The crypto market is experiencing fluctuations downward, what will the future trend be?

After the sluggish performance in May and June, the crypto market did not rebound as expected in July. Negative news such as the German government's sell-off and the Mt. Gox repayments intensified investor panic, leading to a decline in Bitcoin prices and causing a comprehensive downturn in the entire crypto market. Although the market has suffered a heavy blow, the combination of FTX's massive repayment plan, rising expectations for interest rate cuts, and the upcoming U.S. elections may bring about a turning point in the market in the fourth quarter of 2024.

Current Important Bearish Factors

Mt. Gox compensation triggers market panic

The compensation issue related to the Mt. Gox incident has attracted significant attention from the market. The selling pressure of 142,000 BTC and 143,000 BCH triggered panic in the market on June 24, causing the price of BTC to drop to around $60,000. After Mt. Gox officially launched compensation on July 5, BTC fell below the $60,000 support level.

Some analysts believe that the current leverage in the crypto market is close to historical highs. The initially estimated low point of $50,000 may be too conservative, and a more extreme pullback to the $40,000 range could occur. Such a pullback could cause significant damage to the market and may require several months of oscillation/downward trend before a reversal to an upward trend could occur.

The German government sold nearly half of its Bitcoin.

The German government has transferred over 10,000 bitcoins in batches to exchanges and market makers, causing the price of bitcoin to temporarily drop below $55,000. According to data platforms, the German government's sell-off plan has completed nearly half, reducing its bitcoin holdings from nearly 50,000 to 27,461. The current value of the holdings is approximately $1.5 billion.

Despite the market downturn, the inflow of digital asset investment products reached $441 million last week. Among them, Bitcoin investment products accounted for the largest share of the total inflow of crypto products ($398 million), with a proportion as high as 90%. By region, the inflow of funds mainly came from the United States, amounting to $384 million.

The Bitcoin mining market is bottoming out.

Recently, the price of Bitcoin dropped to $54,000, making survival even more difficult for miners who had already seen profits plummet due to the halving. If the price of Bitcoin falls to $54,000, only ASIC miners with an efficiency of over 23W/T will be able to profit, and only a few models of miners can barely sustain this.

The miners' selling behavior is also considered a partial reason for this price drop. To cope with cash flow issues after the halving, mining companies continue to sell, with 30,000 bitcoins from miners entering the market in June alone.

Fortunately, as the price of Bitcoin declines, small and medium-sized mining farms are gradually shutting down, and the difficulty of Bitcoin mining is rapidly decreasing, signaling the end of miners' surrender. On July 9, the difficulty of Bitcoin mining was reduced by 5% to 79.5T, with the average hash rate across the network being 586.72EH/s over the past week. Since May, the amount of Bitcoin sent to exchanges for sale by miners has significantly decreased, and over-the-counter trading volume has noticeably declined.

Positive factors worth noting

The FTX repayment plan is expected to drive new highs in the market.

A certain crypto trading platform is expected to have collected and converted into cash a total value of assets available for distribution between $14.5 billion and $16.3 billion, exceeding the $11 billion it owes to customers and other non-government creditors. The excess cash balance will be used to pay interest to the company’s more than 2 million customers.

Currently, the platform has received court approval, and creditors can choose to vote on the compensation plan for cryptocurrency either in cash or in kind. Creditors must vote by August 16, and the judge will decide whether to approve the plan on October 7. Once approved, the platform will repay creditors within two months, with the expected time frame being from the fourth quarter of 2024 to the first quarter of 2025.

The expectation of interest rate cuts is clear.

The Federal Reserve's decisions on interest rate hikes and cuts are one of the important factors affecting Bitcoin prices, with rate cuts typically driving the market stronger.

Recently, the Chairman of the Federal Reserve stated that inflationary pressures in the United States have eased somewhat, but the Federal Reserve needs more data to prove that inflation risks have passed before deciding to cut interest rates. If rates are cut too early, inflation could rise again; if rates are cut too late, it could lead to slower economic growth or even trigger a recession.

Although the timing of interest rate cuts has yet to be determined, market expectations for rate cuts have heated up as the latest U.S. economic data shows a slowdown in economic growth, such as the significant downward revision of June's non-farm payroll data and the unemployment rate rising to 4.1%, the highest since November 2021. According to the interest rate observation tool, as of July 9, the market estimates that the probability of the Federal Reserve cutting rates at the September meeting has risen to 73.6%, while the probability of keeping rates unchanged is 22.9%.

encryption accounting system is about to take effect.

In December last year, the Financial Accounting Standards Board (FASB) of the United States released the first version of accounting rules for cryptocurrency, requiring companies holding Bitcoin or Ethereum to record the changes in their value at fair value and reflect them in net income. The new rules will take effect for fiscal years beginning after December 15, 2024, and will apply to both public and private companies in 2025.

For crypto assets, this change in accounting standards means that some well-known companies will be able to record the highs and lows of their cryptocurrency holdings. This will promote further compliance in the crypto market and attract liquidity injections from mainstream financial markets.

Bitcoin Price Trends After Each Halving

There are three types of market trends: rising, falling, and fluctuating. If the market breaks through the current resistance level and stabilizes above 69000 points, it can be regarded as the beginning of a rising trend.

two possible scenarios for a price increase:

1. Approaching previous highs but not breaking through: The market may be close to previous highs but has failed to break through, or it may have only slightly broken through and then retreated. In this case, do not be fooled by market illusions and avoid chasing highs. You may not even need to exit; just reduce some of your positions, especially if you feel your holdings are too heavy.

2. Breaking previous highs and maintaining new highs: If the market breaks previous highs and maintains new highs for at least 3 days. At this point, attention should be paid to the strength of the breakout, observing whether there is a strong rally or a choppy upward movement within 3 days to 1 week. If the trend is strong and there is a rapid rise after the breakout, one can hold the position and wait for a significant pullback (at least around 10%) to add to the position. If the trend is not strong and the rise is slow, it is advisable to reduce positions at new highs to prevent false breakouts.

At present, the likelihood of continued upward movement is relatively low. If the second scenario occurs and the trend after the breakout is not strong enough, one should be wary of the risk of a significant decline.

Reference for market conditions before and after previous halving:

Second Halving (2016.07.10)

Before this halving, Bitcoin soared 78% within a month. After the halving benefits materialized, it experienced a deep pullback, dropping 30% in a week, with the maximum decline reaching even 40%. Then it started to rise all the way, increasing from under $500 to nearly $20,000. After the halving, the price corrected by 30%.

Third Halving (2020.05.12)

In 2020, due to special events, the market dropped significantly before the halving. If we disregard this negative factor, Bitcoin also experienced a 20% pullback in the week leading up to the halving. There was a rebound after the halving, but it did not rise significantly, and the market went through fluctuations. From the peak before the halving in early May, it fluctuated until the end of July before breaking upward, oscillating for a full 3 months, during which there were also two pullbacks of over 10%.

From the previous two halvings, it can be seen that Bitcoin tends to experience a pullback both before and after the halving. Currently, the market generally expects that Bitcoin will rise after the halving, but what will happen this time? Further observation may be needed.