Bitcoin Nears $60,000: Key Factors Behind the Drop

👇1-11) The weekend Bitcoin pump might have been necessary to reset the oversold (short-term) technicals before the downtrend could resume. We worry primarily about longer-term technical issues, which indicate a more pronounced topping formation. Our Monday report, ‘Is the Bitcoin Trump Pump sustainable?’ reiterated our medium-term view for a deeper downside correction.

👇2-11) However, the combination of longer-term technicals, on-chain signals, flows (especially from miners’ inventory), and market structure data could overwhelm, at least in the near term, the potential bullish arguments from the US Presidential election tailwind and eventual interest rate cuts matter less (at this point). Bitcoin is back in the 60,000 to 61,000 range, which, if broken, could cause liquidation.

👇3-11) During extremely low volume periods, the well-timed weekend pump caused waves of liquidations on the upside (shorts being stopped out). Simple attempts to trigger those buy stops were successful, but there is now less upside risk from short covering—quite the contrary - the downside risk is now real.

👇4-11) The hash rate declines from 650m TH/s to 550m, indicating miner stress, and the average breakeven rate for mining Bitcoins appears to be close to 60,000. Despite a rebound attempt in miner revenue from $30m per day in May to $39m in June, the latest revenue number drops to just $27m. This indicates that miners must liquidate more BTC inventory to fund their operations. Miners revenue is at the same level as when one BTC is traded at $30,000. (see also our earlier report here)

👇5-11) The US ISM Manufacturing Index, a leading indicator for the US economy, also appears to have reached a cyclical high in April. Previously, highs and lows in this momentum indicator have been high-risk rewards selling and buying periods for Bitcoin. However, the timing can be several months off. Nevertheless, if April was the peak for the ISM momentum YoY, then the peak for the Bitcoin cycle might be close.

👇6-11) Various on-chain indicators are also flagging a potential cycle peak. The ninety-day coin days destroyed have potentially rolled over. Newly created coins are spent faster as they tend to hold them for a shorter period. When the coin is spent, it is considered ‘destroyed.’ This indicator rises in bull markets as traders hold onto their coins but level off once they start liquidating.

👇7-11) Another indicator, dormancy flow (current market cap vs. annualized dormancy), has peaked as old wallets wake up. A spike in this metric has predicted the peaks in 2017 and 2021 within months. Disciplined long-term investors are supplying the market while shorter-term traders buy. Some of those on-chain data points spiked due to Mt. Gox, which might distribute $9bn in Bitcoins this month.

👇8-11) It appears highly probable that US President Biden will step out of the race and his current Vice President, Kamala Harris, will be the Democratic nominee instead. This would allow the Biden-Harris campaign to keep the $264m in campaign funds raised. Her views on crypto are less known, but Sacramento King’s CTO Ryan Montoya (who is Bitcoin-friendly) is among the staff members of her VP team. The impact is that Bitcoin’s tailwind due to Trump leading in the polls becomes less confident.

👇9-11) In an ideal scenario, the FOMC would indicate its willingness to start its interest rate-cutting cycle during the July 31 meeting (and press conference). Fed Chair Powell could reiterate this view during the Jackson Hole symposium on August 23 before the Fed could cut September 18. Alternatively, the Fed could cut on December 18. However, we are leaning toward the view that the Fed might cut once this year, in either September or December or not at all.

👇10-11) Although the media has focused mainly on the Bitcoin ETF inflows ($14bn), the increase in futures leverage due to the Q1 bull market and after the SEC indicated the Ethereum ETF approval has been equally important. However, the most important has been the stablecoin minting, with nearly $27bn of inflows and, therefore, twice as important. However, stablecoin minting has been flatlined since the April Bitcoin halving, which explains why Bitcoin has struggled during the last few months. All three data points have stopped adding liquidity.

👇11-11) Psychologically, breaking the 60,000 Bitcoin price would be damaging, as prices could drop quickly to the nearest support level, which might be 55,000 or even 50,000. As mentioned previously, the average Bitcoin ETF entry price is between 60,000 and 61,000, and a break below this range could set off liquidation orders. Miners are another major factor that could set off cascading liquidations.