(Kitco News) – Tuesday was a day of recovery in the crypto market as prices bounced back from Monday’s lows, with multiple analysts declaring that the bottom is in and market conditions should start to improve.
“Bitcoin (BTC) has rebounded from the significant losses incurred yesterday, which were spurred by concerns over the Mt. Gox repayments potentially driving the market lower,” said analysts at Secure Digital Markets.
They noted that the bounce back comes as “traders now believe that the selling pressure from these repayments may be less intense than initially feared, alleviating immediate selloff worries. This optimism stems from the fact that many creditors are long-term Bitcoin enthusiasts – tech-savvy early adopters who have resisted years of aggressive buyout offers, indicating a preference to retain their BTC rather than opting for a USD-denominated payout.”
“Additionally, funds that purchased claims from creditors are expected to distribute BTC to LPs in kind, likely preventing large-scale market sales,” the analysts noted.
Stocks traded mixed on Tuesday, with the Nasdaq climbing higher as Nvidia (NVDA) looked to bounce back after seeing a double-digit pullback from its record high set last Thursday.
“Nvidia's shares fell by 6.7% on Monday, marking the third consecutive day of decline and bringing the stock down 13% from its peak last week,” said Secure Digital Markets. “Nvidia’s decline led to a more than 1% drop in the Nasdaq Composite on Monday, marking its biggest one-day loss since April. The Nasdaq-100 also experienced its worst day since April as investors shifted away from chipmakers.”
They suggested that the pullback was likely due to traders “locking in profits from Nvidia and similar high-momentum stocks after a period of strong performance.”
Investors are now focused on Friday's update to the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, following Tuesday’s comments from Fed Governor Michelle Bowman that she's willing to hike interest rates if holding them steady fails to bring price pressures under control.
At the close of markets on Tuesday, the S&P and Nasdaq finished higher, up 0.39% and 1.26%, respectively, while the Dow lost 0.76%.
Data provided by TradingView shows that Bitcoin recovered back above $61,000 in early trading on Tuesday after bottoming out at $58,433 Monday evening. It has since climbed back above support at $62,000, and at the time of writing, BTC trades at $62,002, an increase of 4.03% on the 24-hour chart.
BTC/USD Chart by TradingView
Sources of the recent weakness
Insights into the recent weakness for cryptos were provided by analysts at ETC Group, who noted that “Crypto markets have come under pressure recently as several factors have weighed on market sentiment.”
“Bitcoin has already retraced more than -20% from its most recent all-time high in March and other altcoins have taken an even harder beating with the global altcoin market cap ex Ethereum being down an average of -32.6% from the recent high according to data provided by Coinmarketcap,” they said. “In general, capital flows into cryptoassets have significantly decelerated compared to the levels seen in the aftermath of the spot Bitcoin ETF launch in the US.”
“For instance, on-chain flows into major cryptoassets like Bitcoin and Ethereum had decelerated from approximately 100 bn USD per month in March to only 20 bn USD per month from April onwards,” they noted. “This coincided with a pause in the current bull market which is also one of the reasons the market failed to climb to new all-time highs again.”
A slowdown in positive flows into Bitcoin and crypto ETFs has also put a strain on the market, with multiple analysts suggesting that positive inflows were the main source of price gains in the first quarter of 2024.
“More specifically, outflows from US spot Bitcoin ETFs have recently accelerated, with 7 trading days of consecutive outflows totalling USD -1.13 billion across all 10 US issuers,” ETC Group said. “Furthermore, we have seen increasing selling pressure on major Bitcoin spot exchanges mostly emanating from large short-term investors (“whales”). This is evident in increased whale exchange transfers which has increased overall selling pressure on exchanges.”
“As a result, intraday net buying volumes (buying minus selling volumes) on Bitcoin spot exchanges has turned negative which tends to be a headwind for prices,” they said. “More specifically, we saw around -1.2 bn USD in net buying volumes on BTC spot exchanges over the past 7 days.”
They noted several catalysts behind this shift in market sentiment and risk appetite.
“Bitcoin miners have come under significant economic pressure more recently as BTC mining revenues have declined by -50% in BTC-terms following the latest Bitcoin Halving on the 20th of April,” the analysts said. “As a result, some Bitcoin miners were forced to shut off inefficient mining hardware and sell into their BTC reserves to cover expenses.”
This led to a 10% decline in the Bitcoin hash rate from its recent peak, further supporting this view.
“Bitcoin miners sold more than 30,000 BTC (~$2 billion) in June, the most this year, sending reserves to a 14-year low, according to data provided by CryptoQuant,” ETC Group said. “However, it appears as if the market has mostly digested this level of selling so far.”
A recent shift in global macro sentiment is also weighing on crypto prices, they added.
“Traditional financial markets have recently started to ‘price out’ benign global growth expectations,” they said. “A key factor in the downward revision of global growth expectations is the consistent disappointment in U.S. economic data relative to forecasts. The Bloomberg US ECO Surprise Index, which tracks deviations in crucial macroeconomic data from expectations, has fallen to its lowest since 2019, reflecting a broader recognition of the deteriorating macroeconomic climate.”
ETC Group said that while leading equity indexes like the S&P “remain relatively robust, other indicators such as the AUD/JPY exchange rate, U.S. cyclical versus defensive stock sectors, and the copper/gold ratio are already indicating a weaker outlook for global growth. The recent decline in lumber prices also spells trouble for US housing and the overall economy more broadly.”
And the “surge in perceived sovereign risks in France” amid shifting political lines is “adding to the macroeconomic uncertainty,” they said. “The cost of insuring against a default by the French government through five-year Credit Default Swaps has soared to its highest point since May 2020, as markets increasingly anticipate the potential for France's exit from the EU and Eurozone. This has also weakened the Euro and strengthened the US Dollar which tends to be a headwind for Bitcoin and cryptoassets.”
“The ongoing downward adjustment in global growth forecasts, coupled with rising recession risks in the US, could continue to pose challenges for Bitcoin and other cryptoassets in the near term,” they warned. “It is also crucial to note that changes in global growth expectations have been the most dominant macroeconomic driver in recent months, accounting for over 80% of Bitcoin's performance variability over the past 6 months.”
“All in all, declining capital flows into major cryptoassets, increasing selling pressure from Bitcoin whales as well as miners coupled with increasing macro risks are the main catalysts behind the latest market rout,” they said.
But despite the headwinds which paint a “bleak” short-term picture, “the medium- to long-term outlook for bitcoin and cryptoassets remains very supportive,” they concluded.
Broad recovery in the altcoin market
Altcoins benefited from Bitcoin’s recovery on Tuesday, with all but eight tokens in the top 200 recording gains.
Daily cryptocurrency market performance. Source: Coin360
Brett (BRETT) was the biggest gainer, climbing 26% to trade at $0.1672, followed by a 23.8% gain for dog wif hat (WIF), and a 22.1% increase for Dog (DOG). Lido DAO (LIDO) suffered the biggest loss, falling 1.9%, while Tellor (TRB) declined by 1.8%, and Curve DAO Token (CRV) lost 1.2%.
The overall cryptocurrency market cap now stands at $2.29 trillion, and Bitcoin’s dominance rate is 53.4%.
