After the COVID-19 crisis, the United States seems to be turning the ‘story’ of harvesting other economies in a ‘tidal wave of dollars’ using the status of the US dollar as the world’s largest reserve currency into reality. All economies are under pressure, and the yen to dollar exchange rate has fallen to its lowest level since 1986.

On June 5th, Canada cut interest rates, and on June 6th, the euro cut interest rates. Why hasn’t the Federal Reserve cut interest rates?

• Because only the Japanese yen Exchange Rate has collapsed, it is still hungry.

Europe can’t hold on, Canada can’t hold on, only the United States can hold on. The continuous pump of the US dollar index puts enormous pressure on the equity market.

Under the immense pressure of macro finance, the encryption asset market ended June with a 7.12% decline from the rebound in May, continuing the Depth consolidation of BTC after hitting a historic high. This consolidation has lasted for nearly 4 months, with few independent zone trends in the overall encryption market.

Although the inflow of funds in the Stable Coin side has recovered to $856 million in June, it is still at a low level. The fund in the ETF channel is $641 million, far lower than last month’s $1.9 billion.

There is a two-tier division in on-chain activities. On the one hand, BTC data continues to deteriorate, while public chains such as Ethereum and Solana remain active. These data make people believe that the bull run is still there and the blood is not yet cold.

Macro Finance

On June 12, the United States released the May CPI, which fell another percentage point from 4% in April to 3.3%, lower than the expected value of 3.4%. So far, the U.S. CPI has fallen for two consecutive months in a high-interest rate environment. At the same time, the PMI data on the enterprise side fell from 49.2% to 48.7%, accelerating the contraction, which also provided support for the decline in CPI.

The downturn in economic data exceeded market expectations and boosted expectations of a rate cut, causing the Nasdaq to continue to Pricein rate cut expectations. The Nasdaq ultimately rose by 5.69% in June, achieving two months of consecutive gains. Although the S&P 500 index did not achieve a strong historical high like the Nasdaq, it also maintained a pump trend for the month.

In June, the Nasdaq rose strongly by 5.96%, hitting another all-time high.

The newly added non-farm employment data announced on June 7 greatly exceeded the forecast (182,000), reaching 272,000. The market pointed out that there are significant statistical problems with this data, which may suppress expectations of interest rate cuts.

The market chooses the direction it wants to believe in, such as interest rate cuts. The interest rate swap market still has bets on two interest rate cuts in 2024. UBS claims that the market underestimates the magnitude of this round of interest rate cuts and even predicts that the ‘first cut’ will still happen in September. Against the backdrop of the US dollar index breaking through 106, the Nasdaq continues to hit new highs, which is the result of these long funds betting based on their own judgment.

The US government and the Fed may have released the largest dose of ‘hawkish’ rhetoric this year in June. Treasury Secretary Yellen said, ‘I don’t see any signs of a US recession on the horizon,’ while Fed Director Bowman emphasized, ‘There is still upward risk of inflation, and there may be no interest rate cuts in 2024.’

Although CPI has declined for two consecutive months, the strong employment data allows the Fed to strive for a longer period of maintaining high interest rates, waiting for CPI to approach 2%.

The high interest rate environment of the US dollar puts enormous pressure on the global Capital Market, and the encryption market is no exception.

EMC Labs believes that, with BTC hitting a historic high, some investors are locking in profits and selling continuously, while the high US dollar Intrerest Rate has significantly reduced the influx of funds into the encryption asset market, ultimately leading to the inability of selling pressure to be absorbed by sufficient buying power. This is the fundamental reason why the encryption market is currently unable to effectively break through, and even continues to challenge the lower edge of the adjustment box.

encryption Market

In June, BTC opened at $67,473.07 and closed at $62,668.26, a decrease of $4,804.15 or 7.12% for the month. The amplitude was 20.10%, and the Trading Volume has been shrinking for 3 consecutive months.

