ICONOMI Crypto Monthly Newsletter: Here’s What’s Moving the Crypto Markets
At ICONOMI, we speak with various investors daily, from HNW, Family Offices, Retail and Institutional, and the discussion typically leads to the question, "Where are we in the current market cycle?"
When investing in the market, it's crucial to remove personal feelings from the investment process and use on-chain data, and previous cycle data to form an investment decision/outlook. Adopting a longer-term strategy and view.
What is evident, is this cycle is being driven by institutional liquidity, with retail investors not showing the same level of interest as during previous bull market cycles (yet).
In today's report, we highlight key events that have moved the market over the past month and discuss various on-chain metrics:
Inflows vs. Outflows & Spot ETF Developments: A Market Snapshot
Last week, digital asset investment products saw modest inflows, amounting to $30 million, nothing to get too excited about. The minor inflows were largely driven by recent macroeconomic data suggesting that the Federal Reserve is less likely to implement a 50-basis-point interest rate cut in September. Central Bank monetary policy has been a key macro driver over recent months, resulting in volatility across all financial markets.
Bitcoin: Remains In Strong Demand
Bitcoin stood out with positive inflows of $42 million last week. Year-to-date, Bitcoin has attracted over $20 billion of inflows, underscoring its continued dominance in the digital asset space. Meanwhile, short-Bitcoin products saw outflows of around $1 million last week, bringing the month-to-date total to $20.2 million of outflows. This trend indicates that investors are becoming less inclined to bet against Bitcoin at these levels, possibly due to its resilient performance and strong investor appetite.
Despite sell-side pressure since Bitcoin hit its all-time high of $73,000 in March 2024, Bitcoin spot ETFs are on a steady accumulation path. These ETFs are adding on average 1,800 Bitcoin to their holdings daily—four times the amount of Bitcoin mined each day. This level of accumulation signals strong institutional confidence in Bitcoin's long-term value.
Ethereum: Gaining Momentum
Ethereum also experienced significant inflows, spurred by the recent approval of ETH spot ETFs. Year-to-date inflows into Ethereum have now reached $867 million, a substantial increase compared to the mere $15 million in inflows for the entire year of 2023. The approval of these ETFs appears to have reinvigorated investor interest in Ethereum, setting the stage for continued growth.
Solana: Facing Headwinds
In contrast, Solana faced substantial outflows, losing $38.9 million last week, which brought its year-to-date inflows down to $31 million. This comes despite Brazil’s approval of a second Solana Spot ETF, sanctioned by the Brazilian securities regulatory body, Comiss?o de Valores Mobiliários (CVM). The approval of these ETFs is a significant milestone, yet it hasn't shielded Solana from declining trading volumes, particularly in the meme coin market, on which it heavily relies.
Adding to Solana's challenges, this week the U.S. Securities and Exchange Commission (SEC) rejected 19b-4 applications submitted by the Cboe BZX on behalf of two prospective Solana ETF issuers. The SEC reiterated its stance that Solana is classified as a security, which forced the exchanges to withdraw their filings, effectively stalling the approval process. However, this setback might be temporary, as the applications could be refiled or amended with stronger arguments to challenge the SEC's classification of Solana as a security.
Sell-Side Pressure in the Market: What’s Driving the Downturn?
Over the past two months, both cryptocurrency and traditional financial markets have faced significant sell-side pressure, fueled by a series of impactful events. These developments have led to increased market volatility and shaken investor confidence. Let’s dive into the key factors contributing to this downward momentum.
Mt. Gox BTC Distribution: A Massive Market Impact
The ongoing distribution of Bitcoin from the Mt. Gox exchange has been a major source of market turbulence. The exchange, which collapsed in 2014, has been in a lengthy legal rehabilitation process aimed at repaying its creditors. This process has seen large amounts of Bitcoin being transferred from the Mt. Gox estate to various exchanges.
In July 2024 alone, approximately 95,523 BTC, worth around $6.14 billion, were moved to platforms like BitGo, Bitstamp, Kraken, SBI VC Trade, and bitbank. One of the most significant transfers occurred on July 16, when 48,641 BTC (valued at $3.07 billion) were sent to a Kraken-linked address. This marked the beginning of a series of massive Bitcoin movements intended to fulfil the repayment obligations to creditors.
The distributions continued into August 2024, with another 12,000 BTC (worth about $709 million) being transferred to a new wallet. Despite these substantial transfers, the Mt. Gox estate still holds approximately 46,164 BTC, valued at around $2.73 billion. The sheer volume of these transactions has contributed to considerable market volatility, with Bitcoin prices swinging between $49,000 and $70,000.
Japanese Yen Carry Trade Unwinding: Ripple Effects Across Markets
Adding to the sell-side pressure is the unwinding of the Japanese Yen carry trade, a popular investment strategy that has been significantly impacted by recent monetary policy changes in Japan. On July 31, 2024, the Bank of Japan (BoJ) raised its key interest rate to 0.25%, up from the previous range of 0–0.1%. This marked only the second time in 17 years that the BoJ has raised rates, signalling a shift towards normalising monetary policy. Were they forced to intervene in the market due to JPY devaluation?...
The rate hike had a direct impact on the Japanese Yen carry trade. This strategy involves borrowing yen at low interest rates and investing the borrowed funds in higher-yielding foreign assets. The historically low borrowing costs in Japan have made the yen an attractive funding currency for such trades. However, the recent rate increase has made borrowing in yen more expensive, reducing the profitability of this strategy.
