Bitcoin Fundamental Briefing, August 2022

Bitcoin Fundamental Briefing, August 2022

TO SHOW WHAT IS HIDDEN…

So, another month is almost past. Market society now stands focus on coming Wyoming meeting. Here and there we’re getting gentle hints that maybe cryptocurrencies are ready to reverse up, as market stands too oversold, comes to 200 MA etc. But we should not pay attention to this. The fundamental factors – are all that matter. 

Recall how many inspiring speeches and brave forecasts we’ve heard at the eve of 2022. How prosperous and successful  it was expected for the crypto industry. The euphoria and optimism covered the majority, including media. Our view was different.

And now – should we ignore fundamentals just because BTC comes to 200 MA, or because McGlone from Bloomberg Intelligence once again sings the same song on how beautiful BTC is?

It is definitely an absurd. And we should say more. Our task here is show you some things that are hidden and wrongly treated by investors, falling again and again the same traps that big whales, Fed and government are placing around, trying to put the losses on households and common people like me and you. 

Now it is still the same thing is to analyse stock market and analyze cryptos. The perspective that we expect on stocks  will become the same on crypto. Besides, bitcoin might be event the storm-binger,  the leading market for the stocks, like it has happened last Friday, when investors have liquidated $600+Mln in positions just in a single session. 

Some news that we have to pay big attention to, have passed mostly unsigned, while they will have decisive meaning for th market in a few months.

MARKET OVERVIEW

Cryptocurrencies suffered a sharp sell-off as global markets retreated after US Federal Reserve officials reiterated their resolve to keep raising interest rates until inflation is contained. 

Bitcoin, the largest virtual coin by market capitalization, tumbled as much as 9.2% to $21,271, the biggest intraday drop since June 18. Ether and smaller tokens saw even sharper declines, with Avalanche, Cardano and Solana falling more than 10%. 

Digital assets are getting punished as investors unwind bets that the Fed might raise interest rates less than initially feared. Optimism about more favorable liquidity conditions drove a more than 40% rally in Bitcoin since June’s crypto market crash, while Ether more than doubled at one point. 

The coin has been volatile of late

About $220 million of crypto positions got liquidated in the span of an hour on Friday (08/19), with Bitcoin accounting for roughly half of that, according to data from Coinglass. 

“Bitcoin is a speculative asset and speculative assets don’t do well during tightening regimes, when the central bank is tightening and liquidity is becoming more scarce,” Jose Torres, senior economist at Interactive Brokers, said in an interview. “It does not surprise me that Bitcoin has erased a lot of its gains from recently reaching $25,000.”

Cryptocurrencies have been trading in tandem with US equities this year as both have been swayed by the Federal Reserve’s interest-rate-hiking path. The 90-day correlation coefficient of Bitcoin and the S&P 500, after weakening slightly in June, now stands around 0.64 once again, among the highest such readings in Bloomberg data going back to 2010.

This year’s crypto bear market is tracking ones seen in 2018 and prior years, according to Vetle Lunde an analyst at Arcane Research. This one has lasted for more than 285 days, with Bitcoin down nearly 70% from its November all-time high. The 2018 and 2014 bear markets lasted 12-13 months, with maximum drawdowns of 85%. relates to Bitcoin Stuck in Narrow Range as Traders Brace for Jackson Hole

“We don’t find a lot of value in speculative assets, particularly cryptocurrencies, where there really isn’t intrinsic value,” said David Spika, president and chief investment officer of GuideStone Capital Management. “It’s all based purely on speculation.” 

Bitcoin is hovering near levels that would ensure no “hodler” — or investor who buys and holds even through tough times — has made money on any purchases in almost two years, according to Peter Tchir, head of macro strategy at Academy Securities.

“That is a long time to wait to make money (or to sit on large losses). FOMO is a big part of crypto trading, and we are on the precipice of declining to levels where many could decide to take their money and run.”

The usually volatile Bitcoin has gotten stuck trading within a narrow range ahead of the Federal Reserve’s annual Jackson Hole gathering later this week. 

The world’s largest digital coin by market value rose as much as 2.6% Tuesday to hover around $21,600, though it’s largely been meandering below the $22,000 level since it started to sell off in mid-August. Other cryptocurrencies, including Ether, also rose, with an index of the 100 largest tokens adding roughly 2.3%. 

And it’s happening as US stocks try to stage a comeback from Monday, when they had their worst session since mid-June. Traders are bracing for a hawkish tone at the Jackson Hole event after recent comments from Fed officials convinced many investors the central bank will continue to tighten aggressively, even into a slowing economy.

