10x Research: Don't panic, the crypto market will reverse in August

Written by: 10x Research

Compiled by: Azuma, Odaily Planet Daily

Six issuers of Ethereum spot ETFs have submitted updated versions of S-1 forms, which means that the U.S. Securities and Exchange Commission (SEC) may be involved at any time Final approval of the issuance of Ethereum spot ETF. Cryptocurrencies, meanwhile, appear to be in the midst of a rebound this week, a rebound we predicted in our report last weekend on expectations that the U.S. will release lower-than-expected CPI data on Thursday.

The oversold indicator shows that the market is looking forward to a possible small-scale rebound, which means that the market trend will reverse in the short term. Currently, two of the three reversal indicators have shown bullish signals, and the RSI (relative strength index) is temporarily at 38%, which means that bears may also need to wait and see temporarily until the price of Bitcoin is between $60,000 and $62,000. The price range encountered resistance, which caused the market to decline again.

From a technical analysis perspective, the price range of $55,000 to $56,000 is forming a support position. However, given that the medium-term technical pattern has deteriorated, we predict that this will only be a short-term rebound that will not last long. It is particularly important to note that the recent trend of Bitcoin falling during Asian trading hours and performing relatively well during European and American trading hours continues.

Although the price of Bitcoin has fallen by 20% in the past 30 days, Bitcoin futures traders have remained relatively bullish since expectations for the approval of an Ethereum spot ETF increased on May 20. Since this point in time, Bitcoin’s open interest has increased from 260,000 BTC to 305,000 BTC, and is temporarily reported at 277,000 BTC. However, the price of Bitcoin has fallen from US$66,000 to US$57,000 during the same period; the situation is similar for Ethereum, Although the trading price has remained basically unchanged at around $3,068, open interest has increased from 2.6 million ETH to 3.1 million ETH.

Since May 24, the negative premium of Grayscale Ethereum Trust Fund’s net asset value (NAV) has shrunk significantly to only -1.5%, which has narrowed significantly from the peak in December 2022 (-60%). This is mainly due to the expectation that the Ethereum spot ETF will be approved soon. The Grayscale Ethereum Trust has approximately $9 billion in assets under management, and the ETN’s transition to an ETF means investors will be able to freely redeem their shares.

Once the Ethereum spot ETF starts trading, Grayscale’s redemptions could cause significant selling pressure, similar to what happened with Grayscale Bitcoin Trust (GBTC) in January 2024. Since the Bitcoin spot ETF opened for trading, GBTC’s assets under management have decreased by 47%. It is predicted that Grayscale’s capital outflows may offset the capital inflows of the other five ETF issuers.

Therefore, although the current price of ETH is still similar to when the SEC expressed its intention to approve it, there may still be a potential "profit-exhausting" market when the S-1 is approved. In the case of ETH, open interest in the futures market shows a strong bullish attitude towards ETH, while potential grayscale outflows could once again influence market movements.

A similar pattern exists on Bitcoin, where inflows into spot ETFs precede the release of CPI data. Net inflows into the ETF on Monday hit another $295 million, after the Bitcoin ETF recorded $143 million in net inflows last week. This echoes the 20 consecutive days of net inflows totaling $4 billion observed during the release of CPI data in May and June. However, it should be noted that after the release of CPI data in June, Bitcoin ETFs saw $1.2 billion. net outflow.

The market expects the CPI data to be released on July 11 to drop to 3.1%, which is in line with our guess and the market’s rebound expectations. If the core CPI can fall by 0.2% month-on-month, it is expected to still affect the price trend of Bitcoin. However, potential selling pressure from the German government, Mt.Gox, and the upcoming Bitgo cannot be ignored.

News about "FTX creditors may receive approximately US$16 billion in compensation" has recently attracted widespread market attention. However, many of FTX's claims have actually been acquired by professional bankruptcy claims agencies. These institutions will only focus on the recovery expectations and arbitrage space of the claims themselves, and will probably not invest the received US dollars into the cryptocurrency market again. We estimate that funds flowing back into the market could be between $3.2 billion and $5 billion. In addition, the price of Bitcoin was about $16,800 when FTX was liquidated in November 2022, and it is $57,000 today. The current correction is not an attractive discount for FTX’s creditors.

The deadline for FTX customers to vote on the bankruptcy liquidation plan is August 16, and the related hearing will be held on October 7, when Judge Dorsey will consider whether to approve the plan. It is worth mentioning that overseas creditors may face tax deductions of up to 30% when final payments are made.

To sum up, we predict that Bitcoin is likely to first rebound to around US$60,000, and then fall again to a low of around US$50,000, after which the market will enter a relatively complex trading environment. By then, we expect that the market will gradually digest the selling pressure from the German government and Mt. Gox on a psychological level, which will pave the way for some subsequent bullish events, such as changes in expectations for FTX claims in mid-August, and the upcoming The potential impact of the upcoming US elections on Bitcoin.

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