Looking from different perspectives such as fundamentals, technical analysis, and cyclical norms, now is not the best time to hold ETH, while Bitcoin is expected to hit a new historical high in the future. This article is sourced from an article written by 10x Research and compiled, translated, and written by Odaily.
(Background:
The four fundamental analyses of the crypto market: new funds coming in? The return of value coins? Future development trends
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This article is a compilation of two market analysis articles released by 10x Research last night and this morning. In the first article, 10x Research mainly analyzed the reasons for the pessimism about the future market of ETH; in the second article, 10x Research predicted a new high for BTC.
The following are excerpts from the two articles by 10x Research.
Regarding ETH: Why are we strongly bearish?
In the past month, the market value of Ethereum has increased by 22%, reaching $454 billion, while Ethereum’s fee income has decreased by 33%, to only $128 million.
Fundamentally, this is because Ethereum has become relatively “unimportant” at the transaction activity level, with most meme activities shifting to Solana or Layer2 networks. For deep value investors, this may not be anything new.
From a technical analysis perspective, if ETH falls below the $3,725 mark, it could trigger a large number of stop-loss trades. The current trend of ETH appears very fragile, failing to rise further, and many newly established long positions have reached or fallen below the breakeven point.
Cryptocurrency enthusiasts generally refer to this technical pattern as “Bart,” where the price of a token needs to undergo a certain consolidation after a sharp rise, during which the price may sharply drop due to triggered stop-loss trades. Our three reversal indicators have all turned bearish.
Historically, June is the second worst month for ETH performance, with an average return rate of only -7% (September being the worst at -12%), while the average return rates for the other ten months are positive.
In summary, looking from different perspectives such as fundamentals, technical analysis, and cyclical norms, now is not the best time to hold ETH. Another evidence of this conclusion is the excessive long positions in the futures market (leaning towards long positions).
Note: In financial market terms, “excessive long positions” is usually used to describe a phenomenon in the market where there are a large number of positions holding a specific direction (long or short) in a particular asset or investment product. When the majority of market participants tend to take the same trading direction, “excessive long positions” imply the risk of being overly biased towards that direction.
The open interest of futures contracts has increased from $8 billion in mid-May to $12.8 billion, with funding rates exceeding 20% for a few days before dropping to 11.9% now. However, as no new long positions are being deployed, the cost of holding long positions is very expensive. Due to the uncertainty of the timing of ETF approval, more traders may choose to close positions.
The net inflow of spot Ethereum ETFs may also be disappointing. Similar to the situation with GBTC, we may see 40-50% ($40-50 billion) outflow of funds in Grayscale’s ETHE, while the inflow levels of other ETFs may only reach around 20% of the BTC ETF ($13.5 billion in five months), around $2.7 billion. With $2.7 billion inflow compared to $4 billion outflow in ETHE, the price of ETH may be under pressure.
For institutions or asset managers, the reasons for adding ETH to their multi-asset portfolios are not sufficient. ETH is not positioned as digital gold, its trading volume only accounts for a small fraction of Bitcoin’s, and there is a certain liquidity risk. The current risk-free rate in traditional finance is around 5.2%, while the staking yield of ETH is only 2.6%, so the incentive for traditional finance to purchase ETH ETFs is also small, not to mention that current ETFs do not allow staking.
It is still uncertain when the SEC will finally approve the spot Ethereum ETF (S-1), and just now, President Biden has vetoed the Congress resolution aimed at overturning the SAB-121 resolution, confirming the government’s opposition to cryptocurrencies once again. ETFs must wait for the S-1 form to become effective before trading, but the timeline for the SEC to approve these S-1s is still uncertain (could be today, or it could be months later).
Boosted by the positive impact of the approval of 19b-4 on May 23, ETH jumped from $3,000 to $3,600, and climbed to $3,800 in the following days. Considering that the U.S. government has just conveyed new unfriendly information about cryptocurrencies (Biden’s veto), is this over 25% increase in price reasonable?
We prefer Bitcoin more, and even if the S-1 is approved, the conversion outflow of ETHE will also put pressure on ETH. Overall, “going long on Bitcoin, going short on Ethereum,” and “selling Ethereum call options, buying Bitcoin call options” may be more profitable trading strategies.
For ETH, $3,725 will be a critical level (at this point, we will close all long-term Ethereum positions). If ETH falls below this level, we may see a large number of stop-loss trades being triggered, further pushing the price of ETH down, which may even hinder Bitcoin from hitting a new high.
Regarding BTC: Will there be a new high?
We have emphasized the bullish reasons for BTC in reports on May 21, May 26, and May 30.
For traders, now is the time to take risks to get a bigger Beta. As we predicted, Bitcoin mining-related stocks are also rising. Influenced by Tether’s $100 million financing (possibly increasing by another $50 million), Bitdeer rebounded by 13% last night, while Bitfarms, as one of the main participants in the industry, also saw a rebound.
The U.S. economy is slowing down, but this is currently considered a good thing. GDP growth is only slightly above 1%; the ISM manufacturing index has been in contraction for several months; employment is weakening, which negatively impacts consumer spending; and another key and forward-looking employment indicator—job vacancies have significantly slowed down. All of this will lead to a decrease in inflation.
We will receive more employment data this Friday, and next week we will get the CPI inflation report. The trend of Bitcoin will adjust based on the changes in the CPI (if the CPI rises, Bitcoin will fall; if the CPI falls, it will rise). If the CPI growth rate is 3.3% or lower, it is likely to push Bitcoin to reach a new historical high.
On May 15, when the inflation rate reached 3.4%, lower than the previous month’s 3.5%, we turned bullish, and at that time, the price of Bitcoin was close to $62,000. This price coincides with our model, as our mid-term trend model originally predicted that if the price of Bitcoin could reach $65,000 on May 16, we would turn bullish, and if the closing price exceeded $71,500 (the recent price was $70,500), it would trigger another buy signal.
Bitcoin has already broken through the smaller triangle range in the chart (purple line), and the larger triangle range (purple dashed line) may also be broken around $71,500. If the decline in the U.S. employment rate or the decrease in the inflation rate can make the price of Bitcoin close above this line, we will firmly set the target price at a new high, which may be achieved between this Friday and next Wednesday. Therefore, we expect that by the end of next week, Bitcoin will hit a new historical high (exceeding $73,500).
The SEC has recently released a risk warning about cryptocurrencies, a pattern that has appeared before the approval of Bitcoin spot ETFs and other SEC-regulated crypto products, which may mean that the S-1 form for the spot Ethereum ETF will be approved soon. Nevertheless, we still prefer Bitcoin, and positions will once again return to Bitcoin.
Since last Saturday, the additional positions of Bitcoin futures contracts have increased by $1.6 billion. Last night, Fidelity’s spot Bitcoin ETF received an inflow of $378 million, Ark’s ETF received an inflow of $140 million, and BlackRock received an inflow of $275 million (a total of $880 million in a day), the second-highest in history.
The options market is expected to have a volatility of ±6.6% for Bitcoin by the end of next week. If it rises, the target price will be $76,000. Implied volatility is still relatively expensive, at around 52-53%. Constructing leveraged long positions through perpetual futures or Bitcoin mining companies may be a better strategy.
In conclusion, Bitcoin may soon hit a new historical high, and now is the time to take on more risks and build larger positions.