“As August limps toward a weak close, market attention is turning to this week’s Jackson Hole symposium,” wrote Noelle Acheson, head of market insights at Genesis, in a research note. “A key question on traders’ minds is whether the Fed chairman will signal a potential reduction in the pace of hikes, double down on his nominal commitment to lowering inflation, or indeed try to convince the market that the Fed can have its proverbial cake and eat it, too,” she added.

The three-largest US publicly traded Bitcoin mining companies lost more than $1 billion in the second quarter after taking a series of impairment charges spurred by the collapse of cryptocurrency prices. 

Core Scientific Inc., Marathon Digital Holdings Inc. and Riot Blockchain Inc. posted net losses of $862 million, $192 million and $366 million, respectively, in the three months ended June 30, recent quarterly earnings reports show.

Other significant miners such as Bitfarms Ltd. and Greenidge Generation Holdings Inc., which reported results Monday, were also forced to write down the value of their holdings in the wake of the almost 60% drop in the price of Bitcoin during the quarter. 

“Public miners are still dumping their Bitcoin holdings at a higher rate than their production rate,” Jarand Mellerud, an analyst at Arcane Crypto, wrote in a research note. “Public miners sold 6,200 coins in July, making July the second highest BTC selling month in 2022. Top public miners sold 14,600 coins in June whereas they produced 3,900, Mellerud said” 

The miners weren’t the only industry participants to take significant hits last quarter. Coinbase Global Inc., the largest US crypto exchange, registered a $1.1 billion loss, while MicroStrategy Inc. also had a net loss of more than $1 billion. 

Core Scientific sold nearly 80% of its coins to cover operational costs and fund expansion in June. Bitfarms sold nearly half of its holdings to pay down a $100 million loan in the same month.   

INSIGHT FROM OPTION MARKET

Bitcoin Options Signal Risk of Another Drop in Largest Token
Options data show some investors are paying a premium for protection against a possible fall below the lower bound of the trading range. Seasonal patterns, meanwhile, peg September as a testing month for the digital token.

Traders are paying a lot more for protection below $18,000. Implied volatility skew shows that traders are willing to pay elevated premiums for deep out-of-the-money puts — the jump is particularly steep closer to the $15,000 strike, which has the second-highest concentration of puts for the September expiry.

September tends to be the worst month for Bitcoin, seeing an average price drop of about about 10% over the last five years.

Data for options contracts expiring at the end of September show that $20,000 is the strike price with the maximum open interest, so a sustained break below there may force put sellers to hedge their positions, pressuring prices further and bringing the June lows back into focus.

Bitcoin has been lagging behind No. 2 token Ether, which recently got a lift from a coming software upgrade of the Ethereum network to make it more efficient. A ratio of the virtual coins’ prices is testing a zone of support, and a break below would suggest further Bitcoin under-performance.

Bitcoin underperforming Ether as channel break looms

ETH

Speculators in derivatives markets are scooping up call options to bet on an Ether advance into September, when the upgrade is supposed to happen. Yet futures and options are suggesting they’re expecting the price to drop after the event in what analysts at Glassnode say could be a “sell-the-news”-type of situation. 

September call options “dwarf” put options, with traders waging Ether’s price could rise to around $2,200 from its current $1,800 level, according to Deribit data compiled by Glassnode.

There’s even significant open interest out to $5,000. But for the month after the update, there’s little demand for calls and greater demand for downside protection, suggesting that the traders are hedging or speculating on downside risk then, said Glassnode analysts. 

“Post Merge, the left tail is pricing in significantly higher implied volatility, indicating traders are paying a premium for ‘sell-the-news’ put-option protection post-Merge,” Glassnode analysts wrote in a note. 

relates to Derivatives Suggest a ‘Sell-the-News’ End to the Ethereum Rally

COMMON MARKET VIEW ON BTC PERSPECTIVES

Here guys few forecasts that perfectly illustrate what in the mind of the investors right now, what driving factors they are using to understand the future performance. Later we explain why we should watch a bit differently on situation and looking for the factors that are not on the surface…

200 day MA

200-week moving average near $23,000, which Genesis Trading pointed to as a measure historically in focus for the market. 

“The rally that brought it back to $25,000 has lost considerable momentum and that could begin to weigh more heavily on the price” of Bitcoin, said Craig Erlam, senior market analyst at Oanda, in a note Thursday. “A move below $22,500 may suggest the rally has run its course for now.”

