Currently, the crypto market is experiencing a dip in confidence, exacerbated by delays in the approval of spot bitcoin ETFs.
Although the SEC has always postponed any decisions on the matter as long as possible, there was some enthusiasm last week that approval could be imminent.
This enthusiasm dissipated as soon as it became clear that the SEC would instead carry on as usual.
Crypto market outflows: waiting for bitcoin ETFs
The drop in confidence is evidenced by the $168 million outflow from crypto funds in the penultimate week of August, the largest weekly outflow since March.
In total, these outflows drained 89% of the total assets under management in crypto funds.
This is according to the 70th weekly Bitfinex Alpha report recently released by analysts at the crypto exchange.
However, Bitfinex analysts also point out that despite this negative data, cryptocurrency prices have remained surprisingly stable, without any significant changes that could, for example, push the price of bitcoin much further away from $26,000.
This could also be due to the fact that some of the outflows consist of withdrawals from exchanges and custodian wallets to proprietary offline cold wallets for self-custody.
In fact, according to Bitfinex analysts, on-chain data suggests that long-term holders of bitcoin appear to remain bullish for the long term.
Stablecoins
One figure that suggests crypto users are not abandoning this world is the use of stablecoins.
In fact, the adoption of stablecoin payments continues to grow, which is seen as an indicator of the long-term health of the crypto sector.
For example, over the course of 2023, the market capitalisation of the largest stablecoin, USDT, rose from $67 billion to almost $83 billion, reaching an all-time high of almost $84 billion in early August.
In contrast, the capitalisation of the second stablecoin, USDC, fell from $51 billion to $26 billion, so overall capitalisation fell despite the rise of USDT.
The end of the crypto winter
According to Bitfinex analysts, on-chain metrics suggest that the crypto market may be nearing the bottom.
In particular, they report that the Spent Output Profit Ratio (SOPR) index is now close to break-even, indicating that more BTC are in profit. Such a situation historically tends to indicate greater confidence in the market.
In addition, the HODL Waves data shows that inactivity parameters of more than three years have reached new highs compared to the recent past.
According to the report, the overall economic environment also looks more positive than in the recent past. Markets are now pricing in no more US interest rate hikes and are already anticipating the first cuts next spring.
An interesting piece of data from this point of view is US consumer spending, which in July reached a peak not seen in the previous six months.
The short and long term forecast: the crypto market awaits bitcoin ETFs
So, if things continue as they are, in the short term we can expect a continuation of the long period of lateralisation in Bitcoin prices that began on 17 March, with BTC remaining mostly in a range between $25,000 and $31,000.
In the longer term, however, things could change as bitcoin is set to halve over the course of next spring and the Fed may start to cut interest rates.
Also, the possible approval of spot bitcoin ETFs could come around the same time, or a little earlier, and all of this could end the lateralisation phase.
However, much will depend on how macroeconomic conditions develop, especially in the US and China.
The comment
Bitfinex analysts commented on the data as follows:
“In the midst of an August marked by diminished trading volumes for on-exchange trading, digital asset investment products recorded outflows totaling $278 million. Trading volumes for these investment vehicles have declined to $1.3 billion in total for this week — 16 percent lower than the yearly average. Pessimism seems to be brewing among investors, largely fueled by the growing consensus that the U.S. rollout of a Bitcoin spot-based ETF may face further postponements.
Data suggests that it will take longer than earlier anticipated to get a bullish catalyst for the markets, and the longer the ETF saga draws on, the less pronounced the effect could be on actual market prices across crypto assets.”