Crypto Market Forecast: Week of July 31st 2023

The price of Bitcoin (BTC) fell by 1.8% to ~US$29.5K in the last week. Ether (ETH) rose by ~0.2% to ~US$1.9K. Binance-coin (BNB) moved similarly – rising by 0.4% to ~US$244.

As markets had predicted, the Fed raised the federal funds rate target range by 25 bps to 5.25 to 5.5 percent on Wednesday of last week. The increase comes amidst ongoing pressure for the Fed to bring inflation to its stated goal of 2%.

In a speech in New York on July 13^th, Fed Governor Christopher Waller stated that the strength of the US labor market and economy more generally would “[give] room to tighten policy further”. He went on to suggest that there could be two more 25 bps increases before the end of the year.

As of the time of writing, Bitcoin’s 30-day correlation coefficient with the Nasdaq composite sits at -0.03, and its equivalent with the S&P 500 sits at -0.07 – meaning that in both cases, BTC’s price holds a very slight negative correlation with shares (a break from the high positive correlation during COVID-era spending, especially to tech stocks).

Although it is a bit early to know what the Fed might do at the next FOMC meeting on September 20^th, markets are presently strongly predicting no further rate hikes, despite the Fed’s messaging. It is worth watching if BTC re-correlates to stock prices (and to traditional risk assets more generally) – especially given Fed Governor Waller’s recent statements implying the possibility of further rate hikes.

A chart worth checking out has been produced by @therationalroot. (See the chart here). The chart shows that almost precisely at the time of Bitcoin’s 3^rd halving (“halvening”) event in May 2020, the supply of Bitcoins available for trade began to diminish for the first time. From then until now, this continues as a new trend.

Therationalroot defines available supply for trade as “Total supply minus illiquid supply. Illiquid supply is defined as entities that spend less than 25% of their holdings”.

The logic is simple enough: The demand for BTC continues to rise over time, but with 19.44 million BTC in circulation, nearly 93% of all coins that will ever exist already do, and new coins are mined at a drastically diminished rate. Further, a high percentage of BTC gets put into cold storage by long-term holders (LTH).

Analysis from GLASSNODE indicates that BTC held for over 5 months has a very low probability of ever reentering the market for trade.

The result of this is that more people bid for fewer available coins, and is fuel for a diminishing liquid supply theory.

Crypto news for the weeks ahead

August 2

Litecoin’s (LTC’s) block reward will halve, dropping from 12.5 LTC per successfully-mined block to 6.25. See BNC’s countdown clock (and more) for this event here.

August 10

The Consumer Price Index data for July will be released – one of the indicators the Federal Open Market Committee (FOMC) watches when considering interest rate hikes.

August 31

The US Bureau of Economic Analysis’ (BEA’s) release of July’s Personal Consumption Expenditures (PCE) numbers will be released. This is the primary indicator used by the FOMC to measure inflation and is considered carefully when considering interest rate levels.

September 20

The FOMC will be meeting. Futures markets are strongly leaning towards a prediction of no further rate hikes, thus leaving the federal funds rate target at 5.25 – 5.5%.

Top 10 Crypto Summary

Most of BNC’s top 10 digital assets by market cap finished the week off largely flat. DogeCoin (DOGE) was the one exception, spiking by as much as 18% from its trough to peak during the week – following Elon Musk’s announcement that Twitter would be rebranded as “X” – an “everything app” (similar to WeChat in China). The spike implies speculation that DOGE may be used within the X eco-system.

Bitcoin Price Chart

GLASSNODE’s weekly on-chain report focuses on BTC “whale” activities. GLASSNODE notes that whales (entities with a minimum of 1K BTC) “appear to be increasingly active in recent months” with 41% of total BTC inflows to exchanges in recent weeks coming from whales, and 82% of this has been to Binance specifically. Most of these whale depositors are Short-Term Holders (STH, meaning their BTC are held for fewer than 5 months).