Written by: 0xWeilan
*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.
Global financial markets were calm in March.
The Nasdaq and Dow Jones indexes both hit new highs without any suspense. The Nasdaq has risen for five consecutive months, indicating that long capital is continuously increasing its tolerance for the delay of the US interest rate cut.
There are many factors that have led to the delay in interest rate cuts.
The US CPI rebounded slightly from 3.1% to 3.2% month-on-month, and the US manufacturing index PMI rebounded to 50.3%, showing a trend of entering an expansion period. Japan ended its eight-year era of negative interest rates and raised interest rates for the first time.
The probability of a US interest rate cut in April has dropped significantly, and the probability of a rate cut in May has also fallen below 50%.
U.S. debt interest rate (chart by Bank of America)
The U.S. dollar index continued to rebound in March, rising to 104.49 by the end of the month.
Gold prices hit a record high, and BTC prices hit a record high.
The accumulation of capital returning to the United States has pushed up both equity and safe-haven markets.
Meanwhile, the U.S. government's spending on national debt has reached $1.1 trillion in the past 12 months, doubling since the COVID-19 pandemic. Bank of America pointed out in its report that if the U.S. government fails to cut interest rates by 150 basis points in the next 12 months, its interest costs will rise to $1.6 trillion. By the end of this year, interest on U.S. debt will become the largest expenditure item for the U.S. government.
This is the price paid for the increase in U.S. Treasury bond issuance and the delay in interest rate cuts, and is also one of the deep reasons why the market is betting that the U.S. government will cut interest rates as soon as possible.
The United States cuts interest rates, macro-finance enters a period of easing, and the equity market and crypto market enter a new round of rising cycle.
This is the most eye-catching point for global investors and is also closely related to the crypto asset market.
Currently, the market is postponing the expectation of interest rate cuts to the second half of the year. Whether in the U.S. stock market or the crypto market, some funds have begun to lock in profits and leave.
Crypto Market
BTC daily chart
In March, BTC opened at $61,179 and closed at $71,289, up 16.53% for the month with an amplitude of 23.88%, achieving seven consecutive months of growth, and the trading volume was also the highest in mid-July.
Throughout March, BTC remained within the rising channel of the "rising period". March 13 was the turning point of the mid-term trend. On that day, BTC hit a high point since the current bull market, and then the overall volume showed a downward trend. After hitting the 30-day moving average and rebounding on March 20, the volume failed to activate again, indicating that the long and short sides were in a stalemate. As of April 2, when this report was written, BTC fell for two consecutive days, and the price once again dropped to the 30-day moving average, and the volume showed an amplified trend.
BTC has been rising for 7 consecutive months, tying the historical record. Both long and short positions have accumulated a large amount of unrealized profits. As the rising futures price rises, the scale of selling to lock in profits has become one of the focuses of market attention.
The game between inflow funds and the scale of BTC selling has become the dominant factor affecting BTC prices in the short and medium term.
Big Sell
We understand the bull market as a market phenomenon in which new participants bring in funds to buy chips under the background of abundant funds, which drives the original holders to sell. For long-term BTC investors, the bull market is a time for strong selling.
In this cycle, December 3, 2023 was the highest point in the history of long-term holdings, when they held a total of 14,916,832 BTC. Since then, with the gradual start of the bull market, long-term holders have started a four-year cyclical sell-off, and as of March 31, a total of 897,543 BTC have been sold.
Long-term group sells out profits
It starts with long-term selling and ends with short-term buying. The two maintain a dynamic balance.
During the rising phase, when new inflows of funds control the pricing power, the main buying volume pushes prices up and achieves balance.
During the rising period, when BTC long sellers control the pricing power, the main selling volume pushes the price down to achieve balance.
There is also an important sub-group of participants - short-term profit-takers, which will also become an important reason for driving prices down during the rising period.
Observing the selling in March, we found that long and short hands sold at the same frequency.