BTC monthly trend

In June, BTC diverged from the Nasdaq. While the Nasdaq pumped 5.69%, BTC experienced a 7.12% decline for the whole month, losing most of the rebound from May.

Technically, influenced by the Mt.Gox exchange BTC distribution and the German government’s sale of BTC, the price of BTC on June 24th retraced the rising trend line since October last year and hit the bottom to rebound. On the same day, the price of BTC also completed a retracement to the lower edge of the consolidation range (i.e., $58,000). These two major technical trend lines have relatively strong support, and the BTC price subsequently rebounded above $63,000, indicating short-term stability, but the medium-term outlook remains uncertain.

BTC daily trend

Affected by the expected approval of ETF, the trend of ETH is slightly stronger than BTC. The ETH/BTC trading pair this month has basically maintained the gains from the ETH Rebound in May, and has not significantly retraced, indicating that industry capital in the market is still betting on the launch of ETH ETF.

The ETH/BTC trading pair has basically preserved the gains of ETH’s rebound in May.

The probability of the ETH ETF being approved for trading in July is high. However, given the current severe lack of funds, once Favourable Information is realized, ETH may experience significant selling pressure in the short term. After official trading, can the ETH ETF bring a substantial net inflow of funds like the BTC ETF? The current outlook is not optimistic.

Capital Flow

Bull Market is first and foremost a financial phenomenon.

Based on the source of funds, we can divide the trend of BTC since last year into four phases–

2023.01~2024.06 BTC market 4 stages

2023.01~09: Stablecoin net outflow, buying power comes from on-exchange funds replenishing Position, BTC price rises from 16000 to 32000 US dollars;

2023.10~2024.01: With the approval of BTC ETF and the expected reduction in production, the net inflow of stablecoins turned positive, and then continued to pump, pushing the BTC price up from $32,000 to $49,000;

2024.02~04: After the approval of BTC ETF speculation funds withdrawal, the ETF channel Fiat Currency funds and stablecoin channel funds continue to flow in, pushing BTC to a new high of $73000. Because the ETF channel funds exceeded expectations, BTC hit a new high before the reduction for the first time. Starting from January, long and short profit-taking positions began to sell massively to lock in profits, with sales peaking in early March, followed by a pullback in BTC price on March 18th.

Long-term investors, short-term investors sell BTC statistics

Although in March and April, net inflows of over 8.9 billion and 7 billion US dollars were respectively seen in the Stable Coin channels, massive sell-offs have consumed all buying power, and BTC prices have stalled at $73000.

2024.05~06: BTC price entered a new high consolidation zone after March. The previous large clearance resulted in the complete extinction of the market’s long enthusiasm. Under the pressure of high interest rates in USD, the inflow of funds through Stable Coin channels and Fiat Currency channels rapidly shrunk to 341 million and 856 million USD in May and June. BTC has built a consolidation range between $58,000 and $73,000 and is waiting for new capital to enter.

Monthly Changes in Major Stablecoin Supply (EMC Labs Chart)

Bull Market is the process of new funds entering in an optimistic background, revaluing and pushing up asset prices, while long-term holders sell off to lock in profits after the price pumps. During the development of a Bull Market, the sell-off often occurs in several stages, and the recent one is just the first wave, with the next one occurring after achieving higher prices again.

6 月 11 只 BTC ETF 资金流入流出统计（EMC Labs 制图）

Since the approval of operation in January, BTC ETF has been regarded as an important channel for the influx of new funds into the encryption asset market. Since January, a total of 13.882 billion US dollars have been flowed in through all channels, but since March, the inflow scale has gradually decreased after BTC price stalled at 73,000 US dollars.

In June, the ETF channel saw a capital inflow of 641 million US dollars, which is quite close to the 856 million US dollars in the Stable Coin channel. In the May report, we proposed that “ETF channel funds are expected to become an independent force for pricing BTC”. With the gradual independence of scale and decision-making will, the funds in this channel are expected to take on this important task, and their scale and behavior are worthy of continuous attention, but it is currently difficult to bear this responsibility.

