The Market
We see a blood bath in the crypto market in the first week of July, with BTC selling off more than 10% over the week, making last week the 2nd worst performing week since 2023. The selloff on July 4th holiday was most prominent, with BTC down more than 5% due to technical selling pressure from the German Government and Mt. Gox, combined with low volume given the US holiday.
The German government started selling its 50K BTC holdings on June 19. According to on-chain data, the government is selling about 1k-2k BTC a day, which will take about a month to clear.
Source: Arkham
To make matters worse, Mt. Gox has 142K BTC to distribute to its creditors starting in July. GIven the distribution schedule and certain creditor’s preference of holding BTC long-term, it is estimated that 65K BTC might be available to sell immediately. According to the current liquidity depth for major exchanges, a 2K-4K BTC sale could cause approximately 10% to 18% selloff. It’s not surprising to see weakness in BTC price in Q3.
While the selling from the above two sources is causing weakness in the market, those flows can be easily offset if spot ETF inflow picks up, as we had >10K inflow days in Q1 and as recently as the first week of June. We have seen the BTC level stabilized around $56K, the lowest level last experienced at the end of April. Although we are not out of the woods yet, the options market has shown some signs of optimism as the open interest in calls has significantly outweighed the puts since July 26 for BTC and July 12 for ETH. We expect the ETH spot ETF launch (with the new expected launch date of July 8) and potential platform approval for BTC spot ETF on any large wealth management platform later this year to bring some confidence and inflow back to the market.
Source: Deribit as of 7/5/2024
On the macro side, the growth and inflation data continue to trend in the direction that the Fed would like to see. Last Friday’s report showed that June unemployment has hit the highest level in a year.
What’s more revealing is the growth in private sector v.s government jobs. The recent job opening growth is mainly from the government sector, indicating the real jobs market could be worse than what the reported numbers suggest.
The broader risk market has been encouraged by macro developments, and we have seen a decoupling of BTV vs. the equities market since mid-June. We believe the BTC selloff is mostly driven by technical pressure and it will catch up with the rest of the risky assets as liquidity conditions improve in Q4.
The Alts market has fared much worse than BTC. With only 13 tokens in the top 50 outperforming BTC in Q2.
But the situation could change quickly. As we mentioned in the last weekly update, the liquidity cycle turns to run every four years. We are about to enter the liquidity summer if the historical pattern repeats, with potential US administration change and rate cut coming in Q4. The crypto market also runs a 3-year cycle from trough to peak. In the last two bull cycles, we saw the first half marked by similar returns for BTC and Alts, while the second half is where Alts significantly outperformed BTC, driving more than 10X returns. If history repeats itself again, then we are right in the middle of the 2023-2025 cycle, with better times to look forward to in the months ahead.
Top 100 MCAP Winners
MANTRA (+21.19%)
MultiverseX (+19.51%)
Notcoin (+14.34%)
TRON (+3.40%)
Tether Gold (+2.73%)
Top 100 MCAP Losers
Core (-21.26%)
Pendle (-20.86%)
ORDI (-20.78%)
Fantom (-19.71%)
Pepe (-18.20%)
About Decentral Park
Decentral Park is a founder-led cryptoasset investment firm comprised of team members who’ve honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.
Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.
About the Author
Kelly is Portfolio Manager and Head of Research at Decentral Park Capital. Investing across sectors with a thesis driven, deep research approach.
Prior to this, Kelly has led research and product efforts at CoinDesk Indices and Fidelity Digital Asset Management. Kelly has been a TradFi investor for 15 years before joining the crypto space.
You can follow Kelly on Twitter and LinkedIn for more frequent analysis and updates.
