Bitfinex Alpha | Bitcoin Markets Underpinned by Resilient HODLer Buying

Contradictory economic data continues to emerge from the US. Many indicators demonstrate striking resilience, while others warn of an imminent recession. The Leading Economic Index registered its 14th consecutive month of declines, but economists are still hesitant to call a recession.  US GDP has expanded in Q1 and is expected to persist on this trajectory in Q2 too, but the Conference Board forecasts suggest that Q3 2023 through to Q1 2024 will mark a contraction due to the sustained stringent monetary policies that have been imposed this year and reduced government expenditure. The market now forecasts that there is a 71.9 percent likelihood of a 25 basis point rate hike at the Fed’s July meeting. 

The US housing market, howeverm does not appear to be perturbed by such a scenario, with a 21.7 percent surge in housing starts in May, the most significant since 2016, indicating that residential construction could well become a driver of economic growth. Homebuilders are seeing a surge in confidence, marking the first positive shift in 11 months. An increase in foot traffic, a decrease in competition, and improvements in supply chains all point to a potential uplift in the housing market.

Bitcoin market dynamics are also looking complex. A recent upswing in Bitcoin volatility, following a period of sideways price action, is painting a multifaceted picture of the market’s current landscape. 

On-chain data shows that HODLers continue to accumulate at a steady pace of 42,200 BTC per month, highlighting an undercurrent of resilient demand, despite thin trading books, low market liquidity, and even in the wake of the SEC’s legal action against Binance and Coinbase.

Volatility spiked after Blackrock, the world’s largest asset manager, and two other firms, filed Bitcoin spot market ETF applications, taking the price above $30,000, but in relative terms, volatility metrics are still low.  Realised Volatility in the BTC options market currently stands at around two percent, a low not seen since the 2021 bull run. While Implied Volatility has increased only slightly in anticipation of the Bitcoin halving and potential ETF approval, overall investor sentiment seems to be leaning towards a state of indifference and low market activity.

That said, some financial markets and cyclical on-chain indicators are providing strong signals of a new buying phase. The Bitcoin Price-to-Earnings ratio for miners is climbing as miners appear to be able to consistently profit by selling their Bitcoin holdings.

On-chain, the behaviour of various Bitcoin holder cohorts is also bullish. The recent Bitcoin rally has seen various categories of Bitcoin holders come into profit, but this has resulted only in a reduction in selling pressure, consequently supporting the upward price movement.

Meanwhile, over at Ethereum, the blockchain’s core developers are contemplating a significant increase in the maximum validator balance from 32 ETH to 2,048 ETH. This proposal aims to enhance network and operational efficiency, indicating the platform’s commitment to optimising user rewards and overall performance.

However, the regulatory landscape continues to pose challenges for the crypto sector. Binance, one of the leading crypto exchanges, has withdrawn its registration with the UK’s Financial Conduct Authority due to increasing regulatory pressure while also facing investigations in France and legal issues in the US. Additionally, the conviction of Terraform Labs’ founder, Do Kwon, for using a counterfeit passport further impacts the operations and reputation of that beleaguered blockchain.

The market continues to be complex and dynamic, showing signs of bullishness but still under tremendous scrutiny by regulators and market participants.

Have a great trading week!

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