Over 2 billion dollars worth of Bitcoin sold off, should retail investors follow or hold on?

Source of the original text: 10XResearch

Compiled by Wenser from Odaily Star Daily

Editor’s note: Following the article ‘Altcoin Bear Market, Traders Face Difficult Times’, the well-known research institution 10X Research has once again published the latest views on the Bitcoin market. Combining the recent Bitcoin ETF, miners, listed mining companies, and the selling by early Bitcoin holders, 10X Research has provided a price forecast for the next phase of the market. Whether it can reach the expected level will likely determine the market’s future direction. Odaily Planet Daily will compile this article for readers’ reference.

The four-year cycle and supply-circulation model are key tools for price prediction.

As the basis for the estimation of Bitcoin price, the quadrennial predictive parabolic cycle pattern is crucial, which is also the basis for the estimation of 95% of cryptocurrencies. However, this pattern is often overemphasized, implying that the value of Bitcoin will rise infinitely. Another key tool is the “supply-circulation model,” which predicts the infinite value of Bitcoin by emphasizing the decrease in supply.

As usual, most experts this year still predict that the price of Bitcoin will reach new highs, with forecasts ranging from $100,000 to $150,000 or even higher.

Technological innovation and human psychology, particularly the interplay of greed and fear, are the key catalysts of the cyclical market of cryptocurrencies. Nonetheless, the market is fundamentally a game of momentum - most participants actively drive prices higher and maintain a consistently bullish stance. This self-fulfilling prophecy underscores the necessity of seizing upward momentum when opportunities arise. At the same time, this phenomenon also suggests the potential for more cycles in the future.

The practical value and valuation based on cash flow of Bitcoin should be discussed. Unlike other assets, if valued based on the production cost curve, Bitcoin is similar to gold. Over time, the psychology of buying Bitcoin becomes more complex, because buying a high-priced Bitcoin (such as $70,000) seems less attractive than buying a billion crypto assets for $100. Meme coins exploit this psychology, and public companies achieve the same purpose through stock splits.

Bitcoin (purple) compared with fund flow indicator (white) chart

Three major groups selling Bitcoin, the arbitrage opportunity for hedge funds may have disappeared

Despite the current market structure not being completely bullish, based on the viewpoint that ‘after reaching a historical high, a parabolic rise is usually achieved’, we speculated three weeks ago that Bitcoin would attempt to break through the $70,000 level; and when the breakout fails, risk management becomes crucial. At that time, we estimated that lower inflation data would act as a catalyst for the rise in Bitcoin prices, and indeed it did, but Bitcoin faced a large amount of selling.

First, contrary to the positive buying brought by the previous inflation changes, the Bitcoin ETF has sold $1 billion in assets in the past eight trading days.

Secondly, the over-the-counter sales of Bitcoin miners have increased to the highest daily trading volume since March, with sales exceeding 3,200 Bitcoins in a single day. Listed mining companies occupy 3% of the market share, but sold 8,000 Bitcoins in May (June data has not been released yet, but miners’ selling volume has significantly increased). Bitcoin reserves of miners have decreased from 129 billion US dollars on June 5th to 118 billion US dollars now.

Finally, another group of sellers are early Bitcoin holders, whose selling amount is 12 billion dollars.

All three seem to be satisfied with selling Bitcoin at a price of over $70,000.

We estimate the average entry price for Bitcoin ETF to be between $60,000 and $61,000, and a return to this level could trigger a wave of liquidation. When Bitcoin dropped to $56,500 on May 2nd, BlackRock issued a statement saying that “sovereign wealth funds and pension funds are about to enter the market.” This to some extent prevented further decline in Bitcoin, but now BlackRock says that 80% of the buying volume for their Bitcoin ETF IBIT comes from retail investors rather than institutions (source: this report).

Currently, the price level of $61,000 is in line with the 21-week moving average, which was a good risk management indicator for buying (when the Bitcoin price is above the 21-week moving average) or selling in previous cycles. We estimate that 30% of the $14.5 billion Bitcoin ETF comes from hedging funds seeking arbitrage opportunities. However, the ETF liquidation of eight trading days indicates that these funds may not continue arbitrage trading (going long on ETF and shorting CME futures) as the arbitrage opportunity has disappeared approaching the futures expiration date (June 28th).