Bitcoin has retreated back to around its 200-week moving average

Bitcoin has reclaimed its 200-week moving average after breaching it for only the 7th time in price history.  Bitcoin’s 1-year return after reclaiming the 200 WMA is on average ~240%.

Bloomberg Intelligence, Mike McGlone – Bitcoin is currently trading at a substantial discount

He provided this assessment as the digital currency, the most valuable in terms of market value, has been stuck below $25,000 since June.

McGlone relied on several observations when making his case, and he also cited technical analysis, focusing on a specific indicator. 

“The benchmark crypto reached the lowest ever vs. Its 100-week moving average in July,” he noted, describing this situation as being an “extreme discount within an enduring bull-market.”

“Don’t fight the Fed has been my mantra for risk assets since late last year,” he stated. Bitcoin and cryptos were a key part of the 2021 rush and thus part of the 2022 flush, but I see bitcoin and ethereum coming out ahead. Bitcoin is well on its way to becoming global digital collateral in a world going that way and ethereum is a primary driver of the digital revolution as evidenced by making possible the most widely traded cryptos — dollar tokens,” McGlone stated.

BTC is extremely Oversold

Budd White, co-founder and chief product officer of crypto software company Tacen, also weighed in on the matter, claiming that the digital currency is currently trading far below its true value.

“I’m still very much of the opinion that bitcoin is not only incredibly oversold but also in a major accumulation zone. With every run up of price with bitcoin, we both its market value and its utility value grow,” he stated.

“If you look at bitcoin’s market value to realized value, or MVRV, we see it around one, which suggests the market value of this asset has fallen to its actual utility value,” White noted.

“This also suggests to me that because of the massive liquidations that we have experienced in recent months because of Terra, Three Arrows and the lot, the number of remaining forced sellers in the market is relatively small. Bitcoin, therefore, does seem to have a pretty sturdy bottom at or around $18,000.”

Major part of Fed tightening is priced-in already

“Markets appear to already be pricing in even more aggressive monetary tightening to be taken by the Federal Reserve as a result of these soaring numbers. Stocks have dipped and yields have surged,” he noted.

“And, again, bitcoin is just hovering,” said the market observer.

“I’m not saying that we are experiencing a decoupling of Bitcoin from the equities. Certainly we could be in for another leg down in terms of Bitcoin’s price.”

“But this relative strength tells me that the bulk of the Bitcoin selling might be behind. And barring any exogenous shock to markets – such as credit markets looking to be on the verge of breaking – I’m thinking that investors are still looking at Bitcoin as a decent buy at these levels,” White stated.

Improving Sentiment – Fear is easing, while Greed is rising

Armando Aguilar, an independent cryptocurrency analyst, commented on how this measure has changed in recent weeks.

“The Fear and Greed Index has recovered from the low 20s after the major collapse of some protocols and crypto service providers,” he stated. Investors have returned to purchasing digital assets and the fear gauge has trended towards yellow/buy territory,” said Aguilar. Historically, the market has seen price momentum when the index reaches mid 30s,” he noted.

FPA VIEW on BTC Mid Term Perspective

Things that are mentioned above look important but hardly they could be called as major driving factors for BTC market. To get the in depth understanding what will happen to BTC we have to take a look at stock market and understand its perspectives. It would be easier to explain if you would read our FX and Gold market reports where we have discussed this. 

Stock market now is going on a thin ice because the competition for capital hits the peak and there is no free funds that easily could be spent. Debt market always has primary place, because it is the foundation of any economy. And any country worry first about it. Stock market is the second. This is precisely the situation that we have in the US now. 

By looking at this year performance, initial drop on the US market has started from liquidations of 200Bln+ positions in equities by foreign investors. Once this has started to happen, Fed and US Treasury, to support the market – have pumped in about 400 Bln in recent 4 months. This has let to stabilize it and even to trigger slow upward trend. 

Stock market now is a time bomb. Foreign investors are not started the sell-off yet, holding about 2 Trln. in the US equities. But they can’t wait forever – EU falls in hard trading deficit that will become wider and wider and they have to finance them:

1661077237770.png

The same sum is on the hands of the US households that also have not started sell-off yet, according to Bank of America:

Finally, BTC capitalization also stands around 800 Bln., which is also additional source that will be used first.

Of course, the drop not happens to the floor, and not all 4 Trln in assets will be sold, but, 50-65% of this sum looks possible. But why and most interesting when this money could be demanded by the Fed?

