictions with the Commodity Futures Trading Commission (CFTC).

If the SEC persists in labelling Ethereum a security, it will make it hard for the CFTC to deal with entities that trade Ethereum futures. At a Congressional hearing on 6 March, CFTC Chairman Rostin Behnam said that both Bitcoin and Ethereum are commodities.

At the same time, the recognition of the altcoin as a commodity will put the SEC in an awkward position since a number of organisations have already received fines (e.g., Kraken) for working with this "security", while others are still awaiting court hearings (e.g., Coinbase). However, it's still easier for the regulator to take a step back than to continue to stick to its line.


StormGain Analytical Group
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Jan 25, 2024
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The powerlessness of Bitcoin bears

With Bitcoin rising above $70,000, the market entered a euphoric phase in which all coin holders were in the black. In the history of cryptocurrency, this is the fourth cycle that's seen the repetition of the same patterns.



This is primarily a matter of wealth distribution. After hitting an all-time high, long-term holders (LTH) are starting to sell off their reserves, while short-term holders (STH), on the other hand, are only whetting their appetite.

LTHs' reserves peaked in November 2023, and since then, their cumulative volume has fallen by 660,000. BTC. Meanwhile, STHs added 810,000 BTC to their reserves. The excess is due to a reduction in cryptocurrency exchange reserves, which are not accounted for in the cohort analysis. This distribution trend is shown time after time when the price sets a new high.



Second, the euphoria phase is characterised by an increase in speculative interest and fear of missing out (FOMO) on profit. This leads to a significant preponderance of buyers in the futures market, where the funding rate rises well above average values.



Typically, increased speculative activity is followed by the increased volatility and strong sudden corrections so typical of cryptocurrencies. This time, however, the bulls have exchange-traded funds on their side. The ETFs buy an average of $250 million worth of Bitcoin every day. This leaves no chance for the bears to try to ride other participants' excessive optimism.



If market trends continue, a supply shock is expected due to significant demand from buyers and a lack of willingness on the part of sellers to part with the cryptocurrency at current prices. The situation will worsen after the halving event when the coin's issuance will be halved. Most forecasts agree that Bitcoin will exceed the $100,000 mark as early as this year.


StormGain Analytical Group
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Jan 25, 2024
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Whales and long-term holders are selling off Bitcoin

Hitting a new record-high price traditionally leads to profit-taking by some market participants. For example, whales (>1,000 BTC) have begun selling off assets since March, causing their number to drop from 2,159 to 2,055.



long-term holders (LTH) have exhibited the same behaviour. Their stocks fell by 660,000 since their November peak. BTC. Each cycle, this group accumulates coins in a bear market to profitably sell during a new rally.



Demand gradually gets saturated, and the price consolidates or a correction occurs. This time around, the balance of power has shifted significantly in favour of buyers due to the approval of spot ETFs in the US and the opening of direct access to cryptocurrency to trillions of dollars worth of capital.

We're now in the third month since the ETFs launched, and demand for Bitcoin is only getting stronger. On 12 March, net inflows set a record of $1 billion. Among fund managers, BlackRock set a new high by adding $849 million in one day.



Daily capital inflows into Bitcoin have reached $2 billion per day, according to analyst agency Glassnode.



Because of the overweighting of buyers, the price is rising almost without correction.



Analysts are predicting a quick correction based on signals from technical indicators. A correction can only occur if capital inflows weaken, but there are no signs of that happening right now. Moreover, major investment platforms are just getting into the game by adding ETFs to their trading instruments.

Investment bank JMP Securities predicts that inflows into spot ETFs will accelerate, causing the total volume of funds to grow to $220 billion in the next three years, with Bitcoin reaching $280,000 per coin.


StormGain Analytical Group
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Jan 25, 2024
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Inflows into Bitcoin ETFs decline sharply

Since February, spot Bitcoin exchange-traded funds have been the leading force on the demand side, driving over 75% of cash inflows into the cryptocurrency. On average, they've attracted $270 million each day since they launched. However, the net inflow last Thursday was $133 million and $199 million on Friday.