Bitcoin (white) compared to its 21-week moving average (purple) chart

The reason why arbitrage opportunities exist is that high interest rates allow exchanges to sell futures at a premium price, and most cryptocurrency traders tend to be bullish (on the buyer side), which pushes up the cost of funds. The average annualized funding rate for Bitcoin in 2024 is 16%, while in the past few days, this number has only been 8-9%. Therefore, this single-digit funding rate may not be able to sustain the arbitrage game, resulting in continuous outflows from Bitcoin ETFs. This is the other side of the arbitrage signal effect explained in our articles on March 8th (the first cautious statement since the Bitcoin price reached $40,000) and April 5th.

Our market structure analysis breaks down the components of liquidity, so sometimes we provide cautious views that are opposite to the potential bullish (parabolic) narrative. In fact, despite the significant slowdown in Bitcoin ETF inflows since March 12th (when CPI data rose rapidly), a substantial decrease in altcoin trading volume, and a subsequent decrease in funding rate, the price of Bitcoin has still fluctuated within a 15% wide range over the past three months.

Since April 21st (Bitcoin halving completed), the amount of stablecoin minting has significantly slowed down. These factors (Bitcoin ETF inflows and stablecoin minting pause, fall in altcoin and funding rates) have raised concerns about Bitcoin price falling to $52,000-$55,000, which is only about 3% different from the actual market performance (Bitcoin price dropped to a minimum of $56,500).

On May 15th, after the release of lower CPI data, Bitcoin ETF saw a capital inflow of 3.8 billion USD in the following 20 days. If the growth continues, we expect the lower CPI data to drive a market rebound, and we expect the CPI data to be below 3.0% later this year. In July 2019, the Federal Reserve lowered interest rates due to declining inflation and weak economic growth, which caused Bitcoin to fall by as much as 30%, so the reason for the interest rate cut is important.

However, due to the weakening attractiveness of arbitrage (funding rate), the purchase volume of this Bitcoin ETF did not realize growth. When the Securities and Exchange Commission (SEC) in the United States hinted at the possible approval of Ethereum ETF on May 20, with the increase in futures positions, the market structure improved significantly. Within about three weeks, the market purchased $4.4 billion in Ethereum futures positions (an increase of 50%) and $3 billion in Bitcoin futures. Combined with the CPI data on May 15, this effectively improved the market structure and helped the price of Bitcoin rise to $70,000, prompting early holders, miners, and ETFs to actively choose to sell their Bitcoin holdings.

Key points: Can we hold 61000 and 65000?

Trading is always a ‘risk-reward game’. As we pointed out on June 3rd, if the price of Bitcoin fails to reach a new high in June, excessive ETH futures positions will face associated risks. Since the Securities and Exchange Commission (SEC) approved the 19b-4 filing on May 23rd (the S-1 filing is still under review), leveraged futures traders have been the main, if not the only, buyers. Their capital inflows have pushed Bitcoin back to the top of the range, coupled with lower CPI data, the risk/reward ratio favors a breakthrough in Bitcoin.

Lower inflation data, the US election, and the rebound in US stocks are the non-encrypted market catalysts that support the rise in Bitcoin prices later this year. However, without more stablecoin minting, inflow of Bitcoin ETF funds, increase in futures leverage, or the emergence of other liquidity (market structure) indicators, Bitcoin longs may miss the opportunity to pump.

Each time the price attempts to break through and fails, or Bitcoin trading returns to the historical high point of the previous cycle (with $68,300 as the dividing line), we need to redefine a horizontal line for risk management of positions.

In multiple previous periods, the 21-week moving average of $61,000 has to some extent avoided a larger pullback.

Another key level is $65,000, which is the middle value of the price range in the past three months, possibly indicating the formation of a larger cycle top.

We will not blindly believe baseless statements, but we trust information reflected by data more. Looking at the lack of significant increase in the number of market participants (including early holders, Bitcoin ETF buyers, miners, stablecoin issuers, etc.), the current market situation is worrisome.

Therefore, everyone needs to decide their own risk tolerance. Combining risk management and data analysis, traders can “stay at the table”. Just as a veteran trader told us 15 years ago - “the market opens every day”, which means we will always have the next opportunity, the next cycle.

Bitcoin (white) compared with its monthly Stochastic Oscillator (purple) chart