Fed totally fails the QT programme that has to be increased in September to 95 Bln per month. US Treasury has announced new massive debt issues started September as well. While they have not placed nothing big since March-22. Currently the US bond market is paralyzed. Foreign investors are under record high Trade deficit and has no free assets to invest in the US Treasuries. There is no demand on domestic market because nobody wants to invest money with deep negative rates of “-6-8%”. The printing machine has been stopped and Money Supply starts dropping:

And it is tight long-term relation between stock market and Money supply changes:

At the same time, we should not expect immediate collapse. Tactically Fed has solid reserves to support the market, what they intend to do until November elections, making the image of prosperity and economy recovery. They have around 400 Bln+ on US Treasury account and around 2.2 Trln of primary dealers Banks Repo trades with the Fed:

Fed has spent around 500 Bln from the US Treasury account since May, ignoring QT shedule. While the US Treasury has not issued big sets of the new debt. As they intend to do both in September, the amount of cash needed will increase at least two times – 200 Bln per month. With reserves around 2.5-2.6 Trln, Fed should have enough funds for 9-12 months to support market and buyback all new issued debt. Additionally to cover huge 600 Bln current account deficit. 

But this calculation is correct only if massive sell-off on stock market will not start earlier. US population drops in poverty fast, loosing wealth and compensating it by high consumer credit burden. So, it is not too far when people start selling stocks more aggressively. 

Coming into winter time makes EU economy situation even more tough and they could start selling foreign assets as well. The stability of stock market after November elections in the US makes absolutely no sense to Democrats as they will loose control over situation and domination in US politics. They could “release the Kraken” just to bring huge problems to D. Trump and new Republicans’ government, accusing them in all problems that actually Democrats have made. 

Due to existed reserves, we should not get collapse on stock market and BTC until November. Democrats should try to win or falsificate results of elections and they vitally need support of Americans that is impossible without stable stock market. 

Bitcoin is not as important for them and it still could get the pressure, starting September when demand for cash will increase. Without external capital sources, the only one is a stock market and cryptocurrencies. And US government has no choice but to use it, and probably sooner rather than later. Based on current situation collapse is highly probable in perspective of 5-9 months, both as on S&P as on BTC. 

Now S&P (while line) scary repeats the dynamic of all four major crisis of 20th century – Great Depression, DotCom, Subprime. The four horsemen of S&P. And you could suggest the potential of collapse. By our view it should be below 2500 first, and in longer term below 2000 level…

Thus, as you could see – the reason is not in the Fed rate and how it is priced-in already, not in BTC performance and its 200 MA, oversold level etc. The reason is in big drought of capital to support the US Debt and Fed sucks all that they could from all other markets to endure the life of the beast.

We call to not invest in BTC and suggest that it will drop to 8-10K in perspective of 5-9 months.

Finally we show you important news that somehow passed unsigned. Just take a look at this:

BlackRock Teams Up With Coinbase in Crypto Market Expansion

and

BlackRock Offers Bitcoin Investing to Big Institutional Clients

The announcement of the new Bitcoin trust is the second major move into digital assets in the past week by BlackRock, which manages $8.5 trillion, and shows how Wall Street’s biggest players are deepening their involvement in an industry that only a few years ago was criticized for being susceptible to fraud.

BlackRock last week unveiled a high-profile partnership with crypto exchange Coinbase Global Inc. to allow institutional traders the ability oversee their Bitcoin investments alongside other portfolio assets such as stocks and bonds. The move sent Coinbase’s shares surging, with analysts concluding that the venture was a validation of digital assets and the crypto industry more broadly.

It means guys, that they intend to rob you. But before to rob they need to blow the new bubble where people put all their money… We already warned many times – don’t believe to the pullbacks on stock market right now. This is trap to decieve population. Once people starts buying, believing of reversal – big banks and market makers sell them their positions and then push market to the new lows…

Stay smart, guys, and care yourself…

 

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Sive Morten

Sive Morten

By day Sive Morten works for the large European bank. In that roll he evaluates the markets including currencies market managing bank risks and evaluating the bank portfolio.

At the Forex Peace Army, he is known as an author of Forex Military School, which quite unique free forex trading course. We do not know of any other free forex trading education covering such a broad spectrum of forex market concepts in such details while keeping it easy to understand and practically use.

As if that wasn't enough, he is the part of the Shoulders of Giants Program. He shares with his fellow traders at FPA his view and forcast of the Gold Market, Currency Market, and Crypto Market in form of weekly analytics and daily video updates.

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