Daily analytical reviews of the crypto market by StormGain

Jan 25, 2024
62
0
Bitcoin's rally repeats patterns from 2021

After hitting a then-all-time high in 2021, spot Bitcoin trade volume hit $14 billion per day. The all-time high set this year was also accompanied by a surge in trade volume.


Image source: glassnode.com

Another striking similarity is the fact that Bitcoin hit the 'pre-euphoria' and 'euphoria' zones when Bitcoin held in profit exceeds one standard deviation.


Image source: glassnode.com

What clearly differentiates these two cycles is the driving force behind them. In 2021, the primary inflow of investments came from institutional investors, while retail purchasers actively used crypto exchanges whose total reserves were 2.9 billion BTC.


Image source: BofA Research

This time, demand primarily came from retail investors, while new ETFs accounted for 30% of spot Bitcoin trade volume. Crypto exchanges' reserves are steadily declining and have already reached 1.94 million BTC.


Image source: cryptoquant.com

The impact of ETFs on spot trading is evident in the decline in market activity on weekends and holidays in the United States, when exchange-traded funds are closed.


Image source: glassnode.com

From this, we can draw a simple conclusion: to assess the prospects of Bitcoin's price continuing to rise, we should look at the influx of capital into ETFs and consider other traditional metrics.


Image source: StormGain infographic

During the past two weeks, it's been significantly below the average at $203 million. What's more, the past two days have seen an outflow of funds. This is primarily due to investors leaving Grayscale's fund because it has the highest management fee at 1.5%. In addition to this, Ark Invest's fund also saw an outflow of funds in April, and other ETFs experienced lower inflows.


Image source: StormGain Cryptocurrency Exchange

This, combined with long-term holders and miners selling off their reserves, creates the basis for a correction to form. If we take into account the similarity of the current cycle with the one from 2021, the potential drawdown could be 30% in the 'euphoria' zone. From the all-time high Bitcoin reached, the maximum drawdown target would be around $52,000.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Cardano drops out of the Top 10

The once very promising project known as the "Ethereum killer" continues to lose points in the crypto arena. According to CoinGecko's ranking, Cardano is now in 11th place by market capitalisation, coming in at $20.6 billion. It reached its peak capitalisation in 2021 when it hit $91.6 billion.


Image source: coingecko.com

Note: On CoinMarketCap, Cardano was still in the Top 10 since Lido's stETH, which has a market capitalisation of $33.6 billion, is not listed there.


In April, Cardano was definitively pushed out of 10th place by Toncoin, which has managed to increase its capitalisation from $3 billion to $25 billion in 12 months. However, Cardano's collapse started back in 2021, when it turned out that the "Ethereum killer" wasn't capable of properly working with smart contracts. After the Alonzo hardfork, the network's capitalisation and the price of ADA plummeted.


Image source: StormGain Cryptocurrency Exchange

The project's developers needed over a year to resolve the situation. Cardano missed its moment to consolidate its success, and it lost its spot to blockchains with more successful architectures. Now, along with networks such as Solana or L2 on Ethereum, Cardano no longer looks innovative. At least that's the assessment held by Grayscale, whose legal successes in 2023 opened the door to spot ETFs in the United States.

In July 2021, Grayscale added Cardano to its digital crypto fund, and in September, Alonzo identified network congestion after enabling support for smart contracts. The team believed in the product until the bitter end, but on 3 April 2024, Cardano was removed from the fund.


Image source: twitter.com/Grayscale

Cardano's problem is the lack of forward momentum. The network still doesn't support widely accepted stablecoins such as USDT and USDC. Instead, it introduced its own coin, Djed, whose capitalisation has been hovering around $3-4 million for a year now. Analytical agency K33 Research believes the lack of integration will lead Cardano to be completely forgotten.


Image source: k33.com

In the DeFi sector, the network dropped to 18th place with $385 million in total value locked (TVL). For comparison, Base, which launched last year, already has $1.5 billion.

Cardano's founder, Charles Hoskinson, always defends the network by pointing to the community's cohesion, but statistics on developer activity indicate the opposite.


Image source: tokenterminal.com

The combination of negative factors and investor disappointment has led to ADA missing out on this year's rally. Instead, it's trading down 2%.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Why Bitcoin's fee is growing so much in April

The Ordinals protocol, which appeared in 2023 due to the numbering of satoshis, allowed digital objects such as NFTs (an analogue to ERC-721) and quasi-tokens (an analogue to ERC-20) to be transmitted over the Bitcoin network. The resulting boom in all sorts of meme coins died down a year after the protocol was introduced, and the fee for a simple transaction returned to the range of $0.50-$2.00.


Image source: bitinfocharts.com

The calm didn't last long. In April, meme coins experienced a new boom on the network. Over the past week, Bitcoin ordinals have taken the top two spots in the overall collections ranking, pushing back both Solana and Ethereum.


Image source: cryptoslam.io

Since the Bitcoin network doesn't boast high performance, the significant spike in the number of transactions has led to higher fees. Right now, you'll have to pay about $10 for a simple transfer.


Image source: mempool.space

But that's far from the limit. It's highly likely that minting and exchanging ordinals will continue to rise due to the approaching halving. Commission costs will peak on Halving Day (which is tentatively expected to occur on 19 April) as digital objects minted in the first block of the new era will gain collector value.


Image source: coinwarz.com

When it comes to the price of Bitcoin itself, the ordinal hype has no noticeable effect on it.


Image source: StormGain Cryptocurrency Exchange

The beneficiaries of the hype are miners, whose revenue grows significantly due to network utilisation.


Image source: hashrateindex.com

Yesterday, the share of transaction processing revenue soared to 28.5% of the block mining reward. In other words, in addition to 6.25 BTC for the block itself, some miners received 1.78 BTC for including transactions in it.