On February 26, both began to transfer coins to exchanges on a large scale and started a large-scale sell-off. Both reached the transfer peak on March 12, and the scale of transfer has continued to decline since then.
On March 12, the transfer scale of both reached a peak. The next day, the price of BTC began to fall from a high of $73,835.57 and fell to a March low of $60,771.14 on March 20.
After March 20, the bulls used their buying power to pull the BTC price back to $71,288.90, but selling pressure continued to pour in after March 20, and eventually the price collapsed again in the first two trading days of April.
Short-term group sells profits
On March 12, the round of selling initiated by long and short hands was the first wave of large-scale selling and profit locking by the two groups after the bull market began. On that day, the two groups realized a total profit of 3 billion. From February 26 to March 31, the total profit was as high as 63.1 billion US dollars.
It is worth noting that -
During the first half of the sell-off from February 26 to March 12, BTC was in a buying momentum-dominated futures market, with prices rising from $51,730.96 to $71,475.93.
In the second half of the big sell-off from March 13 to March 31 (not yet over), BTC was in a period dominated by selling momentum, and the price fell from a high of $73,709.99 to a low of $60,771.74.
Although the peak of selling was on March 12, the daily selling volume of long and short hands remained over US$1 billion until the end of the month.
EMC Labs believes that this continuous, large-scale selling is the root cause of the BTC price drop from March to April. This is the first round of large-scale selling after the bull market. The sellers have the pricing power, which has hit the bulls' enthusiasm for long, causing prices to fall and locking in a cumulative profit of $63.1 billion.
During the rising period, whether selling to lock in profits will lead to a price drop depends on the comparison of the power of the long and short parties. In the early stage of selling, the seller is only tentatively selling, and the price will continue to rise, so the seller continues to increase the scale of selling, which eventually leads to the consumption of the ammunition of the long army, causing the price to fall. After the decline, due to price reasons, the seller begins to reduce the scale of selling, and the buyer's power continues to recover, which in turn pushes the price up again. The two sides continue to play the game in the rise and fall of prices until the next selling range.
During the entire rising period, similar games often occur several times. After multiple sales, most of the chips enter the short-hand group, and liquidity becomes increasingly flooded, which makes the buyer power eventually lose in the long-short game, and then the bull market ends.
EMC Labs believes that the selling force is declining significantly, but it has not ended yet. Although the price is difficult to predict, the first wave of selling in the bull market is coming to an end. This wave of large-scale selling before the production cut cleared a large number of profit chips, raised the cost center of gravity of BTC, and helped to increase the price in the next stage.
Bull market gradually unfolds
One of the external factors that triggered this round of bull market was the inflow of funds caused by the approval of BTC ETF, while the internal factor was the technological development and the implementation of new applications.
In the February report, we mentioned that the launch of a new cycle must be supported by industrial development. Based on this logic, we will focus on the application of public chain data.
In March, Ethereum completed the Cancun upgrade, which effectively reduced the gas fee of Layer 2 and increased the capacity of Layer 1 to a certain extent. We have noticed that since February, the daily active users of the Ethereum network have increased significantly, from about 400,000 in early February to 1.13 million at the end of March, an increase of nearly 2 times. For the Ethereum community, this is a very brilliant achievement and a clear signal that the bull market has started.
Ethereum Daily Active Addresses
In a bull market, in addition to the active existing users, there will be new users pouring into the market. We monitor this indicator through the number of new addresses.
Ethereum Daily New Addresses
Since March, the number of new users on the Ethereum network has increased to a certain extent, and the 30-day average of user growth has continued to rise, but has not exceeded last year's high. Since last year, the number of new users on the Ethereum network has shown a typical wave feature, and has not yet shown a pulsed upward trend.
The bull market will inevitably be accompanied by a continued increase in the number of Ethereum network users. This is worth continuing to observe.
Regarding Ethereum’s data performance, we can understand that the bull market has just started, and it is mainly due to the recovery and activity of existing users, while large-scale new users have not yet flocked in.