Without a significant boost from ETFs, the price immediately began to undergo a correction since miners, whales, and long-term holders have been engaged in active profit-taking this March. The number of whale addresses (>1,000 BTC) has dropped from 2,159 to 2,081 since the end of February.



We also warned on 4 March that after a relatively quiet accumulation phase, Bitcoin has moved into a growth phase characterised by corrections of 36% to 71%. It's unlikely that the new cycle will feature smaller drawdowns.



And it's all about the spontaneous nature of Bitcoin here. In any traditional market, if the price of an asset drops by 10%, the regulator usually halts trading. But Bitcoin has no such safeguards. Its decentralised nature provides both a high level of freedom and an appropriate response to market overheating from excessive optimism.

The latter is vividly evidenced by the strongly increased funding rate, rising debt in the DeFi lending market and new record highs for open interest in the derivatives market.



This means that when inflows into ETFs (and especially outflows) stop, Bitcoin will start correcting. The forced closure of traders' margin positions on crypto exchanges and lending platforms will cause an even bigger decline. When some ETF investors see the correction, they'll start panicking and selling off assets. All of this will lead to another chain reaction, and Bitcoin will once again be criticised for its increased volatility.



At the same time, the cryptocurrency's long-term prospects remain bright, and a potential correction in no way reduces its chances of hitting the six-figure mark as early as this year.

When planning a strategy, you should rely on the classic "buy and hold" rule, taking the MicroStrategy or El Salvador's approach as an example. Salvadoran President Nayib Bukele, who has been buying a coin a day since November 2022, said, "[El Salvador] won't sell, of course; at the end, 1 BTC = 1 BTC (this was true when the market price was low, and it’s true now)."


StormGain Analytical Group
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Jan 25, 2024
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Inflows into Bitcoin ETFs followed by record-high outflows

After hitting an all-time high, all the conditions for a correction were ripe, including increased leverage by derivatives traders, rising debt in the DeFi lending market and coin dumping by whales and long-term investors.



The price was kept from correcting only by a significant inflow of investments into crypto exchange-traded funds, which last week reached a previously unseen $2.9 billion. Of that amount, 99% went to Bitcoin.



This week, inflows have been replaced by net outflows, with yesterday's outflow totalling a record $326 million.



On 18 March, the negative performance was driven by a record-high $643 million outflow from Grayscale's GBTC fund, which had the highest management fee. Then, on 19 March, BlackRock's IBIT delivered one of the worst results, bringing in just $75 million.



Once inflows into exchange-traded funds waned, Bitcoin went into a correction, sweeping away hundreds of millions of dollars worth of margin traders' positions in the process.



This is a common reaction to the market overheating due to over-optimism. The only issue that's somewhat intriguing is whether exchange-traded fund investors will succumb to the panic. As was recently revealed, the main influx is from retail investors, and the average investment in IBIT is only $13,000. Without experience with such a volatile instrument, these investors may rush to the exits, which will amplify the correction.

However, there is a positive side to this news: institutional investors have yet to fully join in on Bitcoin investments. Among these players is the world's largest pension fund, Japan, with $1.5 trillion in assets, which sees cryptocurrency as a tool to hedge risk.

Goldman Sachs head of digital assets Mathew McDermott confirmed yesterday at the Digital Asset Summit that Bitcoin's rise to new highs is mainly driven by retail trading. However, the company also noted increased interest from institutional investors. Over time, this group will incorporate exchange-traded funds into their investment portfolios, which will eventually lead to the cryptocurrency reaching new heights.


StormGain Analytical Group
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Jan 25, 2024
43
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SEC will seek to label Ethereum a security

The latest news suggests that the SEC's intention to designate Ethereum as a security remains unwavering, despite previously approved ETFs on Ethereum futures, potential multi-million dollar losses for companies that work with the altcoin, and disagreements with the Commodity Futures Trading Commission (CFTC).

Fortune magazine reported yesterday that several US companies have received a subpoena from the SEC demanding details of their interactions with the Ethereum Foundation. By implication, the crypto community has speculated that the Ethereum Foundation has also received a "chain letter" with various demands and an order not to disclose its contents. Firstly, this is evidenced by the text deleted from the official website in late February:

"The Ethereum Foundation (Stiftung Ethereum) has never been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed. Stiftung Ethereum will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations".

