Bitfinex Alpha | BTC Overhang Weighing on Market

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Although the first half of 2024 started with a rush of enthusiasm for crypto assets and resulted in an All-Time High (ATH) for Bitcoin, as well as a surge in meme coins, it has ended the half with a whimper. Price headwinds for Bitcoin in particular have impacted its performance in June, undermined by the policy environment which has led to a dip in volatility. BTC has struggled to maintain upward momentum, decoupling from US equities, while long-term Bitcoin holders, who had paused on any selling in early May, have returned. In the meantime, an overhang of supply continues to weigh on the market, with selling possible from Mt. Gox depositors and the Bundeskriminalamt, Germany’s Federal Criminal Police Office, who may be tempted to dispose of their recent Bitcoin windfall.

Further compounding the selling pressure is evidence that Long-Term Holders of Bitcoin are resuming their sales. The Long-Term Holder Spent Output Profit Ratio indicates that this cohort, who had previously been realising profits at prices above the last cycle ATH of approximately $69,000, is now back taking profits again. Notwithstanding a decrease in miner sell-offs that would suggest some market stabilisation from this cohort, continued high levels of profit realisation by long-term holders means the near-term outlook is vulnerable.

Fortunately for risk assets, however, in the macro environment, the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures Index, came in unchanged in May, suggesting that inflation is now only slightly above the Fed’s two percent target. With hopes that this may lead to a rate cut in September, the case for such action was supported by the third estimate for the first quarter of US GDP, which showed that despite a small upward revision, the economy has some weak foundations. Additionally, consumer confidence is declining, with the percentage of consumers planning to buy a home low, due to high mortgage rates and limited supply. It is hoped that a rate cut will come soon.

In crypto news last week, we report on the specific actions taken by the German government to move its seized Bitcoin to exchanges, in preparation for possible sales; while more positively, we saw two ETF providers file with the SEC applications to list a Solana ETF.

On the regulatory front, we note the decision by the US IRS to require cryptocurrency brokers to file 1099 forms starting in 2025 and track the cost basis for customers’ tokens from 2026.

Meanwhile, the SEC has sued Consensys, alleging its MetaMask service is an unregistered broker involved in selling securities and scrutinising its staking feature powered by Lido and Rocket Pool. This lawsuit, following previous enforcement actions, aims to classify a broad range of crypto assets, including popular tokens like MATIC and MANA, as securities.

Have a good trading week.

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