For crypto miners, ordinals can be a great help as they'll keep revenues relatively high post-halving.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Bitcoin sees new growth factors

This year, US spot Bitcoin ETFs have made up 75% of investment inflows into the cryptocurrency. Their combined balance now totals $12.5 billion, and the US share of global inflows into crypto ETFs exceeds 95%.


Image source: farside.co.uk

Interest in ETFs has been so strong that BlackRock's fund has become the fastest-growing fund in history. It has accumulated $15.3 billion over the past three months. Note: The large discrepancy with the funds' total balance is due to the $16.3 billion outflow from Grayscale.


Image source: twitter.com/thomas_fahrer

A similar influx of investment in cryptocurrency is now expected from the emergence of spot ETFs in China. According to an insider from Bloomberg, the Hong Kong SEC may make an affirmative decision in the coming days.

China may be the second-largest economy in the world, but it's also fairly closed off to capital outflow. The stock market is the primary direction for investments. It's been showing negative movement since 2021. At the same time, a combination of factors indicates the potential for an even greater decline due to the crisis in the real estate market.


Image source: investing.com

This explains the incredible rise of ETFs with stocks of gold mining companies in April, with the premium jumping 30% relative to the value of the underlying assets. Fearing new financial turmoil, the Chinese are investing in assets that are least connected to the domestic economy.


Image source: bloomberg.com

For the same reason, they may show significant interest in Bitcoin ETFs. For Chinese residents, ETFs will be the best choice since crypto transactions on the mainland are undesirable and will be completely prohibited for financial organisations starting in 2021.


Image source: StormGain Cryptocurrency Exchange

Whales were among the first to prepare for the emergence of a new catalyst. Over the past 30 days, the number of addresses with a balance of over 1,000 BTC has risen by 2.6% to 2124.


Image source: lookintobitcoin.com

After SEC approval, it will take approximately 1-2 weeks before the new ETFs become available for investment. If there's significant demand from Chinese investors, Bitcoin will quickly conquer new heights in May.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Hong Kong won't help. Bitcoin's correction picks up pace

Last week, the outflow from ETFs reached $126 million, with spot ETFs in the United States accounting for $83 million of that. Yesterday, this trend only consolidated further after experiencing another $37 million loss.


Image source: StormGain infographic

Since long-term holders and miners are continuing to reduce their reserves, the price has taken a downward turn. As of today, Bitcoin has fallen by 15% from the high it reached in March.


Image source: StormGain Cryptocurrency Exchange

In April, a new argument emerged for the end of the cryptocurrency's correction: the launch of spot ETFs in Hong Kong in the next two weeks. This factor is ambiguous, however. Bloomberg's Eric Balchunas says that, in the best-case scenario, the Chinese financial product will garner $500 million in investments.

The primary reasons for the pessimism lie in the following:
  • Hong Kong's entire ETF market is only worth $50 billion. For comparison, BlackRock's Bitcoin ETF alone has attracted $15.3 billion in three months.
  • Investors in mainland China won't have access to the ETFs.
The latter circumstance puts an end to optimistic forecasts of an influx of billions of dollars, even taking into account some loopholes that allow enterprising citizens to invest in Hong Kong-based products.

The potential for the emergence of spot ETFs is clearly visible in the influx of investments in futures ETFs that were much earlier, just as in the United States. The total assets under management (AUM) in Hong Kong crypto ETFs is a modest $170 million. In the US, BITO alone has raised $2.8 billion.


Image source: StormGain infographic

We wrote about the impact of halving and the risk of a correction as a result of it on 1 April. According to the analytical agency 10x Research, the lower income will force miners to reduce reserves by $5 billion within 4-6 months after the halving. All other things being equal, this will create conditions for at least Bitcoin to consolidate in the medium term.


Image source: twitter.com/10x_Research

Last week, the only ETF to see an outflow of funds was Grayscale, whose management fee is 5-6 times higher than competitors.


Image source: farside.co.uk

If investors in other funds start to panic, the correction will easily reach the usual 30-40%, and Bitcoin's price will drop to around $50,000.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Bitcoin After Halving 2024: What's Next?

With the countdown to the Bitcoin halving event of 2024 underway, the cryptocurrency community eagerly awaits the implications of this milestone. With the halving date drawing near, let's assess the implications of this event and explore its potential impact on Bitcoin's future trajectory and price.

"Gold is a great way to preserve wealth, but it is hard to move around. You do need some kind of alternative, and Bitcoin fits the bill. I'm not surprised to see that happening. — James Rickards, investment banker".

What is Bitcoin halving?

Bitcoin halving is an event programmed into the Bitcoin protocol that occurs after every 210,000 blocks mined, which is approximately every four years. During a halving event, the reward that Bitcoin miners receive for validating transactions and adding them to the blockchain is cut in half. This reduction in block rewards serves as a mechanism to control the supply of new bitcoins entering circulation, ultimately contributing to the predetermined limit of 21 million bitcoins.

The process of halving is integral to Bitcoin's deflationary monetary policy, designed to mimic the scarcity characteristic of precious metals like gold. By reducing the rate at which new bitcoins are minted, halving events play a crucial role in managing inflation.

What is Bitcoin halving countdown?

The Bitcoin halving countdown refers to the time remaining until the next scheduled halving event in the Bitcoin network. Various online platforms and websites provide real-time countdown timers, displaying the exact time and date when the next halving is expected to occur. These countdowns are based on the predetermined block height at which the halving will take place, as defined by the Bitcoin protocol.



The Bitcoin halving countdown is closely monitored by the cryptocurrency community due to its potential impact on market dynamics and investor sentiment. As the countdown progresses and the halving event draws nearer, speculation and anticipation often intensify, leading to increased activity in the Bitcoin market.

