Bitfinex Alpha | ETF Outflows: Is the Bottom Near?

Bitfinex Alpha | ETF Outflows: Is the Bottom Near?

The cryptocurrency market is in limbo as it is approaching higher timeframe lows on the daily, weekly and monthly charts while trending downwards on the lower timeframes (1-15 minute charts). There is also a significant supply glut, as evidenced by the German government’s unexpected sale of seized BTC last week, a key reminder that other gluts, such as those from Mt. Gox creditors and miners, are putting pressure on the market.

US spot Bitcoin ETFs also contributed to the negative sentiment, with outflows totalling $544.1 million last week, although this is more related to the unwinding of basis/funding arbitrage and not necessarily actual sentiment in BTC. Bitfinex AlphaHeavy ETF sell-offs often correlate with local bottoms in BTC price.

As a result, the cryptocurrency market cap is declining, creating a pattern of Thursdays and Fridays being high volatility days. The peak-to-trough drop last Thursday and Friday was around 5%, which is considered quite large for BTC. Historically, moves of this magnitude often signal at least a local low, with a similar intraweek drawdown forming a new local price bottom on June 11th. This creates buying opportunities and these large drops require traders’ close attention.

However, we believe the market is in a wait-and-see mode, with short-term scenarios including either continued pressure from the BTC overselling, with no catalyst for a price surge, or the approval of an ETH ETF passing, sparking renewed positive sentiment, especially around altcoins.

On the macro front, the U.S. economy appears to be showing signs of cooling, as reflected in several key economic indicators. The latest Leading Economic Indicators report indicated that consumer optimism is declining due to persistent inflation and high interest rates. The report predicted that a slowdown will occur in the third and fourth quarters of 2024. At the same time, the job market is showing signs of stabilizing, with initial unemployment insurance claims declining slightly last week, but overall the job market remains cooling, which is consistent with a broader economic slowdown.

Significant pressure is also evident in the housing market, with housing starts in May plummeting to the lowest level since June 2020.

Despite these challenges, retail sales have shown modest but positive growth, suggesting consumer resilience, although growth has been slower than expected and reflects cautious consumer behavior amid economic uncertainty.

The one bright spot is the industrial sector, which continues to grow and could be a key factor in stabilizing the overall economy and mitigating the slowdown in other sectors.

If these trends of slowing economic growth and inflation continue, the Fed will be in a good position to consider cutting interest rates in September.

Markets are becoming increasingly optimistic about inflation. The Fed’s 5-year-ahead, 5-year-forward breakeven rate is at 2.19%, approaching the Fed’s 2% target. But with jobless claims continuing to incline, housing starts slowing, and retail sales growth slowing, a rate cut would be a welcome boost to the economy.

Recent news in the cryptocurrency space includes the German government’s sale of $195 million worth of Bitcoin, which contributed to BTC’s decline last Friday, and continued preparations by major ETF providers such as BlackRock, VanEck, and Franklin Templeton to file amendments to their registration statements to launch Ethereum ETFs.

Happy trading!

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