Second, gone is the yellow canary logo that many companies use to mark the absence of confidential subpoenas from judicial or government agencies. Web developer Pablo Pettinari later confirmed the foundation's receipt of the letter from the government agency.

For Ethereum investors, this is a bad sign as the realisation of risks will lead to Ethereum further lagging behind Bitcoin.



Most were counting on the emergence of spot Ethereum ETFs in May when the deadline for a number of filings comes due. The probability of approval is now estimated to be less than 30%. But that's not the most unpleasant part. The security status will force most US companies to decline to work with the altcoin since the level of requirements will increase by an order of magnitude.

Anticipating that something would happen, institutional investors increased investment outflows from Ethereum ETFs to $14 million last week. The trend is likely to gain even more momentum this week.



Pressure from the SEC is also overshadowing the positives from last week's successful Dencun hardfork, which made it possible to significantly reduce fees in Layer-2 (L2) networks. After L2, trading volume in Ethereum rose to multi-year highs.



The last hope for American investors remains the intervention of Congress or the Supreme Court, which could more meaningfully divide crypto assets into commodities and securities. The SEC, on the other hand, has yet to outline clear criteria, instead relying on The Howey Test from 1946 for its reasoning.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
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Bitcoin's likelihood of a post-halving crash

When assessing the impact of the halving event on Bitcoin, most analysts rely on the emergence of scarcity that will unquestionably lead to a price increase. However, here, we'll list a few reasons why the first reaction may be negative.

Statistic

A third of the time, Bitcoin has corrected by more than 30% since the 2016 halving. There were no significant factors for a major sell-off, and the correction was an example of the old adage "buy the rumour, sell the news". The price has risen 75% since early 2016, and after the halving, it fell by 37% from the local high to $470 in two months.



The price is up 74% this year, similarly encouraging a number of players to sell in order to lock in profits. The last time the "buy the rumour, sell the news" principle was put into action was on the approval of spot Bitcoin ETFs, with the price correcting 21% to $38,500.



Halving compensation

What makes this fourth halving different from previous ones is that, firstly, Bitcoin has reached an all-time high ahead of the event, and, secondly, a 'Bitcoin hoover' has appeared in the form of ETFs. The halving represents an ultimate reduction in incoming supply, but ETF investors are just as subject to emotion as other market participants.

They have now accumulated $11.3 billion worth of Bitcoin, thus anticipating the upcoming deficit and ensuring the coin's rise to a new high. But what happens to the price if funds start actively unloading reserves? If that happens, they would offset almost all of the good momentum from the halving in the short to medium term.

The price is already under pressure as whales, miners and long-term holders lock in profits. Meanwhile, spot ETFs have seen net outflows for the fourth day in a row now. These are excellent prerequisites for the correction to continue.



The impact of miners

This time around, competition among miners is at an unprecedentedly fierce level, with almost a third of the network hashrate being provided by publicly traded mining companies. To appreciate the gravity of the situation, one only needs to look at the yields from a terahash of power, which are increasingly lagging behind the price.



If the correction drags on, most miners will ramp up the sell-off of their resolves due to falling revenues as a result of the halving, which CryptoQuant analysts estimate at 1.8 million BTC or $119 billion. Even if only a tenth is sent to market, it would have a significant negative impact.

Conclusion

Halving certainly has the long-term positive effect of reducing the flow of fresh supply, but in the first few months after it occurs, the market reaction may be negative. If all of these risks take place, the price may roll back to $45,000.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
43
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Avalanche takes a wrong turn

Every network that supports smart contracts is looking for its own niche. For example, Polkadot relies on developers to create a user-friendly and functional parachain-based environment. Ripple is bringing distributed ledger technology to traditional finance by offering governments a turnkey service to create central bank digital currencies (CBDC). Avalanche, on the other hand, took the controversial route of focusing on meme coins.

The attitude toward meme coins has been ambiguous in the crypto space and more so among regulators who have banned the circulation of these coins in certain countries. The issue is in the lack of a useful payload and high speculative interest. The meme coin boom can overwhelm some networks and cause significant increases in fees in others.