Market Supply

In the Bull Market, long-term investors and short-term investors use different valuation systems for BTC targets. After the price pump, BTC flows from long-term investors to short-term investors, and the value also shifts accordingly.

Accordingly, two phenomena will inevitably occur in a Bull Market, “capital inflow” and “BTC holder group transfer”, and these two phenomena interact with each other to shape the market trend. In the previous section, we analyzed the situation of capital inflow, and in this section, we will focus on the changes in the BTC holder group.

Analyzing the holdings of long-term investors, short-term investors, exchanges, and Miners since last year, we found that long-term investors have been increasing their positions in the first 11 months of 2023, while short positions have been reducing. The turning point occurred in December, when the price of BTC approached its previous high. Long-term investors began distributing chips, while short positions began to increase. With BTC reaching a historic high in March, this game of chip exchange reached its peak. Subsequently, the price started to collapse, and the scale of selling by long-term investors rapidly shrank in April. This selling completely ended in May and June, and long-term investors began to increase their holdings once again.

Long-term investors, short-term investors, exchange and miner position change analysis (EMC Labs chart)

From March to May, the exchange of chips around the previous high price of $69,000 for BTC was one of the main activities in the market cycle, indicating the first stage of the Bull Market. Chips held by low-frequency traders (long-term investors) flowed into the hands of high-frequency traders (short-term investors), causing sudden liquidity in the market. New funds were quickly exhausted, leading to a drop in prices, a cooling of speculation, and a return to a hesitant stage after the market’s passionate and violent behavior.

Will the Bull Market come to a sudden halt? Let’s look at the previous bull runs.

Long-term investors BTC distribution statistics

As shown in the green box in the above figure, in the past three Bull Markets, we have observed that long-term investors will sell a large number of chips after the price pump to lock in profits. The first round of selling will pause the price pump, and the second round of selling will destroy the market. In history, the first round of selling lasted for 3 months, 9 months, and 4 months respectively. This round, from December last year to March, also lasted 4 months, the same as the previous cycle.

According to historical patterns, after the first wave of selling, the long-handed group will return to the accumulation state and wait for the price to rise. As shown in the red box in the above chart, when the price continues to set historical highs, it will return to the selling state for profit taking. This method of selling in batches to lock in profits conforms to the behavior pattern of long-term investors and the law of market movement. Therefore, we believe that this selling pattern still applies to the current encryption asset market.

According to this, EMC Labs judges that the recent major sell-off was just the first wave of selling in the bull market. With the return of long-term investors to the accumulation phase, the market selling pressure will decrease, and funds will return, leading the market to pick up momentum and continue to rise. At that time, the market will usher in the second and most bountifully frenzied stage of the bull market. The probable end of the high interest rate environment in the second half of this year means that although market confidence is currently low and trading is light, we still believe that BTC will probably start its rally early in the autumn.

Conclusion

Market movement is a process of interaction between internal and external factors.

In the first half of just past 2024, long-term investors in the market made the first wave of selling, locking in billions of dollars in profits, and now it has returned to accumulation.

After the approval of 11 BTC Spot ETFs in the United States, nearly $14 billion flowed into the ETF channel, with an additional 240,000 BTC holdings, bringing the total holdings to 860,000 BTC worth $53.1 billion.

Considering that this record was achieved in a high-interest rate environment in US dollars, such market performance is already very impressive.

The dollar has not yet started to cut interest rates, and the global Capital Market funds are under unprecedented pressure.

The first phase of the bull market is coming to an end, and the second phase has not yet opened. We speculate that the changes will probably occur in the autumn.

The biggest risk is the unexpected interest rate hike by the Federal Reserve and the increased scale of selling US bonds, Mt.Gox BTC distribution, and the US government’s sale of held BTC.

Now should be the most depressing and painful moment before the heavy rain.