When we examine other public application chains, such as BNB Chain, Avalanche, Polygon, etc., we find that on-chain users are still quiet and do not show the booming momentum that a bull market should have.
There is only one public chain that far exceeds Ethereum’s performance, and that is the gloriously reborn and wildly growing Solana.
Looking at the Solana user statistics chart, we can see that it presents a very perfect pulse growth trend. In 2023, its new users and prices continued to grow slowly, and the slope of the growth curve began to increase in mid-November, from about 300,000 new users per day to about 1.6 million in mid-January, a full increase of more than 4 times. After that, after two new declines in late January and late February, the whole of March was in violent growth, with an increase of nearly 100% in 30 days from the beginning of the month to the end of the month.
This strong performance has enabled the Solana network to surpass the previous bull market in terms of daily new users, daily active users, and daily gas consumption, setting historical highs.
This large-scale adoption is the fundamental support for SOL's price growth to be far ahead of other mainstream currencies.
Solana Daily New Addresses
Observing Solana’s daily active addresses, the trend remains basically consistent with the newly added addresses.
Solana Daily Active User Addresses
Solana, a heterogeneous Ethereum, is considered to be the new carrier of DePin and the public chain supporting the USDC payment narrative.
However, we must see that these adoptions are far from being fully developed. Currently, the main use case of the Solana network is the issuance and speculation of MEME coins. Phenomenon-class MEME coins such as Bonk, BOME, and WIF have appeared one after another, with daily trading volumes reaching hundreds of millions of dollars. A large number of MEME coins that are born and die overnight have completed their lives within a week, but speculators are still happy to do so, resulting in more than 1,000 new MEME coins being created every day.
Although Solana is launching remarkable innovations in areas such as DePin, DEX, Staking, Oracle, RWA, etc., the current wave of large-scale adoption of Solana is still MEME speculation, just like the Etherum ICO craze in 2017.
This is worrying.
liquidity
In previous reports, EMC Labs has repeatedly pointed out that the trend of stablecoins turning from outflow to inflow in October 2023 is cyclical. This trend is the main external factor for the start of the bull market, and because of its cyclicality, it will not end in a short time.
Throughout March, a total of $8.9 billion flowed into the stablecoin channel, setting a monthly inflow record since this cycle. This inflow is the basic support for BTC prices to set a historical record this month, and is also one of the undertakers of selling BTC.
Stablecoin supply trend (EMC Labs statistics)
The circulation scale of stablecoins has not yet reached the peak of the last bull market, and the scale and rate of subsequent inflows need to be closely monitored.
Since the United States approved 11 BTC ETFs in January this year, funds from this channel have also become one of the important factors affecting the market.
From the observation data, we can see that the BTC ETF did not experience large-scale outflows during this round of large-scale selling adjustments, and only recorded small outflows from March 18 to March 22.
Statistics of inflow and outflow of 11 BTC ETFs (SosoValue)
Based on the inflow and outflow analysis of BTC ETF, we judge that the funds in this channel have only been reduced in a short period of time, with a scale of about US$1 billion. This amount of funds is still small compared with the locked profits of up to US$63.1 billion, so it is not the fundamental reason for this round of adjustments.
Funds continue to flow into the BTC ETF channel, which is one of the important supports for the subsequent recovery of BTC prices and setting new highs.
The growth in capital supply is the direct reason for pushing prices upward, and the continued growth in capital supply is the direct reason for the launch of a bull market.
Conclusion
In this report, we analyzed the first round of large-scale selling by long-term investors and short-term profit-makers in a new cycle after BTC prices broke through a new high.
This round of selling helped sellers lock in $61 billion in profits and caused the BTC price to fall by about 17%.
Based on the market structure, we believe that this kind of selling is a normal phenomenon during the market's upswing; based on the inflow of funds into stablecoins and ETF channels and the adoption of application chains, we believe that there will be fluctuations in the market outlook, but this round of crypto bull market is unfolding in an orderly manner. For long-term investors, they should actively long on a cautious basis.