When is the next Bitcoin halving?

The next halving is due to take place around 20 April 2024. This will be the fourth BTC halving. It will result in a reduction of the block reward to 3.125 BTC per block.

How the halving could impact Bitcoin's price

The halving event can potentially impact Bitcoin's price through several mechanisms.
  • Supply reduction. The most immediate impact of halving on the BTC price is a decrease in the rate at which new bitcoins are created. However, it's worth noting that this effect decreases with each subsequent halving.
  • Market sentiment. Halving events generate significant media attention and speculation within the cryptocurrency community and beyond. Positive sentiment surrounding the halving may attract new investors and traders who anticipate potential price appreciation. This increased demand could further fuel upward price movements.
  • Historical precedence. Previous halving events in Bitcoin's history have been associated with significant price rallies in the months and years following the event. While past performance is not indicative of future results, historical patterns may influence market participants' expectations and behaviour, contributing to price movements around the time of the halving.
Previous Bitcoin halvings and their effect on the BTC price

So far, there have been three Bitcoin halving events, and a fourth is expected soon.


Bitcoin halving dates

The first halving (2012)

The first Bitcoin halving took place on 28 November 2012, reducing the block reward from 50 to 25 bitcoins.

In the months leading up to the halving, speculation and anticipation heightened, with many investors anticipating a bullish trend. Before halving, Bitcoin's price experienced relatively low levels of volatility and trading activity. Following the halving, Bitcoin's price began to steadily rise over the subsequent months, eventually reaching new all-time highs.

The first halving marked the beginning of a significant bull run for Bitcoin, with the price eventually surpassing $1,000 in late 2013.

The second halving (2016)

The second Bitcoin halving occurred on 9 July 2016, reducing the block reward from 25 to 12.5 bitcoins.

Similar to the first halving, anticipation and speculation surrounding the event intensified in the months leading up to the halving date. Post-halving, the price declined for about a month, but then the bull run began, during which Bitcoin's price surged to nearly $20,000 in late 2017.

The third halving (2020)

The third Bitcoin halving took place on 11 May 2020, reducing the block reward from 12.5 to 6.25 bitcoins.

Two months before halving, the crypto market crash occurred due to the Covid-19 pandemic. However, the price managed to recover during the remaining time before the halving. Following the halving, the price moved sideways for a while, but a new bull run began in October 2020, with Bitcoin reaching $69,000 in November 2021.



Predictions for Bitcoin halving 2024

Any predictions regarding the price of cryptocurrencies should be taken with a grain of salt. The same goes for the Bitcoin halving and predictions of what will happen after it in 2024 and beyond. Having said that, it's still possible to make some assumptions about how events may unfold after the fourth halving.

Bitcoin halving 2024 price prediction

Historical analysis of previous Bitcoin halvings reveals recurring patterns and trends that shed light on the potential impact of these events on Bitcoin's price and market dynamics. Although past performance doesn't indicate future results, we can use these patterns as a basis for making predictions about the possible future price of Bitcoin. However, it's important to recognise that market dynamics are complex and are influenced by multiple factors, so predictions based solely on historical data should be approached with caution.

In case the established pattern is repeated, the Bitcoin price is likely to move sideways or even correct for some time after the halving. After that, the bull run will continue and peak approximately by the winter of 2025 at around $150,000-$160,000. The retracement caused by the subsequent bearish trend may bring the price to the levels of $50,000-$65,000.

Will altcoins go up after the Bitcoin halving?

Altcoin prices tend to be highly dependent on the dynamics of Bitcoin's price. If the bull run continues after the halving, altcoins are also expected to go up.

Halving and Bitcoin mining

The reduction in block rewards can have profound implications for miner economics. Since block rewards constitute a significant portion of miners' revenue, the halving event can lead to a decrease in miners' profitability, especially for those operating less efficient mining operations. Miners must adapt to the reduced rewards by optimising their operations, upgrading hardware, or adjusting operational expenses to remain profitable post-halving.

Following a halving event, some miners may choose to exit the network due to decreased profitability. As a result, the network hashrate may decline, leading to longer block times. However, Bitcoin's difficulty adjustment mechanism ensures that the network automatically recalibrates to maintain a target block time of approximately 10 minutes, thereby stabilising the mining ecosystem.



The halving event can lead to shifts in the mining landscape, with some miners ceasing operations while others may continue or increase their mining activities. Miners with access to low-cost electricity and efficient mining hardware are better positioned to weather the post-halving challenges and remain profitable. Consequently, the halving may contribute to centralisation pressures within the mining ecosystem, favouring larger, more established mining operations over smaller participants. However, Bitcoin's growing adoption drives up the price, mitigating the effects of halving and increasing the profitability of mining operations. And Bitcoin's scarcity achieved through the halving mechanism helps with that.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Bitcoin's halving and the second phase of tokenomania

The 840,000th block on the Bitcoin network marked the latest halving and the introduction of the Runes protocol that opened the second memecoin hunting season. Instead of seeing lower revenue, miners encountered record-high growth.

On 20 April, the reward for mining one block was halved from 6.25 BTC to 3.125 BTC, while the network's hashrate hit a record high of 655 EH/s.


Image source: hashrateindex.com

In preparation for the event, miners blew the dust off of even low-profitable ASICs. All the hype was due to the expected growth in earnings from processing transactions. Due to limited block capacity, users are forced to pay higher fees to ensure their transaction is processed as quickly as possible. The situation becomes especially acute when there is competition for a specific block.

On 20 April, the average transaction fee skyrocketed to a record-high $128. Miners' commission income for the 840,000th block alone amounted to 37.6 BTC or $2.4 million, and the ratio of the reward for mining a block exceeded 10 to 1. In total, the commission on this day amounted to $78 million. For comparison, Ethereum only saw $3 million in commission.


