In the Coinbase weekly report on Friday (8/2), Coinbase analysts David Duong and David Han mentioned: "The seasonality in August is usually negative for cryptocurrencies." Looking at historical data, Bitcoin has been in this month for the past five years. The average decline is 2.8% (-0.5% over the past decade). The reduction in liquidity may also explain the recent market volatility.
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ToggleBitcoin conference drives new narrative, crypto-friendliness transcends party affiliation
In this weekly report, analysts first mentioned that the Bitcoin Conference brought several new market narratives. The most important of these is the Bitcoin asset reserve. Both Robert F. Kennedy Jr., an independent candidate, and Donald Trump, representing the US Republican Party, have pledged to support the Bitcoin reserve. On the bill, Republican Senator Lummis also announced a bill at the meeting to implement a 1 million Bitcoin purchase plan aimed at reducing the national debt. Interestingly, the report quoted a letter sent to the Democratic National Committee (DNC) by 14 Democratic members of Congress and 14 candidates. This shows that some voices within the Democratic Party are inclined to include cryptocurrency in the party platform, and embracing Bitcoin should be a consensus that transcends parties.
Analysts believe this represents a shift in Bitcoin’s narrative. Less than eight months ago, Bitcoin received spot ETF approval in the United States and is now being seriously discussed for its utility as a possible national reserve asset amid the growing national debt ( which surpassed $35 trillion a few days ago). The formation of such reserves is a complex process that first requires the Fed to adjust its broader monetary policy and reserve management strategies. Additionally, even if enacted, the Treasury Secretary would still need to “establish a decentralized network of secure Bitcoin storage facilities distributed throughout the United States.”
Macroeconomics shows market participants are not optimistic
From a macroeconomic perspective, the correlation with cryptocurrencies is low. Prices were barely sensitive to July's massive bullish steepening move in the US 2-year 10-year yield curve. But now, jitters about U.S. economic growth appear to have a far greater impact on investor sentiment than optimism that the Federal Reserve may cut interest rates later this year. At the FOMC meeting on July 30-31, the Federal Reserve hinted at an imminent rate cut. However, market participants have already cut rates by 25 basis points twice this year (September and November), and they have recently increased expectations for a third rate cut in December due to concerns about weak economic data. In fact, the ISM manufacturing index in July fell further into contraction territory, with an index reading of 46.8 points, lower than the median forecast of 48.8 points by Bloomberg.
The collapse of the seven major U.S. stocks coupled with the U.S. government’s large-scale transfer of BTC has triggered concerns and affected the price trend of cryptocurrencies.
Analysts also cited total inflows into the U.S. spot ETH ETF of $1.5 billion, but net outflows in the first seven working days were $483 million. Among them, Grayscale Ethereum Trust (ETHE) saw an outflow of US$1.98 billion. However, ETHE’s outflows are declining daily, i.e. these outflows have been reacted earlier compared to Grayscale Bitcoin Trust (GBTC). Structural factors cause GBTC shares to be locked up and unable to be sold until late in the cycle, whereas ETHE has no such impediment.
It can be seen from the data that market activity was lower in the past August. Compared with June of the same year, Bitcoin spot trading volume fell by 19% in August 2023. Analysts said that Bitcoin futures trading volume on global centralized exchanges also fell by 30% during the same period. Reduced liquidity and trading volume may lead to increased volatility. With fewer crypto-specific narratives expected for the rest of the summer, it’s likely we’ll see the same lackluster behavior this year.
Regarding seasonality and liquidity insights, Jag Kooner, head of derivatives at Bitfinex, also said that many assets may lack liquidity in August, and the seasonality in August may be one of the reasons. Kooner added: “We are currently seeing several Altcoin building large buy walls at the lows, and we also expect Bitcoin prices to be between $61,000 and $70,000, which will provide an accumulation area.”
