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The May Crypto Roundup: Big Moves and High Hopes

The Digital Investor

May Digital Investor

Executive Summary

  • BTC dominance has declined to 50.07%, down by 65 basis points during the month of May. 
  • Following a brief correction, the cryptocurrency market swiftly recovered due to an increase in long-term holder supply. 
  • Bitcoin is in a consolidation phase as investors resume accumulation patterns. We expect some volatility before the next significant movement. 
  • The price of ETH surged amid rumors of US spot Ether ETFs approval. Soon after, on May 23, the US SEC approved the 19b-4 proposals for the first spot Ether ETFs. 
  • Interest in ETH is rising following the spot ETF approvals, as reflected in positive trader and market sentiment. 
  • Grayscale’s Ethereum Trust (ETHE) shares, which traded at a discount of over 20% for the past three months, saw this discount shrink to less than 2% after the approval, now at just 1.7% below NAV. 
  • We anticipate that US spot ETFs will impact Ethereum’s price similarly to how Bitcoin’s ETF approval influenced its price in January. 

Introduction

Bitcoin continues to consolidate with long-term investors beginning to re-accumulate coins for the first time since December 2023. The month of May saw a market-wide recovery in the last two weeks and net flows of Bitcoin US Spot ETFs have reverted to positive again after four weeks of net outflows, indicating a resurgence in traditional finance demand. Meanwhile, Bitcoin’s market cap dominance has declined while that of Ethereum has increased. 

The highlight of the month is that the first tranche of Ethereum spot ETFs have been approved in the US by the Securities and Exchange Commission (SEC). This has balanced out the playing field between Bitcoin and Ethereum. Following this, Ethereum is attracting increased interest as is evident from trader and market sentiment.  

Alongside strengthening demand for Ether, the decentralised finance (DeFi) landscape has improved with a substantial increase in total market cap of the sector as altcoins recovered. In this edition of the Digital Investor, we cover more such market developments and also see what lies ahead for the two leading cryptocurrencies going forward. 

Bitcoin

Bitcoin is trading just below its all-time high and has recovered in the last two weeks of the month of May. BTC dominance has declined and is at 50.07% at the time of writing – down by 65 basis points on the monthly timeframe. The leading cryptocurrency is trading around $70K at the time of writing. 

In early May, Bitcoin experienced a correction as short-term holders began selling. This group comprises entities that have acquired their Bitcoin in the last 115 days and is highly sensitive to price fluctuations, reacting almost instantly to changes in the market. It was unsurprising that the initial days of correction saw continued selling from this group until Bitcoin reached a local low of around $60K on May 10.

Subsequently, the market witnessed a swift recovery over the following two weeks, attributed to an increase in long-term holder supply for the first time since early December 2023. Short-term holders also joined in, leading to an 18% rally from May 10 to May 20, reaching $71K. Additionally, rumors of the approval of US spot Ether applications partly contributed to Bitcoin’s price rally during this period.

Long-term and short-term holder supply of Bitcoin

Bitcoin is currently in a consolidation phase and has been trading flat over the past two weeks. The transfer of approximately 43K Bitcoin, valued at $3 billion, from wallets associated with the defunct cryptocurrency exchange Mt. Gox on May 28 caused some concern about a potential massive sell-off and correction in the Bitcoin market.

Although there was a minor 1% correction initially, Bitcoin has since been trading flat, and most market participants maintain a positive outlook. The net flows of Bitcoin US Spot ETFs have turned positive again after four weeks of net outflows, indicating a resurgence in traditional finance demand. With investors returning to accumulation patterns, some volatility may be expected before the next significant movement. 

Total AUM across US Spot Bitcoin ETFs

Ethereum

Ether is up roughly 23% over the past 30 days and is around $3700 at the time of writing. During the first half of the month of May, ETH mostly traded flat around the $3000 mark. The lowest it went to during the month was $2880 after its weak momentum carried over from April as short-term holders sold off.  

As rumours of the approval of the US spot Ether ETFs were abuzz, ETH saw a sudden jump in price to hit $3660 on May 21. Two days later, on May 23, the US SEC approved the 19b-4 proposals for the country’s first spot Ether ETFs. The announcement seemed priced in since ETH barely saw any immediate upside move after the news came out. However, the approval has improved the outlook for Ethereum.

Considering the huge impact and influence that the spot ETFs have had on Bitcoin since their approval in January, the ETH/BTC trading pair may be exhibiting early signs of a more promising road ahead. Once the ETFs are live for trading and the US Feds turn dovish with rate cuts, we expect Ethereum and altcoins to exhibit higher relative strength compared to Bitcoin. 

The discount to NAV is a percentage that calculates the amount that an ETF or closed end fund is trading below its net asset value. Shares of Grayscale’s Ethereum Trust (ETHE) were trading at a discount of over 20% for the better part of the past 3 months. Immediately following the approval decision, this discount fell to less than 2% and is currently just 1.7% below NAV.

Grayscale Ethereum Trust: Discount to NAV

According to Glassnode data, futures open interest too reached an all-time high of over $12.4 billion in late May. It is safe to conclude that ETH is attracting more and more interest following the spot ETF approvals as can be gauged by trader and market sentiment.

Ethereum Futures Open Interest reached new highs in May 2024

Decentralised Finance

Total DeFi marketcap has shot up roughly 14% over the past 30 days at the time of writing to reach $105 billion. There is also a 165 basis point increase in ETH dominance. These two metrics point to a strengthening altcoin market.

However, one key factor to track is the total stablecoin marketcap which has been roughly the same over the past one month. Once there are improvements across the three metrics, we may see an altcoin season. 

Looking ahead, we expect the US spot ETFs to bring about a price impact for Ethereum like Bitcoin experienced with its ETF approval in January. Like the spot Bitcoin ETFs listed in January, these new products could expand access to the crypto asset class for a broader range of investors. For a more detailed commentary on the Ether ETF approval, read our latest Crypto Market Monitor – Ethereum ETF Effect 

Conclusion

With long-term holders beginning to re-accumulate coins for the first time since December 2023 and the spot Bitcoin ETFs experiencing a resurgence in demand, there is now a substantial increase in buy-side pressure.

In addition, the approval of US Spot ETFs for Ethereum by the SEC has led to a balancing of the playing field between Bitcoin and Ethereum. The eight approved Ether ETF issuers including major asset managers like BlackRock and ArkInvest await their S-1 registration statements to be signed off by the SEC for trading to go live.

This development strengthens the growing adoption of digital assets within the traditional financial system and marks a significant advancement for the industry. Meanwhile, there are speculations of two additional ETFs which may see applications – Solana and Ripple.

What remains to be seen is the extent to which the newly approved ETH ETFs catapult the cryptocurrency markets further. We remain optimistic in our outlook for both Bitcoin and Ethereum.

Moreover, with the markets expecting the US Feds to cut rates in later this year, risky assets would see increased inflows with cryptocurrencies being direct beneficiaries of a risk-on market sentiment. 

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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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