Image source: cryptofees.info

The excitement was once again associated with meme coins. The Runes protocol, which was designed to replace BRC-20, launched on the same 840,000th block. BRC-20 (which is analogous to ERC-20 in Ethereum) are coins minted within the network and transmitted through the Satoshi numbering.

The problem with BRC-20 is the large increase in UTXO (unspent transaction output), which is why the creator of the Ordinals protocol, Casey Rodarmore, called them spam. He also developed the Runes protocol, which doesn't feature this shortcoming. The key differences between the two approaches are presented here:


Image source: delphidigital.io

Since the matter deals with memecoins that don't carry a payload, one key attribute is the starting block. This explains the high competition and $2.4 million paid in commission. However, interest in minting remains. As of 22 April, 6,843 Runes tokens have already been issued. They see 435,000 transactions made with them every day, which is 69% of the total.


Image source: dune.com

The second phase of token mania had no impact on Bitcoin's value and position.


Image source: StormGain Cryptocurrency Exchange

Interest in Runes will probably fade closer to May, which is what previously happened with Ordinals and BRC-20. In that scenario, commissions would decrease. Miners will have to adapt to a reduction in their overall income.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Crypto funds see outflow of funds for second week in a row

The recent halving event was characterised by explosive growth in commission thanks to the introduction of the Runes protocol in the same block. The new protocol makes it possible to mint a new subtype of meme coins. The speculative frenzy hasn't run out of steam yet. Runes account for about half of all transactions in the block, which is why the commission for sending a simple transaction now exceeds $15.


Image source: dune.com

However, investment interest in Bitcoin itself has remained lacklustre over the past two weeks. The crypto funds that drove the cryptocurrency market at the beginning of the year are showing an outflow of funds for the second week in a row. During this time, their total balance sheet decreased by $332 million.


Image source: coinshares.com

On the first business day after the halving, inflows into spot ETFs were only a modest $62.2 million.


Image source: StormGain infographic

Investors' caution is related to Bitcoin setting a new record-high before the halving event (for the first time in history) and the forecast by several analysts, with JPMorgan leading the charge, that BTC's price would inevitably correct to $50,000 due to inflated expectations.


Image source: StormGain Cryptocurrency Exchange

Several network metrics confirm the negative sentiment. The rate at which new addresses are appearing has decreased to lows last seen in 2021, while the share of long-term holders has decreased, too. The percentage of coins that have remained idle for over a year has decreased from 70.5% in mid-January to the current 65.9%.


Image source: lookintobitcoin.com

The number of whales (>1,000 BTC) has risen since mid-March but hasn't reached this year's high of 2159 addresses.


Image source: lookintobitcoin.com

Long-term hodlers are locking in profit, and interest in Bitcoin among new investors has significantly slowed. If the trends continue, the cryptocurrency will face a long-term consolidation with the threat of a breakdown into a full-fledged correction. In the current bull cycle, that consolidation is still extremely soft, reaching just 22% in January. Previous rallies saw average drops of 40%.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Bitcoin inflow to crypto exchanges hits 10-year low

While some analysts are predicting that Bitcoin will drop to $40,000 per coin and others are talking about the end of the bull cycle after hitting a new all-time high, network metrics are showing growing pressure from the demand side.

The current cycle is diverging from how things usually go since a new all-time-high price was set before the halving event. This was due to a significant influx of capital as a result of spot Bitcoin ETFs being allowed to go to market in the United States. In the past three weeks, inflows have given way to outflows, confirming the hypothesis about the end of the momentum and a potential reversal.



ETFs have been a strong mover in 2024, but they're far from the only one. Hodlers' sentiment and market participants' long-term assessments continue to play a leading role. One key metric is the inflow of Bitcoin onto crypto exchanges. The more people there are who want to exchange BTC for stable coins or fiat currency, the greater the influx is.

At the end of April, this figure fell below 10,000 BTC per day, hitting a 10-year low.



The high interest in savings is also indicated by the continued rapid influx of coins to savings addresses. These include addresses where two or more incoming transactions have been recorded and where there is no outflow of funds.



The overall picture is spoiled by a decrease in the share of coins that have remained idle for more than a year. That figure has dropped from 70.8% at the end of November to the current level of 65.8%. However, it must be kept in mind that nearly half of this trend was provided by the conversion of the Grayscale trust fund into a spot ETF. Some investors rushed to take profits, while others transferred their investments to similar ETFs with lower management fees.

Since it converted to a spot ETF, this fund has more than halved to 292,000 BTC.



If we talk about time intervals and expectations for setting new all-time highs, the post-halving price rise lasts from 350 to 500 days.



Moreover, in the first two months, there has always been a consolidation with minor price fluctuations.



Only about 20 days have passed since the halving event took place, so it's too early to summarise the new cycle's results, and investors should be patient.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Miners' record profits aren't a reason to buy their stocks

Q1 2024 was phenomenal in terms of many publicly traded miners' profitability. Riot Platforms put up a record-high net profit of $211.8 million, with 249% growth compared to the previous quarter.


Image source: tradingview.com

Marathon Digital, which rose to number one in terms of capacity among publicly traded miners last year, was officially included in the S&P SmallCap 600 index yesterday. This index tracks companies with a market capitalisation between $1 billion and $7 billion. Marathon became the first among its peers to receive this honour. Its capitalisation reached $5.5 billion, while net profit in Q1 2024 was around $200 million.


Image source: companiesmarketcap.com

At the same time, the pace of the arms race remains high, and competition is becoming tougher. Riot plans to nearly treble its computing power this year to 31.5 EH/s and to reach 100 EH/s by 2027.


