Bitcoin drops below $55,000 for the first time since February

Why did it drop and should you be buying the dip?

Market Movements

Global Macro Market Observations

• US payroll growth slows and jobless rate ticks up to 4.1%
• ISM Services PMI falls to lowest level since May 2020
• GBP/USD climbed above 1.2800 after US NFP figures sparked risk rally

It was a shortened week given US Independence Day, but key data points were packed in. The market reacted to higher jobless claims and slowing ISM Services data via the easing of financial conditions trade, predictably marked by the move lower in yields and a corresponding move higher in large cap stocks. Friday’s mixed but overall weaker NFP data further extended that momentum, to have the S&P 500 and Nasdaq 100 once again notch new all time highs by the market close.

In the political landscape, both the French lower house elections (first round) and the UK’s general election have ended as widely predicted. Key market indicators such as the currency and the local bourses embraced the outcome, with a stronger EUR and GBP along with a recovered CAC 40/FTSE 100. The French go to the polls once again this weekend for the 2nd round; political manoeuvring amongst left and centrist parties suggests that the far right might end up with a less than desired majority, which likely helped the EUR end the week near the highs.

The release of the ISM services data on Wednesday coincided with a near 100 pip drop in the USDJPY price from 161.68 to 160.76, though the move was promptly reversed. While likely not an official intervention (especially given the small magnitude), it would be reasonable to suspect some form of official involvement there. In past episodes, the Japanese MOF was opportunistic to intervene around weak US data prints. USDJPY also made a new cycle high earlier the same day at 161.95, which would likely have raised eyebrows. The pair closed the week around 160.76, in line with lower treasury yields and the broadly weaker USD post NFP.

Malaysia Market Observations

• Ringgit ends slightly higher vs US dollar as market participants awaited the US non-farm payrolls data

Our local currency remains range bound, trading in a tight 4.7050/4.7230 band on the interbank market. Daily ranges have been inside of 100 pips for the most part, and volatility is starting to become increasingly dampened/coiled. Friday’s NFP sets the pair up for a potential gap lower through 4.70, which likely attracts momentum traders.

Domestic markets took a page out of buoyancy in US markets, with both equities and fixed income gaining.

The KLCI ended the week +1.32% to 1,611.02 points, reclaiming the 1,600 psychological level once again.

Malaysian government bonds saw modest gains against most of the yield curve except the ultra-longs:

Corporate bonds also registered a second strong week in a row:

Crypto Market Observations

• Bitcoin’s price fell under $55,000 for the first time since February
• Over $170 billion wiped off cryptocurrencies as market tanks on Mt. Gox bitcoin payout fears
• Bloomberg analysts expect spot Ethereum ETFs to launch by mid-July

Despite the buoyant sentiment in traditional markets, this week has been a grim one for crypto. Fears of a continued supply overhang in Bitcoin — thanks to consistent official sales from government officials and what seemed like the start of Mt. Gox repayments — led to what has been called the 2nd largest Bitcoin liquidation event after FTX’s collapse in 2022. Bitcoin slid steadily from $63,000 at the start of the week, and traded poorly despite the weaker ISM data. On Friday, it broke the $57,000 mark on its 2nd attempt, and cascaded lower to trade near $53,300 on Binance that same day. From there, dip buyers stepped in as the liquidation cascade started to tail off, allowing the token to close the Friday session above $56,000.

Sentiment and cross liquidations naturally did not spare the rest of the crypto market. ETH also saw brutal movements lower, hitting a low of $2,810 despite expectations of the long anticipated spot ETFs going live mid-July. Major alts like SOL, TON, and FTM saw drawdowns in their teens on the day. Memecoins naturally fared worse, with PEPE at one point down 36% on the week.

Coinglass estimates that some 1 billion of liquidations took place in the period from Wednesday to Friday.

What We Are Monitoring For The Week Ahead

Looking Ahead: Our Insights

The past week was brutal for US economic data, with bad news across the board. Slowing ISM Services (headline and prices paid), higher continuing jobless claims, and a higher household unemployment rate + revisions lower to previous months’ headline NFP numbers all point to a rapidly slowing economy. The Atlanta Fed GDPNow nowcast was clearly behind in the uptake (compared to the St. Louis Fed number which was projecting 0.9% YoY for Q2).

The market reaction has been positive so far, with easier financial conditions being priced in. Sept Fed Funds Futures now imply a 72% chance of a 25 bps cut to the Fed Funds Rate, compared to 57% a month ago. The coming week’s CPI and PPI data will of course be crucial to the continuity of this market uptrend. Data points now need to walk the tightrope of coming in just right (i.e. Goldilocks), as data that swings too far in either direction risks deflationary or stagflationary narratives taking over, none of which are market positive. For now, the march higher for large cap US equities continues.