As a result, investors have started unwinding their positions, selling off foreign assets to repay yen-denominated loans. This unwinding has led to downward pressure on asset prices and increased market volatility. Furthermore, as these positions are closed, demand for the yen rises, leading to its appreciation. This yen strengthening exacerbates losses for investors holding assets in other currencies, adding another layer of market disruption over the past month.
Conclusion: Navigating the Current Market Environment
Since peaking in March 2024, Bitcoin has been trapped in a consolidation range, with multiple negative events adding to sell-side pressure and weighing on investor confidence. Despite the short-term volatility and the barrage of negative headlines, it’s crucial to maintain a longer-term perspective on digital assets.
By analyzing on-chain metrics and understanding previous market cycles, investors can gain a clearer picture of where we stand in the current cycle and make more informed decisions. While the market may be facing headwinds now, historical patterns suggest that these periods of turbulence are part of the broader cryptocurrency cycle.
Bitcoin Long-Term Holder Supply
Long-term holders are defined as addresses that have held the Bitcoin for 155 days or more (blue line on the chart). Typically speaking long-term holders of Bitcoin are known for accumulating and distributing Bitcoin at optimal price points. Tracking this metric provides an understanding as to what the "smart money" is doing, when they are buying and when they are selling.
Long-term holders were selling Bitcoin into the peak of $73,000, reducing exposure and realising profit. They remained flat-lined until the 31st of July. Since the 31st of July, when the Bank of Japan increased interest rates for the first time in 17 years and markets plunged lower, the long-term holders have added more than 800,000 BTC to their holdings. This indicates significant buyers are stepping into the market at these levels.
Bitcoin Spiral Chart Update: Is the Market Top Still Ahead?
Bitcoin’s price movements often seem to follow a predictable four-year cycle, but this cycle is driven by the number of blocks mined rather than by time itself. Here's how the cycle unfolds:
Every year, approximately 52,500 Bitcoin blocks are mined, which represents one-quarter of the cycle and spiral chart. This means that in the four years between halving events, 210,000 blocks are mined, completing a full rotation on the spiral chart.
Currently, each mined block contains 3.125 BTC, with 144 blocks being mined daily. This results in an increase in Bitcoin supply by 450 BTC every day.
Where Are We in the Cycle?
Historically, Bitcoin has reached its bull market peak halfway through the second year of this cycle, around block 78,750 (approximately 1.5 years after a halving event). Based on previous cycles, we could anticipate the next bull market peak to occur sometime in Q3/Q4 of 2025, as the most recent halving event was in April 2024.
Similarly, bear market bottoms have historically occurred halfway through the third year of the cycle, around block 131,250 (roughly 2.5 years after a halving event, or 1.5 years before the next one).
Bitcoin MVRV Z-Score: No Market Top Yet?
Another useful tool for predicting market tops and bottoms is the MVRV Z-Score, which leverages blockchain data to determine when Bitcoin is either significantly overvalued or undervalued relative to its 'fair value.'
The MVRV Z-Score has been particularly effective at identifying the peaks of previous Bitcoin bull markets, often within just two weeks of the actual peak.
When the Z-Score (represented by an orange line) enters the pink box, it typically signals that Bitcoin is nearing the top of its market cycle. This analysis has successfully predicted the previous 4 bull market peaks.
Conversely, when the Z-Score enters the green box, it indicates that Bitcoin's market value is significantly lower than its realized value, presenting a historically profitable buying opportunity. Investors who accumulated Bitcoin during these periods of extreme undervaluation have often seen substantial returns. The current Z-score is sitting just above the optimal green zone.
Conclusion: What’s Next?
Since Bitcoin's peak in March 2024, the market has been in a consolidation phase, marked by sell-side pressures and volatile conditions. Despite short-term fluctuations and negative news, maintaining a long-term perspective is crucial. By analyzing on-chain metrics and understanding historical cycles, investors can better navigate the current market and make more informed decisions.
With the current MVRV Z-Score yet to enter the pink zone, it suggests that the market top may still be some time away. Coupled with the spiral chart’s indication of a potential bull market peak in Q3/Q4 of 2025, it seems that Bitcoin's current cycle still has room to grow. As the MVRV Z-Score is also trading slightly above the green zone, which is optimal for long-term entries, it is not a bad area to accumulate Bitcoin.
While present conditions may be challenging, it is evident that long-term holders and the "smart money" are accumulating at these levels, adding more than 800,000 BTC to their holdings. Historical trends suggest that these periods of volatility are part of a larger cyclical pattern, and potentially provide an opportunity to accumulate. The long-term outlook remains promising, we now need to see continued growth in the Spot ETFs, and for the retail market to catch up.
Want to learn more
ICONOMI not only provides investors access to a variety of digital asset portfolios (index portfolios, discretionarily managed portfolios, quant portfolios), but investors can build and manage their portfolios using the ICONOMI portfolio management portal.
If you want to learn more about the Cryptocurrency market - Schedule a 1-on-1 consultation with the author Anthony Fernandez - Head of Business Development at ICONOMI:
Risk Warning: Cryptocurrency is classed as a high-risk investment. Previous returns do not guarantee or guidance of future performance. Don’t invest in cryptocurrency unless you’re prepared to lose all the money you have invested. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
Thanks, ICONOMI. A really insightful read!