Written by: Shang2046
The information, opinions and judgments on markets, projects, currencies, etc. mentioned in this report are for reference only and do not constitute any investment advice.
The nearly 30% drop in the past 8 days is directly related to Japan's interest rate hike deleveraging and concerns about the US recession. After further liquidation and consolidation, it will make room for a better bull market in the second half.
Market Week
After rising for three consecutive weeks, BTC experienced the deepest fluctuation of 30% last week and this Monday, falling below the 49,000 mark, and successively crossed the 200-day moving average and the 265-day moving average, which once caused a deep panic in the market. This drop is comparable to the historical 312 (weekly fluctuation of 54%) and 519 (weekly fluctuation of 36%), which can be called a black swan event in this round of bull market cycle.
When it hit the $70,000 mark again, it experienced a deep correction. One of the main reasons was that the non-farm payroll data released by the United States last Friday was significantly weaker than market expectations, which was considered to have triggered the recession gold indicator "Sam's Law". This turned the expectation of interest rate cuts, which was originally "bad news is good news", into a recession expectation of "bad news is bad news".
Japan's sharp interest rate hikes, which began on August 1, triggered a sharp and rapid liquidation of leverage by ultra-low-risk arbitrageurs in the yen-dollar market since Prime Minister Abe took office. This caused the Nikkei 225 index to fall 13.4% on Monday, triggering the circuit breaker mechanism.
However, a deeper analysis of these two black swan events shows that the market is far from being as pessimistic as it seems. First, the July non-farm payrolls data for the United States showed that more than 400,000 people were unable to go out to work due to weather conditions due to the impact of the hurricane in Texas. Citigroup believes that there is a 75% probability that this data was caused by temporary reasons.
On August 16, the United States will release employment data from various states. Comparisons, especially comparing the data from Texas with those from other states, can further confirm the temporary and sporadic nature of the bad data. The ISM service sector index released on Monday night expanded again, with employment, new orders, and business activity all returning to the expansion range, indirectly confirming the above judgment: the United States seems to be a long way from an economic recession.
The direct impact of Japan's interest rate hike is indeed huge, especially for institutions such as Buffett who borrowed zero-cost yen and invested or hedged in the US dollar system, which quickly deleveraged in the past week. There are signs that large market makers represented by Jump Crypto have concentrated on selling at least 130,000 ETH in the past few days, which may also be deleveraging based on yen-Ethereum arbitrage. These ETH were exchanged for USDC, and it is expected that some of them will be exchanged for US dollars in the near future.
We have monitored that USDC, a stablecoin commonly used by European and American institutions, also had an outflow of US$980 million this week, which seems to be part of this round of deleveraging movement.
At present, it is difficult to verify the "US economic recession" in a short time, and the direct impact of the yen's interest rate hike on liquidity may be alleviated in a short time. On Monday night, the Nasdaq opened low and ended high, with the minimum intraday decline of 2%, and finally recorded a decline of 3.43%, which was far lower than market expectations. On Tuesday, the Nikkei opened quickly and rose by nearly 10%, which also shows that the market has begun to more rationally evaluate the possibility of interest rate hikes and recession.
After this round of decline, crypto asset investors have been forced to sell out. In terms of contracts, more than $1 billion was liquidated in a single day. Yesterday, investors' spot losses hit a new high of $385 million this year, of which short-term investors lost $360 million and long-term investors lost $25 million. The borrowing rates of mortgage lending platforms AAVE and Compound remain between 4% and 5%, which is the lowest point since this round of bull market, indicating that the leverage ratio has further decreased.
We believe that the bull market cycle of BTC's fourth halving has not ended. In terms of time, the bull market will peak within 12-18 months after the halving. This round of halving only lasts for 4 months, which is far from enough time. In terms of the distribution of chips for long-term investors, each bull market will experience two distributions. The first round of small-scale distribution in this cycle has ended, and long-term investors have re-entered the chip accumulation range. The real bull market will come in the second larger-scale distribution.
On the other hand, after five months of high-level adjustments and this round of deep correction, the market chip cost has further increased, forming a chip concentration area of 4 million in the range of 60,000-70,000. After breaking through the 70,000 mark, it will become a strong support area for the second half of the bull market.
Federal Reserve and economic data
After a bloody Monday, Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly both said that the employment data was weaker than expected, but it was not a recession yet. They believed that economic growth was slowing down, but it would not fall off a cliff.
On the same day, the yield on the 2-year U.S. Treasury bond fell below the 10-year yield for the first time since July 2022. The swap market shows that the probability of an emergency rate cut by the Federal Reserve in the next week has reached 60%, far earlier than its next monetary policy meeting scheduled for September 18. Some analysts also believe that the Federal Reserve is very likely to cut interest rates by 50 basis points in September.
Funding
Stablecoins outflowed $843 million this week, of which USDT still maintained a positive inflow of $144 million, while USDC outflowed $987 million. In terms of the ETF channel, after a large outflow of $237 million on Friday, the final net outflow was $83 million.
Chip Supply
According to BTC on-chain data, investors who held the coin for more than 5 months increased their holdings by 44,700 coins this week, while short-term investors who held the coin for less than 5 months reduced their holdings by 25,400 coins. This shows the continued accumulation of long-term investors after the first chip distribution. 16,100 coins flowed out of the exchange, reversing the trend of net inflow last week. Miners increased their holdings by 230 coins, which is rare.
Short-term investors' profit margins returned to negative territory, with an average loss rate of 12%.
BTC on-chain data
Perhaps affected by the extreme market conditions, BTC on-chain activities were more active than last week. The number of active addresses was 520,000, a month-on-month increase of 6.94%. The number of new addresses was 2.22 million, a month-on-month increase of 5.58%, which was above the 30-day moving average.
The number of active ETH addresses was 4.37 million, down 6.62% from the previous month, and the number of new addresses was 860,000, down 3.45% from the previous month, which is below the 30-day moving average.
EMC BTC Cycle indicator
The EMC BTC Cycle Metrics indicator is 0.25, a bullish signal awaiting further recovery interruption.
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