Image source: riotplatforms.com

Firstly, miners' optimism is associated with Bitcoin's movement. Most of them are baking in an increase for BTC's value to $100,000-$150,000 in their forecast calculations for the next two years.


Image source: cryptocurrency exchange StormGain

Secondly, miners are pinning high hopes on the network, seeing the spread of by-products, such as ordinals and runes, whose hype in April led to an explosive increase in commission payments. On the day of halving, the income from filling blocks was over three times higher than the income from mining the currency, setting a new all-time record.


Image source: hashrateindex.com

After the halving, however, the price stalled, and interest in quasi-tokens faded. Network fees have returned to minimum levels, depriving miners of a promising source of income.


Image source: dune.com

Halving deprived miners of half of the income received for mining a block. Since the new reality was too harsh for some miners, some equipment was turned off. The network hashrate decreased from a record-high 691 EH/s to the current level of 582 EH/s.

The reduction in overall computing power will lead to the highest adjustment in difficulty since December 2022, with a decline of approximately 5.2% today.


Image source: btc.com

Q1 2024 was successful for miners primarily due to the emergence of spot ETFs, which caused Bitcoin's price to rise by 66% during the reporting period. However, Q2 may become a trying period due to the significant decline in revenues.

Mining companies are now reporting record profits, and their stocks are soaring on the news. Nevertheless, now is not the best time to invest in the crypto-mining industry.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Factors for Ethereum's fall in May

For the third year in a row now, Ethereum has been outpaced by Bitcoin. This year alone, it's dropped by 13% compared to the original cryptocurrency. Two important factors point to this trend strengthening in May.


Image source: cryptocurrency exchange StormGain

Shattered hopes

The main catalyst for Bitcoin's rise this year has been the emergence of spot ETFs in the US, which have attracted $11.7 billion in investment in five months of operation.


Image source: farside.co.uk

Ethereum investors are counting on Ethereum experiencing a similar takeoff when the deadline for a decision to be taken on VanEck's application to launch a spot Ethereum ETF approaches on 23 May.


Image source: twitter.com/JSeyff

If the SEC wants to refuse it, it will have to find a compelling argument. Otherwise, the very first judicial objection will put the regulator in an awkward position, which is what happened with Grayscale’s application last year.

Since the staking programme is one of the stumbling blocks, Ark Invest and 21Shares recently introduced an amendment to exclude this option for ETF investors. Most experts, however, agree that this won't help.

The SEC was extremely negative towards Ethereum after the cryptocurrency transitioned to the Proof-of-Staking (PoS) algorithm, which SEC Chairman Gary Gensler notified the public about on the same day. In his opinion, the altcoin should be considered a security rather than a commodity like Bitcoin. This places a completely different level of demands on both ETF managers and investors.

One indirect sign that the SEC will reject the application in May is the lack of negotiations with the applicants. Before Bitcoin ETFs launched, the regulator's representatives met with potential managers several times a week for a month and a half.

If the SEC rejects the application, it would serve as grounds for a sell-off of Ethereum since some investors are disappointed in its prospects.

Inflation

Ethereum became deflationary after the London hard fork and the inclusion of a mechanism to burn part of the reward. In other words, the number of coins destroyed began to exceed the number of new ones issued. All other things equal, this would be a reason for the price of any asset to go up. The effect intensified after the transition to PoS.

However, the staking craze and low network activity led to the undesirable result of inflation taking place again. In the past month, this indicator has stood at 0.4%.


Image source: ultrasound.money

The number of active validators (who must be paid a reward) is now over 1 million, which is more than enough to ensure the network's security and functionality. A further influx will only cause congestion due to the growth of technical messages.


Image source: validatorqueue.com

The algorithm for reducing profitability based on the number of validators turned out not to be flexible enough, which is why developers are considering the option of forcing a reduction in the reward.

At the same time, network activity, which led to increased coin burning, fell due to a shift in interest to L2 and L3 networks. Simply put, users began to spend more time in Base or Arbitrum, from which transactions in Ethereum are received in a compressed form.


Image source: l2beat.com

Since the mentioned trends are gaining momentum, it's likely that inflation in Ethereum is here to stay for a long time. It will have a long-term negative effect on the cryptocurrency's value, and coupled with the SEC’s refusal, it will lead to Ethereum pulling further apart from Bitcoin.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Record outflows from Hong Kong ETFs

The last major event to move Bitcoin's price was the launch of spot ETFs in Hong Kong in early May. The ETF market's small market capitalisation of $50 billion (versus $9 trillion in the US) has been offset by rumours of an imminent connection to the Stock Connect system, which will open up access to mainland Chinese investors.

The hopes were false, though. The Hong Kong stock exchange denied the rumours. On 13 May, Chinese Bitcoin ETFs saw their largest outflow, $32.7 million.



US ETFs don't look much better. After a month-long sell-off, they returned to regular inflows, closing the last week at $286 million.



Despite that, Bitcoin is performing well enough and hasn't fallen into a full-blown correction. The maximum drawdown from the record high is only 23%. In previous bull cycles, it ranged from 36% to 71%.



One key factor for the price's stabilisation is institutionalisation. Bitcoin sees less price turbulence because it's recognised and incorporated into the traditional financial system via the same ETFs. In the past, large US investors overlooked the asset because of the risk that companies would suddenly ban cryptocurrency transactions like what happened in China. However, these companies are now increasingly looking to invest in it.

Even JPMorgan, whose head called Bitcoin a fraud and a worthless asset, declared to the SEC on 10 May that it purchased shares in spot Bitcoin funds worth a total of $760,000. Compared to the bank's total amount of assets under management, the purchase size is modest, but the start of cryptocurrency investments has now taken place.

