Bitfinex Alpha | ETF Outflows: Is the Bottom Near?

The crypto market is in a state of limbo as we near higher timeframe range lows on the daily, weekly and monthly charts, while there is also a downtrend in the lower timeframe (one-minute to 15 minute charts). Supply overhang is also significant as seen in the surprise German government sales of seized BTC last week, and is an important reminder of other overhangs pressurising the market including from Mt. Gox creditors and miners. 

US spot Bitcoin ETFs are also contributing to the negative sentiment, with outflows totalling $544.1 million last week, though this was linked to basis/funding arbitrage unwinding, rather than necessarily real sentiment on BTC. As previously noted in last week’s Bitfinex Alpha, large sell downs in ETFs often correlate with local bottoms in BTC prices.

As a consequence, total crypto market capitalisation has declined, with a pattern emerging that Thursdays and Fridays have become high-volatility days. The peak-to-trough decline during last Thursday and Friday was approximately five percent, which is considered quite significant for BTC. Historically, movements of this magnitude have often signalled at least a local low, as seen on June 11th, when a similar intra-week drawdown resulted in the formation of a new local price floor. With this, there is potential for buying opportunities, and these significant drops are warranting close attention from traders.

However, we see the market as being in a wait and watch mode, with near-term scenarios either seeing continued pressure from BTC overhang sales and a lack of any catalyst to move higher; or a spark in sentiment with ETH ETF approvals coming through and sparking renewed positive sentiment, particularly in altcoins.

On the macro front, the US economy seems to be exhibiting signs of cooling, as reflected in several key economic indicators. The latest Leading Economic Index report indicated that consumer optimism was declining due to persistent inflation and high interest rates. The report predicted a slowdown would take place during the third and fourth quarters of 2024. At the same time, the job market is showing signs of stability, with initial jobless claims experiencing a modest decline last week, though overall the job market continues to cool, which aligns with the broader economic slowdown.

Significant strain is also evident in the housing market, as housing starts in May plummeted to their lowest level since June 2020. 

Despite these challenges, retail sales showed modest but positive growth, suggesting resilience among consumers, but the growth is slower than expected, reflecting cautious consumer behaviour amidst economic uncertainties.

The one bright area is in the industrial sector, which continues to grow, and which could prove to be an important factor in stabilising the overall economy, and mitigating against a slowdown in other areas. 

If these trends of cooling economic growth and inflation continue, the Fed is well-positioned to consider a rate cut in September. 

Markets are becoming increasingly sanguine on inflation. The Fed five year forward, five year break even rate is comfortably at 2.19%, close to the Fed’s two percent target; but with jobless claims continuing to inch upwards, housing starts slowing, and retail sales growing less quickly, a reduction in interest rates would be a welcome stimulus for the economy.

Recent news in the crypto-sphere includes the German government’s sale of over $195 million worth of Bitcoin, which contributed to the decline in BTC last Friday; and ongoing preparation by leading ETF providers, such as BlackRock, VanEck, and Franklin Templeton, who have filed amended registration statements in support of their bid to launch Ethereum ETFs.

Happy Trading!

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