Crypto resumes gain with rapid return of bullish momentum

18 Temmuz 2024

Today’s market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

Bitcoin resumes its gains today by more than 1% as it attempts to regain the $65,000 level, after yesterday’s decline, which followed five consecutive days of gains.

The rapid return of upward momentum coincides with the disappearance of the most important negative factors that caused the launch of massive selling waves during the past weeks, which is the German government’s sales of Bitcoin. While the focus is on a set of positive supportive factors, which are represented by the likelihood of Donald Trump returning to the White House, who has shown support for cryptocurrencies, in addition to the anticipation of the launch of Ethereum spot ETFs.

This is because the failed attempt to assassinate Trump ultimately benefited his election campaign, in which he promised to support the adoption of cryptocurrencies, and this justified the rapid gains of Bitcoin at the time. While we do not know the true results of these promises – if they are serious in the first place – if they will actually be implemented, they may clash with legislators and law enforcement agencies.

Markets are also anticipating the approaching listing of Ethereum spot ETFs, which is expected to begin next week after regulatory approvals are completed, according to Eric Balchunas from Bloomberg.

What may remain a negative factor in this upcoming launch is the potential outflows from the Grayscale Ethereum Trust (ETHE) which is a converted into an exchange-traded fund. While this fund manages about $10 billion in assets.

ETHE may be exposed to a wave of outflows as investors turn from it to new funds with relatively very low fee compared to 2.5% at ETHE, in addition to taking profits after benefiting from the discount from the net asset value, which amounted to more than 40% previously, which will become zero with the conversion into an ETF.

It is also worth noting that Grayscale has launched another spot ETF called Grayscale Ethereum Mini Trust (ETH), which may help mitigate the impact of these outflows, according to Balchunas as well. Grayscale’s brand among asset managers in the crypto market may also attract more attention to the new ETH fund.

I believe that the performance of flows to Ethereum ETFs may remain questionable, especially given their lack of the staking feature. This feature, along with restaking, has attracted over $50 billion in user funds (total value locked (TVL)) on the Ethereum network alone, $33 billion of which is concentrated in the Lido protocol. This represents the majority of the TVL of approximately $59 billion distributed across more than 1,100 protocols on the Ethereum network.

But these new ETFs may meet the needs of investors who want to focus on the capital gains of Ethereum without the burden of storing it in a wallet. These investors may not care about staking returns, which might only constitute a small portion of the expected price gains.

All of this comes with the optimism that prevails in financial markets in general, with the almost inevitable start of an interest rate cut next September, and this may be reflected in the rise in risk appetite, from which cryptocurrencies ultimately benefit.

The probability that the Fed will cut interest rates by 25 basis points in September is more than 90%, according to the CME FedWatch Tool, and this is with the faster-than-expected slowdown in inflation and the statements of the head of the Central Bank, which do not show a clear contradiction with this hypothesis.

These positive factors were reflected in the continued inflows into Bitcoin spot ETFs, which did not stop even with the recent violent correction. These funds recorded net positive flows for the ninth consecutive day in total, and this is the longest series since the one that began from mid-May to the first week of June. This reflected Wall Street’s optimism about the possibility of overcoming the recent decline in prices – and this is what happened, as we see so far.

Also, with the recovery of $60,000 levels, we witnessed a noticeable increase in open interest in Bitcoin futures, which had been subjected to huge waves of liquidation after the recent correction, which caused chain reactions in the market.

According to data from CoinGlass, the value of open interest in Bitcoin futures has risen from 27 billion on July 6 to 33 billion today.

 

Zaid Barem / YMM