With inflows into spot ETFs slowing considerably and exchange-traded activity already down 43.8% in April (compared to March), macroeconomic factors are coming to the fore.



The focus this week will be on data from the US. The Fed previously planned to cut its key rate in June. However, the jump in inflation to 3.5% in March forced the regulator to reconsider when it would begin cutting rates.



The data for April may have a surprise in store. If inflation declines significantly, the chances of a monetary policy reversal in the summer will increase significantly. This, in turn, will be grounds for risky assets, including Bitcoin, to strengthen. The indicator will be released on 15 May.


StormGain Analytics Group
(an all-in-one cryptocurrency platform)
 
Jan 25, 2024
62
0
FTX clients unhappy with upcoming 118% bankruptcy payouts

In November 2022, FTX, the third-largest crypto exchange, collapsed as a result of diverting customers' funds to its affiliate company, Alameda Research. Funds from the company it controlled were spent on political donations, purchasing luxury real estate and unwise investments. Each year, the hole got bigger and bigger, reaching $10 billion in 2022.



The debt was masked by issuing more of the FTT token, which was listed on Alameda's balance sheet as an asset and as collateral for loans issued to third parties. On 2 November, Coindesk published an article that triggered a massive outflow of client funds and a liquidity crisis at Sam Bankman-Fried's empire.

On 11 November, FTX declared bankruptcy, leaving over 2 million customers high and dry. The liquidation committee's first valuation showed that the total cryptocurrency held in all controlled accounts was worth only $3.3 billion, while the company had liabilities of $8 billion to customers.



The first compensation announcement presupposed a payout to customers of just 10 cents on the dollar. However, as the values of assets have risen and the commission has succeeded in finding all the cryptocurrency wallets controlled by the company, the expected payout for most customers has risen to 118 cents on the dollar.



It's very rare for global jurisprudence to see clients recover more money than they had in their accounts as a result of a private company's bankruptcy. However, not all customers were happy with this result.

The reason for this is that payments are scheduled in US dollars, according to how things were on the day of the bankruptcy. Meanwhile, the value of Solana, which formed the backbone of assets held by FTX, has risen nine-fold to $162 during this period. Bitcoin's price, meanwhile, has quadrupled to $66,000.



Bloomberg reports that more than 80 petitions have been filed with the bankruptcy court by dissenting customers who want their cryptocurrency funds back. FTX's CEO, John Ray, responded to this by saying that he had the best interests of the majority of customers in mind. The cryptocurrency assets, on the other hand, are simply not enough to meet all requests in full.

In June, customers will be able to vote on the proposed reimbursement plan. If the majority favours a cryptocurrency payout, the judge may reject the bankruptcy commission's proposal and send it back for further review. If the majority of clients are satisfied with a payout in US dollars, they will receive the funds throughout 2024.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Meme Coin Madness: PEPE is now in the Top 20

In the crypto market, optimism traditionally follows in Bitcoin's footsteps and spreads to coins with smaller capitalisation. At the peak of previous bull cycles, Bitcoin's share of the market ranged from 40% to 33%. It's now at 53%, hinting at the growth potential of other coins.



The current cycle is different in that market participants are paying more attention to meme coins. Although it wasn't his intention, developer Casey Rodarmore kicked off a wave of excitement when he launched the Ordinals protocol.

In 2023, meme coins started to pop up on various blockchains. They caused fees with Bitcoin to rise above $30, and Solana is still experiencing high congestion and a large number of failed transactions because of them.



The most successful of the meme projects was the PEPE coin, which was issued by an anonymous user in April 2023 on Ethereum's network. In 13 months, its capitalisation went from zero to $6.8 billion, overtaking coins such as UNI (one of the DeFi sector's most popular platforms) and Litecoin. PEPE's price has risen thousands of times in that period, and the Internet is rife with stories of lucky investors who have made millions of dollars.



At the same time, meme coins don't have any inherent use, and teams of professional marketers are often secretly the ones promoting them. As such, the creators of the PEPE fan site should get credit. They honestly warn users about the lack of connection to brand creator Matt Fury and the coin's complete worthlessness.



As PEPE grows, whales, i.e., those with wallets of 1 billion coins or more, are smoothly offloading their holdings. They still own 96% of all coins issued, and a massive reset remains only a matter of time. The rest of the groups, however, are showing an increase in shareholdings, helped by a generally positive news environment.



We can take the research from CoinGecko as an example of this positive environment. The website's main conclusion is the high effectiveness of investments in meme coins.



The ten most successful tokens from each group at the end of the first quarter were used to build the ranking, leaving out tens of thousands of meme coins that showed zero or negative results during the same time (read more in-depth in our article).

Meme coin investments can really make an investor rich if they can find the next lucky coin. However, from a statistical point of view, this is still a very hard thing to do.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Why Bitcoin's price will rise $150,000

We're witnessing a revolution in the financial industry, with professional market participants and regulators recognising decentralised cryptocurrency as an investment asset and a former US president including cryptocurrencies in his election platform.

One clear indication of the recognition is the rise in Bitcoin ownership by licensed exchange-traded funds. Today, their combined holdings exceed 1 million coins or $68 billion. That's 5% of the total circulating supply of 19.7 million BTC.


Image source: StormGain infographic

Canada, Germany, Switzerland, Brazil, China (Hong Kong), Australia and others are among the countries that have launched crypto funds. The US leads the way with an 85% share, where spot ETFs that have emerged this year have attracted $13.7 billion in investments. One-third of this amount was provided by large institutional investors, whose assets under management start from $100 million.


Image source: farside.co.uk

In the past three weeks, US funds have seen a return to pure accumulation, gathering $2.1 billion in investments.


