Jorg Hiller
23 Jul 2024 12:21
Bitcoin (BTC) recovered more than 29% from its July low to hit a 39-day high of $68,560, fueled by strong market signals and rising investor confidence.
Bitcoin (BTC) experienced an exceptionally positive week, reaching a 39-day high of $68,560 and recovering more than 29% from its local low on July 5, according to Bitfinex Alpha. The cryptocurrency showed strong upside momentum, with five consecutive days of gains from July 12 to July 16.
Market resilience amid massive sell-off
The key event that affected the market was the liquidation of over 48,000 BTC by the German Federal Criminal Police Office (Bundeskriminalamt), which created significant selling pressure. However, the market absorbed this selling pressure, showing resilience and new demand. The selling pressure from both the German government and miners selling after the halving to upgrade their infrastructure was exhausted, contributing to the price recovery. The Miner Sustainability Index shows that miners are now being compensated appropriately and are profitable for the first time in a month, suggesting that the equipment upgrade phase is over and selling pressure has decreased.
ETF inflows and investor confidence
ETF inflows were also positive, reaching close to $1.2 billion last week, the first positive inflow since early June. The main reason was that prices surpassed the average bid price of ETF investors ($58,200), boosting market confidence. Order flow indicators also contributed to the positive sentiment. The cumulative volume delta (CVD) spot index, which measures the difference between buy and sell volume on central exchanges, turned net buying for the first time since early March, indicating a decline in selling pressure.
Long-term and short-term holder trends
As mentioned in a previous Bitfinex Alpha report, the Long-Term Holder Spent Output Profit Ratio (LTH SOPR), which is the sell price divided by the buy price of BTC, shows that the selling pressure of this group has been decreasing since early July. The Bitcoin Exchange Reserve Index, which tracks the amount of BTC held in exchange wallets, has seen a sharp decline in recent weeks, indicating that large investors are buying and moving the asset from exchanges. This accumulation could lead to a shortage of supply, which could drive the price higher in the coming months.
Short-term holder dynamics
Interestingly, the cost basis of short-term holders (STH) is currently at $65,176. Analysis shows that as BTC recovers, the cost basis of STH also increases, indicating general buying interest and confidence in STH. The short-term holder spending output profit ratio (STH SOPR), which determines whether STH is profitable or in a loss, was below the break-even point of 1, but has started to return to this level. This suggests that while some STHs took advantage of the buying opportunity when the price fell, a small group suffered losses over the past two weeks when BTC was below the cost basis. If this index returns to its mean of 1, it suggests that this group’s capitulation may be over.
US economic impact
In the United States, retail sales data show that inflation has slowed significantly over the past two months, which has had a positive impact on consumer spending, contrary to recession expectations. The housing market, however, is a contrasting picture, with single-family home starts in June hitting an eight-month low, largely due to high mortgage rates and a prolonged shortage of affordable housing. Despite the housing sector’s challenges, manufacturing has shown resilience, with factory output exceeding expectations. This recovery is particularly noteworthy given the constraints of high borrowing costs. Federal Reserve System Monetary policy is expected to be eased in September, which could provide needed support to boost growth in both housing and manufacturing.
Regulatory Development
The crypto industry is witnessing significant regulatory progress. Spot Ethereum ETFs from Fidelity, VanEck, and others are set to begin trading on the Cboe exchange on July 23, 2024, following SEC approval. Some companies are waiving initial fees to attract investors. The first participants in the stablecoin sandbox in Hong Kong are prohibited from raising public funds during the initial pilot phase as the Hong Kong Monetary Authority develops a risk-based regulatory framework that requires future issuers to obtain a license. Meanwhile, South Korea has enacted a virtual asset user protection law that requires exchanges to keep 80% of user deposits in cold storage, use licensed banks for cash deposits, maintain reserves, purchase insurance, implement real-time monitoring, and impose penalties for noncompliance.
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