For example, due to the emergence of ordinals (a protocol that allows quasi-tokens to be minted and exchanged) in the Bitcoin network, the average transaction fee jumped from $2 to $31 in May and to $37 in December.


Image source: bitinfocharts.com

On Solana, the hype around meme coins has reached the point where several thousand new tokens have been minted a day since December. At first, users experienced delays in transaction processing. Then, on 6 February, the blockchain stopped for 5 hours.


Image source: analytics.solscan.io

Most networks view such bursts as a necessary evil, calling what happens a stress test. Avalanche, on the other hand, decided to open the doors to meme coins by rewarding users for being active and purchasing coins for their own fund as part of their Culture Catalyst programme.

"In particular, we note that meme coins generally have high community value because of the engagement, community spirit, and culture that they engender, which goes beyond the humour and virality that they embody".

Last week, the team allocated $1 million to reward users. These funds will follow a complex bonus scheme to reward activity with the following coins: COQ, KIMBO, NOCHILL, GEC, TECH, HUSKY, MEOW, KONG, MEAT and KINGSHIT (see detailed terms and conditions).

The ambiguity of Avalanche's policy is that many crypto participants (if not most) characterise such assets as nothing more than "shitcoins". For example, to get on the Culture Catalyst list, the age limit is limited to just a week (see a full list of requirements).

It's obvious that Avalanche is trying to reach Solana's figures with similar programmes. However, in terms of the number of active addresses, the network has seen a decrease compared to the previous year.


Image source: avax.network

What's more, buying quasi-tokens with the fund's money in the long term lays a bomb under the sustainability of the underlying AVAX token since most quasi-tokens fail.


Image source: StormGain Cryptocurrency Exchange

AVAX has only risen 42% this year, lagging behind both Solana and Ethereum. If developers continue to emphasise meme projects, this gap is very likely to widen.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
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Volume of accumulated Bitcoin hits a new high

Last week saw a record net outflow of $942 million from ETFs, with Bitcoin accounting for 96% of those funds. In a note to investors on 21 March, analysts at JPMorgan noted the cryptocurrency was overbought and risked a continued correction.


Image source: coinshares.com

Investors' decision to sell was influenced by the desire among long-term holders, whales and miners to take profits in March after hitting a new record high for Bitcoin.


Image source: StormGain Cryptocurrency Exchange

However, by the end of last week, the mood had dramatically changed, and while crypto funds continued to show cumulative outflows, cryptocurrency exchanges saw an increased withdrawal of coins to cold wallets. This is one of the signs that market participants are unwilling to part ways with coins at current prices.

The outflow from Coinbase sharply accelerated in March, shrinking the crypto exchange's reserves to 344,900 BTC (excluding institutional assets). This is a level last seen in 2015. The total reserves across all crypto exchanges also dropped after rising earlier in the month. That figure is now 1.98 million BTC.


Image source: cryptoquant.com

However, a tendency to hodl was most clearly seen in accumulation addresses, which set an inflow record on 22 March of 25,300 BTC. The signs of an accumulation address (miner and crypto exchange addresses are excluded) include:
  • The absence of outgoing transactions
  • More than two incoming transactions
  • The latest activity taking place within the past seven years
  • A balance of over 10 BTC.

Image source: cryptoquant.com

If we break down cohorts into groups, whales and sharks have moved back to accumulating Bitcoin. They're responsible for the significant loss seen in stablecoins' reserves.


Image source: twitter.com/santimentfeed

In February, BTC's price was boosted by significant inflows into spot ETFs, which faded by mid-March. However, there was no significant sell-off since other market participants quickly moved from taking profits to accumulating coins.


Image source: StormGain infographic

Despite the price 'prematurely' reaching an all-time high, most crypto enthusiasts believe that Bitcoin is very likely to keep going higher. Anthony Scaramucci, the founder of Skybridge Capital, give investors an interesting piece of advice on how to keep their nerves at bay with the sharp price changes:

"Act like you're dead with your bitcoin and don't sell your bitcoin".


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
43
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Arguments for Bitcoin's upcoming rush on $80,000

Yesterday, we cited the actions of sharks and whales that have returned to accumulating coins as a source of support for continued growth. Today, we'll look at some more arguments that hint at Bitcoin setting a new price record.