Image source: StormGain infographic

Notably, BlackRock's fund will soon overtake Grayscale, which has been in operation since 2013 and converted from a trust to a spot fund. Grayscale is experiencing outflows for a number of reasons, totalling $17.7 billion this year. Its velocity is weakening, which will further favour the overall ETF statistics.


Image source: x.com/HODL15Capital

Analysts at Bernstein suggest that cryptocurrency funds will see an inflow of $100 billion over the next two years. Significant demand pressure will see Bitcoin's price rise to $150,000 as soon as next year.


Image source: cryptocurrency exchange StormGain

The growing acceptance of Bitcoin is evident in the interest from professional market participants and the changing political agenda. In May, the US Congress approved the FIT21 digital asset bill, which was opposed by SEC Chairman Gary Gensler and President Joe Biden. But it'll be hard for the president to veto since his election opponent Trump has made supporting crypto innovation one of the planks of his campaign platform.

Recent polls in the US have shown that 48% of cryptocurrency-owning voters would support Trump, while only 39% would vote for Biden. Although Trump had a negative view of cryptocurrencies in the previous election race, they've taken a key spot among his positions, posting in recent days:

"Crooked Joe Biden, on the other hand, the worst president in the history of our country, wants IT to die a slow and painful death. That will never happen with me!"


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Ethereum is losing influence in the stablecoin market

Many have high hopes for Ethereum in response to the launch of spot ETFs, but the list of the network's internal problems continues to grow. In addition to increased centralisation, excessive MEV influence, high fees and excessive validators, the network is now seeing lower practical use.

One of the key uses of smart contract-enabled blockchains is for stablecoin transactions. At first glance, Ethereum is doing well since the network's stablecoin capitalisation increased by 17.8% to $80 billion in 2024.


Image source: defillama.com

However, at the same time, the segment's total capitalisation jumped 23.1%, while Ethereum's price jumped 65.4%. In fact, the network is losing the weight of its share, especially in terms of ETH.


Image source: cryptocurrency exchange StormGain

Two trends led to this. In terms of Tether (USDT), interest shifted to Tron. For Circle (USDC), interest shifted to Solana. These networks beat Ethereum in terms of fees and transaction speed but are inferior in security and uptime. The latter applies more to Solana.


Image source: defillama.com

However, over time, more and more projects are turning a blind eye to technical risks in favour of low fees. The other day, PayPal announced the upcoming minting of the PYUSD stablecoin on Solana. The same coin debuted a year ago on Ethereum. This is another breakthrough for PayPal after it launched an interbank exchange pilot project with Visa.


Image source: defillama.com

Ethereum's decreasing relevance as a stablecoin operator led to a decline in its share of the relevant segment, going from 62% to 50% in a year and a half.


Image source: defillama.com

Competition is growing, and Ethereum's developers aren't managing to resolve old problems before new ones pile up. If the trends continue, it will be increasingly difficult for the altcoin to maintain its leadership and move the way investors would like to see it move every year.

The only caveat to the conclusion is the development of Layer-2 (L2) networks, which conduct fast and cheap transactions, with Ethereum (L1) used as a security guarantor.


Image source: defillama.com

For example, Base's share of USDC's capitalisation has risen from 0.6% to 9.5% over the past five months, pushing Solana into third place. However, in this case, Ethereum's relevance becomes dependent on the success and loyalty of third-party projects.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
The risks of staking the fastest-growing stablecoin in history

The market capitalisation of the new algorithmic stablecoin USDe has grown from $5 million to $3 billion — a 600-fold increase — in six months. In terms of pace, it overtook the Hong Kong FDUSD, which initially secured zero commissions in Binance, and the infamous UST from the Terra project (LUNA). Some users are sounding the alarm just because of the similarities between USDe and UST.


Image source: defillama.com

Apart from the lack of provision for reserves (excluding the nominal compensation fund), the similarity of the projects lies in the high staking fees. For UST, the fee is 20% annualised. For USDe, that number is over 35% on some platforms.


Image source: app.ethena.fi

Here's how it works. A user deposits Ethereum, Bitcoin, USDT or LST tokens (e.g. LIDO) and receives USDe in return. The user can then lock this stablecoin in a smart contract to get the above-mentioned yield.


Image source: app.ethena.fi

Rewards are generated by staking coins that were originally deposited and from arbitrage transactions conducted by the platform when 1 ETH is bought on the spot market and 1 ETH is opened for sale on the futures market. The net position turns out to be neutral, but when buyers prevail (in a bullish phase), a premium is paid to sellers, which is called the funding rate.

Accordingly, the more intensely the price and optimism rise, the higher the preponderance of buyers is and the bigger the reward is.


Image source: coinglass.com

The market is currently booming, and USDe is attracting users with high yields. So, why is the project being compared to the collapsed UST, which had a capitalisation of $20 billion at its peak?


Image source: cryptocurrency exchange StormGain

The reason is the algorithmic nature and lack of rigid scripts for all cases. USDe's sustainability is based on the appeal of staking due to high yields. However, it will only remain stable when prices are rising. Once we move into a bearish phase, short arbitrage positions will become unprofitable. If users start getting rid of USDe en masse, the balancing mechanism could fail, the stablecoin exchange rate would sag, and panic would end its history.


Image source: coinmarketcap.com

However, Ethena founder Guy Young believes this is nothing to worry about.

"If necessary, we will change our strategy to generate income in a bear market".

The second Achilles' heel is the high dependence on platforms where collateral assets are held. On 15 April, Ethena Labs reported $1.3 billion sitting in Copper, $1.1 billion in Ceffu and $0.5 billion in Cobo. A successful hacker attack on any of them would risk USDe's collapse for holders.