Sentiment in crypto reached extreme lows on Friday, as crypto majors continuously gave up key levels and traded much weaker. Bitcoin broke a 4 mth consolidation range to the downside, invoking fears of a new bear market amidst the continued supply overhang. The German government was selling at least 1,000 Bitcoin a day over the week, and on-chain sleuths detected test transactions by Mt. Gox, which eventually did end up moving over 47k BTC on Friday. Some creditors even reported on Friday that they had received their Bitcoin in their designated exchange accounts, though larger exchanges like Kraken have announced that it might take some time to complete the repayment process to their customers.

In previous publications, we had highlighted key levels and risks to watch for, though the evolution of the price action happened extremely quickly. Here’s a quick recap of what unfolded:

• Price trading below $60k on Wednesday and a failure to recapture that level was the first sign of weakness.
• BTC had not closed below the YTD Volume Weighted Average Price (VWAP).level since February, despite some tests of that level in the last couple of months. Losing that level ($59,100 at the time) on the day started to imply that the average investor who bought BTC this year would be underwater. BTC closed the daily candle on Thursday at $57,000, just above the April low, which put the ‘average’ buyer at a loss.
• Bitcoin briefly broke through the April low on Thursday during the US session, but the holiday activity resulted in a false break the first time. As Asian traders stepped in ahead of Friday’s open, price weakness accelerated once more.
• Once BTC gave up the April low for the 2nd time, the next high value cluster of price was in the $50–53k region, which was visited in fairly short order as liquidation cascades took place across the board.

The burning question, of course, is should investors buy the dip? Well, some are already jumping in: inflows into the ETF ecosystem totalled $143.1 million according to Farside Investors. That’s the 4th largest inflow day since the beginning of June (which had predominantly seen more daily outflows than inflows) and the largest since Bitcoin peaked locally at $72k that same month. Though $50k should provide support for now, the supply overhang in Bitcoin owing to government selling and Mt. Gox repayments are likely to put a cap on prices in the near term. In fact, even OG Bitcoin whales seem to be stepping up their selling, perhaps losing confidence in the long term view and switching to risk management mode.

While the macro factors have not changed, and they point towards outperformance in risk assets like BTC going into the US elections, the sentiment and positioning washout has been particularly impactful. Individual creditors of Mt. Gox had yet to even receive their coins before the washout began. The previous estimation by Galaxy Digital was that only 6,500 BTC might end up being actual liquid supply, but the loss of sentiment and the break of key levels should alter this behaviour, perhaps encouraging more creditors to sell on any rallies.

Since Friday’s lows, prices have rebounded across the board (though weekend volumes are usually a fraction of what one sees during the working week). Bitcoin even reclaimed $58,000 briefly on Saturday night. The prudent thing for investors however would be not to chase any bounces from here without confirmations of strength (e.g. news catalysts, evidence of overwhelming demand into known selling flows). It would be better instead to bide time and wait for more opportunistic entries, especially knowing that there is supply waiting in the wings to be unleashed.

The performance of ETH over this episode has also been poor. Despite the lack of supply overhang, the crypto native community had by and large built up a sizable position in ETH going into the ETF launch announcement. Coinglass was routinely showing that top trading accounts on crypto exchanges were heavily skewed in terms of being long ETH. That positioning has also since been washed out. It didn’t help either that on-chain liquidations of ETH collateral by DeFi protocols were also triggered by the price move lower, further exacerbating the damage.

On the whole, ETH at this price ($2,970 at the time of writing, though it has hit $3,050 since) heavily discounts the benefits of having a spot ETF launch. Even if day 1 flows disappoint, even if Grayscale’s ETHE outflows hugely impact the market like it did with GBTC (which doesn’t seem as likely, perhaps more on that next time), ETH looks like a good risk/reward bet at these levels. The downside is $2,700 as the next high value node, while the upside is back into the mid $3,000s.

Similarly, other altcoins with strong narratives like Solana have outperformed Bitcoin (and ETH) in this episode. SOL actually finished the day in the green, as did certain altcoins like TON. The lack of supply overhang coupled with the narratives should see these coins continue to show strength relative to the majors.

Thank you for reading and we’ll see you next week!

Team Halogen

Disclaimer: The information, analysis, and viewpoints presented here are intended solely for general informational purposes and should not be construed as personalised advice or recommendations for any specific individual or entity. For personalised investment decisions, individual investors are advised to consult their licensed financial professional advisor. The opinions expressed by the Manager are based on certain assumptions or prevailing market conditions, and they are subject to change without prior notice. This material is being distributed for informational purposes only and should not be regarded as investment advice or an endorsement of any particular security, strategy, or investment product. While the information provided herein may include data or opinions from sources believed to be reliable, its accuracy and completeness are not guaranteed. Reproduction of any part of this material in any form or reference to it in other publications is strictly prohibited without the express written permission from Halogen Capital Sdn Bhd. Halogen Capital Sdn Bhd and its employees assume no liability regarding the use of this material or its contents.