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June’s Crypto Odyssey

The Digital Investor

Digital Investor - July 2024

Executive Summary

  • Cryptocurrencies experienced significant losses throughout June, with the sector’s total market capitalization dropping by approximately 10%. 
  • Miner reserves of Bitcoin fell to a 14-year low due to aggressive miner sell-offs amidst rising operational costs. 
  • Investors continue to feel some fear, uncertainty and doubt around the price of Bitcoin as the 140K BTC supply from Mt. Gox supply will hit the market this month. 
  • Ethereum software development firm Consensys said that the US Securities and Exchange Commission has stopped its investigation into ETH. 
  • While the SEC has continued to maintain a conservative stance with a longer timeline for the final approvals of the US spot ETH ETF applications, the market is expecting them to be listed this month. However, it would be wise not to overestimate the effect to would have on the price of ETH. 

Introduction

In June, while traditional financial markets flourished, the cryptocurrency markets faced significant challenges. On one hand, gold prices continued to steadily rise.

However, the exclusion of European bonds from the MSCI triggered a 4% correction in Euro stocks. Notably, since the Halving event, there has been a significant correlation between Bitcoin miner stocks like MicroStrategy and BTC itself, underscoring their interconnectedness in market dynamics. 

Bitcoin (BTC) has shown a relatively lower correlation with the NASDAQ and SPX indices in 2024, highlighting its independence from traditional market trends.

However, June was a forgettable month for the cryptocurrency market. Both the leading cryptocurrencies Bitcoin and Ethereum fell close to 12% over the month. Altcoins took a massive beating as the total cryptocurrency market cap fell roughly 10% to reach $2.49 trillion where it is currently. Total value locked (TVL) in decentralised finance (DeFi) stands at $95.65 billion (down 12% in June) and stablecoin market cap is at $161.69 billion at the time of writing.

Coins performance as of 25 June 2024

In this edition of the Digital Investor, we delve into the key crypto developments for Bitcoin and Ethereum that unfolded in June. 

Bitcoin

June was a tough month for Bitcoin, with its price dropping over 12%, from $71K to $62K in just a few weeks. Several factors contributed to this decline. First, the German government began selling off 50K BTC (worth about $3 billion) seized from a pirated movie website.

Additionally, there are concerns about the upcoming repayments related to Mt. Gox, a now defunct cryptocurrency exchange. Repayment plans for the $8.6 billion worth of Bitcoin (approximately 140K BTC) are set to start in July, which caused market anxiety.  

However, many expect these repayments to be spread out over several months, which might help avoid a sudden influx of Bitcoin flooding the market.

Furthermore, since many Mt. Gox creditors are early Bitcoin adopters who still believe in its long-term potential, the selling pressure might be less severe than anticipated as they may choose to hold their Bitcoin rather than sell immediately.

Miners continued into aggressive selling of their BTC holdings in June

Meanwhile, as evident from Figure 1, miners sold Bitcoin aggressively in June, totaling nearly $2 billion the largest monthly sell-off in over a year. This trend typically follows halving events which cuts miner revenues in half.

Currently, miner reserves (in BTC) are at their lowest since 2021 and around mid-June, they were at a 14-year low. This time, increased sell-offs are also due to rising energy costs, reducing profitability per miner. As a result, some mining operations are also shutting down.

Miner balances in June hit their lowest levels since 2010.

On the futures market, BTC’s open interest dropped by close to $4 billion, clearing excessive leverage from the market.

Bitcoin perpetual funding rates are nearly at zero, returning to balanced levels and supporting a healthier market price. The Bitcoin Fear and Greed Index is at its lowest since September 2023, when Bitcoin traded around $26K 

Ethereum

In June, Ethereum software development firm Consensys (responsible for the MetaMask wallet) received letters from the U. S. Securities and Exchange Commission (SEC) stating that the regulator had concluded its investigation into Ethereum (ETH) as an asset.

This came after Consensys had sued the SEC in April over the regulator’s alleged investigation into ETH. Despite the positive development, investor sentiment remained pessimistic amidst the broader cryptocurrency market slowdown. Like Bitcoin, ETH also faced significant losses, ending the month 11.8% lower than its starting point. 

Earlier in May, the SEC’s approval of the spot ETH ETFs marked a significant milestone for the cryptocurrency market. It authorized the listing and trading of several spot Ether ETFs from major asset managers including VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy and Bitwise.

Although the approval did not authorize immediate trading, the market expects their listing this month. Reuters earlier predicted the approval for their listings to come through by July 4. However, SEC Chair Gary Gensler maintained a conservative stance and limited his statements to only say that they could be listed by September. 

Many people think that the introduction of spot ETH ETFs will spark a big price surge for Ethereum. However, this might not be the case. When spot Bitcoin ETFs were anticipated in late 2023, Bitcoin’s price jumped from $27K to over $45K by mid-October. After the official approval, it reached an all-time high of over $73K by mid-March. 

On the other hand, in May, even though the market expected SEC to approve spot ETH ETFs, Ethereum’s price only increased by 36%, compared to Bitcoin’s 66% rise before its ETF announcement.

Since then, Ethereum has dropped about 15.5%. Many in the market and on crypto Twitter have noticed that the excitement for ETH’s ETF listing is not as strong as it was for Bitcoin’s earlier this year. 

Additionally, institutional interest in Ethereum is also much lower. This is evident from the lower trading volumes and open interest in ETH futures on the CME exchange compared to Bitcoin.

Another key point is that the Grayscale Ethereum Trust (ETHE) will release nearly $10 billion worth of ETH into circulation once it gets uplifted to a spot ETH ETF. If this leads to outflows, as seen with Grayscale’s spot Bitcoin ETF, it could negatively impact Ethereum’s price.

Conclusion

Despite a challenging month of June for the crypto market, it’s crucial not to lose sight of the long-term potential. Miner stocks have shown resilience and stand to benefit further if Bitcoin  rallies.

Alongside improved technology, we also continue to see better user experience in crypto, both of which are key to onboarding the next wave of users onchain. Currently, short-term bullish catalysts seem unlikely, implying potential choppiness through the summer.

However, we anticipate Bitcoin reaching new all-time highs soon, driven by upcoming rate cuts by the U.S. Fed and the U.S. elections in Q4. Regulatory milestones, including the spot ETF approvals for Bitcoin and Ethereum in the US, signal growing legitimacy and interest.

As complex trades evolve, such as the hedge funds’ cash-and-carry strategies, the industry continues to mature. This cycle marks just a phase in crypto’s long-term growth trajectory, emphasizing optimism for the future.

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Authors

Yves Longchamp

Head of Research AMINA Bank AG

Sonali Gupta

Senior Research Analyst AMINA India

Anirudh Shreevatsa

Research Analyst AMINA India

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