These are the two most negative scenarios that may not materialise at all. At the same time, as its capitalisation increases, yields will still decline, even under favourable conditions, which will naturally reduce the project's appeal and limit its growth. For example, the yield from Ethereum staking falls due to the increase of locked ETH. The yield from arbitrage falls when an equilibrium between buyers and sellers is achieved.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Bitcoin is leaking from cryptocurrency exchanges

After setting a new price high in mid-March, Bitcoin went into a prolonged consolidation. During this time, cryptocurrency exchanges' combined BTC balance decreased by 5% to 2.85 million. The decrease is primarily due to withdrawals to cold wallets, which demonstrates traders' anticipation of Bitcoin's price increasing further.


Image source: cryptoquant.com

Young whales showed significant accumulation, adding $1 billion to their wallets every day. The head of the analytics firm CryptoQuant, Ki Young Ju, notes the high similarity in their behaviour to 2020.


Image source: x.com/ki_young_ju

Back then, the consolidation phase around the price point of $10,000 lasted for about half a year. After that, the price increased 2.5-fold in three months.


Image source: cryptocurrency exchange StormGain

Large institutional investors from the US are some of the prominent young whales. 13F reporting showed that one-third of all capital inflows into spot ETFs in Q1 2024, which amounted to $4 billion, came from companies with more than $100 million in assets under management (AUM).

US ETFs continue to grow and now have a value of $14.1 billion.


Image source: StormGain infographic

But the big players are just starting to whet their appetites. For example, Marquette University finance professor David Krause believes the State of Wisconsin Investment Board (with an AUM of $156 billion) is currently pricing in public opinion after buying $150 million in shares of BlackRock and Fidelity funds in Q1. If the response is favourable, Krause is confident that investments in cryptocurrency will increase and that the other pension funds will follow Wisconsin's example.

Institutional capital's interest in cryptocurrency and the renewed outflow of coins to cold wallets are creating favourable territory for Bitcoin's continued growth. The closest event that has the potential to be a catalyst is Franklin Templeton's spot ETH ETF application. The final decision on whether to approve it is due on 11 June 2024.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
FDIC: US banks' unrealised losses rose to $517 billion

The US banking sector remains depressed after monetary tightening in 2022. This is clearly evident in the significant increase in unrealised losses, which stood at $517 billion in Q1 2024.


Image source: fdic.gov

Due to tighter credit conditions and lower yields on a number of assets, the net interest margin fell to 3.17%, down from a pre-crisis average of 3.25%.


Image source: fdic.gov

A prime example of the impact of a high key rate was the bankruptcy of Silicon Valley Bank (SVB) last year. Treasury bonds on the balance sheet (about $100 billion at the time) lost a lot of value after the regulator's action. The need to sell to settle deposits resulted in significant losses, news of which increased panic and deposit outflows.

SVB failed and filed for bankruptcy. In response, the Fed announced special terms for banks, allowing them to sell bonds to the regulator at the purchase price rather than the market price. The regulator has also launched an emergency credit line for the sector. Total loans disbursed for the year exceeded $150 billion. The programme was wound down on 11 March.


Image source: bloomberg.com

When three banks in a row failed last spring, and First Republic had to be rescued by government intervention and a consortium of banks (it still went bust a year later), Bitcoin experienced a significant influx of investment. Its independence from financial institutions and decentralisation were once again in demand.


Image source: StormGain Cryptocurrency Exchange

The situation may repeat itself in the near future as the banking sector continues to struggle. According to the Federal Deposit Insurance Corporation (FDIC), the number of troubled banks rose from 52 to 63 in the last quarter and their total assets increased by $15.8 billion to $82.1 billion.

Lending, which is one of the main sources of income, is showing a slowdown. Meanwhile, the real estate sector, which is the leading sector for the banking industry, is signalling an impending crisis. In particular, a significant decline in the number of new housing starts compared to completions is being seen. The last time this happened was before a large-scale recession.


Image source: zerohedge.com

All of this will lead to a drop in banks' operating profit in the near future. With a high key interest rate, new shocks and a string of bankruptcies are likely to occur.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)
 
Jan 25, 2024
62
0
Bitcoin Network Reaches Third Place in Digital Object Sales

Just 18 months after Casey Rodarmor unveiled the Ordinal protocol, the Bitcoin network already ranks third in terms of digital object sales, coming in at $4.3 billion. Digital objects include graphic images, audio, video and other files, as well as quasi-tokens.


Image source: cryptoslam.io

Among the great variety of tokens, quasi-tokens are the most popular ones. At first, standard BRC-20 coins were in the lead. After Bitcoin's halving event, they were eclipsed by Runes. The essence, however, is the same: 99.9% of the group is represented by meme coins, and their minting and exchange are driven by speculative sentiment.


Image source: dune.com

If we talk about NFT collections that are popular on the Bitcoin network, the first place goes to NodeMonkes with trade volume of $238 million. In comparison, the Ethereum network's top collection with monkeys is Bored Ape Yacht Club, which sees $3.2 billion in volume.


Image source: coingecko.com

Bitcoin reached third place in terms of trading volume among blockchains quickly enough, but further expansion will be difficult. The reason for this is low. As soon as the hype around digital artefacts starts to grow, commission costs creep up.

Record interest in quasi-tokens was shown on 20 April, as the Runes protocol was launched at the same time as the Bitcoin halving event took place. Runes took up 73.5% of all transactions that day, and the network's average commission jumped to a record $128.


Image source: dune.com

There is no direct impact on Bitcon's value from circulating digital artefacts.


Image source: cryptocurrency exchange StormGain

For this reason, many users have a negative view of quasi-tokens, which cause an increase in costs without carrying a payload.


Image source: blockchain.com

The opposite view is held by miners, who generated a record $108 million in revenue on 20 April (in spite of the halving of the reward per block mined).


StormGain Analytics Group
(a platform to trade, exchange and store cryptocurrency)