Crypto ETFs

Last week, spot ETFs saw net outflows of $888 million. The reason was increased withdrawals from the Grayscale fund due to high management fees and lower inflows into the other funds.


Image source: twitter.com/biancoresearch

However, yesterday, interest in Bitcoin from ETF buyers returned with renewed vigour at $418 million. This is significantly better than the average of $225 million. Most analysts believe that the trend will intensify over time since institutional players still haven't begun trading in the new instruments, and the main flow of funds is coming from retail investors.


Image source: StormGain infographic

Low activity on the spot market

The main battles between bulls and bears are taking place in the derivative contracts market, which accounts for 70% of total trading volume. The market depth (the volume of placed orders on both sides of the price) on Bitcoin has finally approached the pre-crisis level.


Image source: kaiko.com

That said, of those who directly own Bitcoin, there are still few people willing to part with the coins at current prices. This is clearly seen by the volume of transfers within the network. If it exceeded $1 million on average per week in the previous bull cycle, it now doesn't even reach $200,000.


Image source: glassnode.com

Lack of response to negativity

Bitcoin's institutionalisation has proved to inoculate it against the problems of individual market participants. The arrest of Binance's top managers in Nigeria and yesterday's indictment of the KuCoin crypto exchange and executives (the exchange's annual volume exceeds $1 trillion) by the US Department of Justice for criminal offences did not affect the price.


Image source: StormGain Cryptocurrency Exchange

In the world's largest economy, Bitcoin is now an investment asset and a commodity that investors can access through licensed exchange-traded products. This made the connection to cryptocurrency exchanges more indirect.

Long-term factors

At its last meeting, the Fed reaffirmed its intention to cut its key interest rate by 0.75% in three rounds this year. The first adjustment could take place as early as June. This will reduce demand for Treasury bonds and increase interest in risky assets such as Bitcoin.


Image source: twitter.com/EricBalchunas

In mid-March, JPMorgan reported that volatility-adjusted Bitcoin was already outperforming gold in investors' portfolios by 3.7 times. This clearly demonstrates the outperformance of the two Bitcoin ETFs over the gold (and any other) ETF in terms of investment volume in the first 50 days of trading since launch.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
43
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Stablecoins lose ground

Stablecoins' share of the cryptocurrency market continues to shrink, hitting 5.8% in March. This is the lowest value since November 2021. They are also significantly lagging behind the previous bull run in terms of volume, gathering $1 trillion in February.


Image source: coingecko.com

The first reason for the sector losing ground is the launch of spot Bitcoin ETFs in the United States. Traders from popular platforms received access to Bitcoin's volatility while bypassing the crypto exchanges.


Image source: StormGain Cryptocurrency Exchange

The base currency for settling transactions on crypto exchanges is generally stablecoins. For licensed brokers, it's usually fiat currency. In March, the volume of ETFs set a new record at $111 billion.


Image source: twitter.com/EricBalchunas

The second reason is the drop in trust in stablecoin issuers. In May 2022, the Terra project's UST, the third-largest stablecoin by capitalisation, collapsed. In February 2023, after receiving a pre-trial enforcement action, the issuer of BUSD decided not to mint any more of the token. The following month, USDC from Circle was on the verge of folding as a result of the collapse of the bank holdings its reserves in the United States.

The impact of these events on investor sentiment is clearly reflected by the volume of stablecoin supply on crypto exchanges (data on the Ethereum blockchain):


Image source: glassnode.com

At the same time, USDT's share increased to 70%, and its capitalisation rose to $105 billion.


Image source: defillama.com

This significantly increases systemic risks since the community doesn't have reliable information about the banks they use or the quality of reserves. Tether's (non-audited) financial statements continue to list "other investments" and "collateralised loans" totalling $8.5 billion.

The company's balance sheets are so opaque that the Seychelles-headquartered crypto exchange OKX refused to work with USDT in the EU due to potential claims from regulators. As a result of the adoption of the MiCA law, other operators in Europe are likely to follow this example.

Some market participants call stablecoins an oxymoron because they aren't stable. Thanks to the appearance of investment products such as spot Bitcoin ETFs and the lack of strict regulatory control, the sector's share will likely continue to shrink.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)