AQTIS Market Insights Newsletter
Bitcoin ETF sees investors eye up BTC mining stocks as a way of riding the bull market.
Crypto was gripped by ETF fever this week. With news the SEC approved eleven spot Bitcoin exchange-traded funds in the US, the market has been turbulent, but not for reasons that many necessarily thought.
Leading up to the approval of the BTC ETF, there was a strong trend of accumulation among traders who were confident the approval would lead to a surge in price. Indeed, last week, open interest in Bitcoin CME (a Bitcoin futures contract) reached a two-year high of $5.38 billion.
That interest peaked at $6.12 billion on Thursday last week as many expected the SEC to approve the ETFs. But since then, interest has tumbled by more than a billion back down to $5.34 billion as investors in Grayscale’s ETF began exiting en masse. Of the eleven ETFs approved, traders pulled $579 million out of Grayscale, while the other ETFs saw an accumulation of nearly $1.4 billion.
Grayscale has been the dominant player in the regulated Bitcoin market for nearly a decade, but now that other players have entered the market, it’s also one of the most expensive. We expect a continued rotation out of the more expensive funds like Grayscale — who have an expense ratio of $1.5% to others like the VanEck Trust, which charges 0.25%.
While eyes are now turning towards the possibility of an Ethereum ETF, a lot of institutional money is looking at Bitcoin mining company stocks to generate bigger returns for what many expect to be the upcoming bull run.
Because mining stock is closely connected to the performance of Bitcoin more broadly, many see it as a good proxy bet. On top of that, Bitcoin mining company stock is relatively shallow, meaning buying pressure from bigger players is likely to create an opportunity for outsized returns over Bitcoin during the same period.
BTC Analysis
BTC suffered an important change in the last week. Last Friday, Bitcoin fell below the SMA200-H4, an important Simple Moving Average we use as a regime filter in some of our models. It’s a very effective tool for understanding which side of the market to play.
As we discussed in our main story this week, Bitcoin saw a price pullback as outflows from Grayscale and others cooled demand. Since then, the price has moved sideways, but clues about what might happen next can be found in liquidation pools.
Looking at data provided by HyblockCapital, an analytics firm, we can gain valuable insight into what’s happening with the liquidity pools. These concentrations of trades typically act as a magnet for price. After consolidation in a range, the market needs more liquidity to create a move above or below that range.
As we can see from the above chart, there was a cluster forming to the upside around $44k and a cluster at $41k, suggesting this would be the price range for now.
However, this week we’ve had multiple bearish signals, thanks to what’s been happening in order books across the market. In the below chart, you can see a summary of signals and the biggest orders in the order book.
Orange: Bearish signal, orderbooks are imbalanced on the sell side.
Yellow: Bullish signal, order book imbalanced on the buy side.
As you can see, orange (bearish) signals have been dominating order books. But recently, we’ve seen a few yellow (bullish) markers suggesting a floor may have been reached.
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As an analysis, we can conclude that BTC had too much sell pressure after the BTC ETF approval, and most people would try to play the new narrative about the ETH ETF.
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What’s next?
With the upcoming halving in less than 100 days, and more institutional money pouring in, this dynamic is unlikely to last very long as there will likely be a repeat of the “buy the rumor, sell the news” dynamic that preceded the Bitcoin ETF announcement last week.
We’re long-term bullish, but we can see some bearish moves in the short term, as we have seen since the ETF approval.
If you’re a discretionary trader and you want to play safe, you can wait till the price is above the SMA again, and then take a long with a clear invalidation. That is an easy system if you like to trade a trend-following system, in which the main idea is to maintain a position till the trend is ended.
Right now, based on the order books, the liquidity pools, and the Open Interest information, the key areas appear to be between $40K and $38.5K on the bearish side.
For the bullish side, the key areas are $45K, where we’re seeing a lot of sell pressure, and after that, $48K and the psychological price: $50K.Play it level by level.
Coin of the week
Ethereum. The world’s second-largest cryptocurrency by market cap has been the top performer this week. It has held above $2,500 despite a spike in liquidations on futures contracts. Open interest in long positions for ETH are now dominating the market, and Ethereum’s size of the total crypto market has risen to a three-month high to north of 18%, according to 10x Research.
Appetite among investors for ETH continues to grow, as rumors of a possible ETH ETF gain momentum.
Based on a quick technical analysis, we can see that ETH has underperformed BTC since September 2022.
One of the prototype models we have built at AQTIS that uses a simplified version of one of our algorithms flashed a breakout signal after that move (In TradingView it monitors candle-closes only). The first breakout signal in more than a year when we add a volume analysis confluence.
The key levels for ETH are, being able to hold $2.4K where we can see a good spot demand, and we can expect a run to $2.7K and $3K. The must-hold level is $2150.
Looking Ahead
The macro view across markets is focused on what will happen to interest rates, and how that affects liquidity in global markets. The US and the UK saw interest rates stutter in the last quarter, suggesting central banks are in no hurry to lower interest rates as fast as previously thought.
However, global liquidity — a consolidated view of all major bank balance sheets — is on the upturn, suggesting a liquidity drawdown has bottomed out. Historically, riskier assets, such as small caps and cryptocurrencies, have typically performed well during periods of rising liquidity.
This is adding increased weight to the narrative that crypto asset prices are set to appreciate across 2024. And investors are taking note. Trading volumes were US$17.5bn last week, the highest on record, compared to an average of US$2bn per week in 2022.
Of that money, the lion’s share came from US investors into Bitcoin, suggesting America’s cold stance towards crypto might be thawing.
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