May 20th Bitfinex Alpha | A solid bottom has been established for Bitcoin, but the functionality provided by macros may be lost.
On Bitfinex Alpha
Bitcoin achieved its highest daily close since April 12 last week. Following a weaker-than-expected Consumer Price Index (CPI) inflation report, BTC rose 7.54% on the day and 8.7% for the week. Further supporting the price was exchange outflows amounting to 55,000 BTC, indicating supportive market sentiment and reinforcing our view that the Bitcoin price has reached a bottom.
Bitcoin exchange-traded funds (ETFs) also saw net inflows of $948.3 million over the past week, reversing recent weeks of outflows as systematic investment plans and passive demand firmed up prices. Total inflows into the Bitcoin ETF since its launch at the beginning of the year now stand at $12.6 billion, while outflows have also decreased from the Grayscale Bitcoin Trust (GBTC). This trend signals increased confidence in the stability of Bitcoin, especially as long-term holders hold on to their positions and “new whales” have accumulated BTC to levels around $60,000, establishing it as a significant level of on-chain support.
Even short-term holders (STHs), whose share of supply has increased from 19% to 26.1% at the start of the year, now have an average cost basis of about $61,046, a vital level to maintain to avoid selling. go away. However, STH and ETF buyers appear to sell quickly when prices fall below acquisition costs, so this is an important group to watch.
On the macroeconomic front, it was the April CPI report that sparked market excitement last week. The report indicates that welcome signs of disinflation are becoming evident, with an increase of 0.3% month-on-month (MoM) and 3.4% year-on-year (YoY). This figure, slightly lower than in March, indicates that inflationary pressures have eased, primarily due to stable shelter costs and lower retail sales. However, the producer price index in April rose 0.5% due to rising service costs, suggesting that inflation is continuing.
The housing market and manufacturing sector also continue to face challenges. High mortgage rates have depressed builder sentiment and stagnated industrial production. The National Association of Home Builders Index fell to 45, and housing starts and permits were below estimates. Manufacturing stagnated, with automobile production down a notable 2%.
The Conference Board’s Leading Economic Index also fell 0.6%, signaling a slowdown in future economic conditions. Despite recent disinflation, high inflation and rising debt continue to weigh on the economy. A rate cut may be possible by September, but the Fed remains cautious, prioritizing controlling inflation over spurring near-term growth.
In terms of cryptocurrency-related news, Turkey has introduced legislative proposals to regulate trading in cryptocurrency assets. The bill, overseen by the Capital Markets Board, includes a licensing system and expanded regulatory oversight for cryptocurrency companies.
On May 16, 2024, Pump.fun, a memecoin launchpad, experienced a $1.9 million exploit allegedly involving the use of flash loans by a former employee. The breach resulted in a temporary suspension of trading, and the platform restored the affected liquidity pools within 24 hours.
The U.S. Securities and Exchange Commission (SEC) also has VanEck and ARK’s Ether ETF application deadline set for May 23 and 24, respectively. Approval is expected to be difficult due to the complexity of Ethereum technology and ongoing legal uncertainty. Historically, as with Bitcoin ETFs, the SEC is unlikely to approve it unless there is judicial intervention. Market pessimism is evident as Grayscale Ethereum Trust is trading at a significant discount. The SEC’s decision could set an important precedent for other digital assets on the public markets.
Have a great trading week!