BTC has been fluctuating in the $27,000-$30,000 range for many days. We believe that the positive factors have been exhausted in the short term, and there are no new driving factors to drive the market up. BTC may get support near the 120-day moving average of $25,000. In the long run, we are at the end of the tightening cycle, and a new round of bull market is about to begin. The Bitcoin Ordinals ecosystem and Ethereum deflation mechanism will also become boosters of the bull market. We are optimistic about the long-term investment value of BTC and ETH, and pay attention to the layout opportunities brought by this round of adjustments.
1. The macro short-term positives have been exhausted, and risk assets may need to be adjusted
The Fed raised interest rates by 25bp at the May FOMC meeting, indicating that the current interest rate level is relatively high and there is no need to raise interest rates further. The non-farm and unemployment data released later exceeded expectations, showing that the US economy is still strong. At the same time, inflation is also falling rapidly, so US stocks continue to rise, but BTC has failed to break through the $30,000 mark. The market expects the Fed to cut interest rates three times this year. In the short term, the macro-favorable factors have been exhausted, and risk assets have risen to a relatively high level, making it difficult to find the driving force for the market to continue to rise.
Liquidity is tightening marginally. Since the SVB incident in March triggered a chain reaction, the Federal Reserve quickly adopted liquidity tools such as BTFP (Bank Term Funding Program) to deal with the crisis in the banking industry, allowing its balance sheet to expand again, thereby improving liquidity conditions. However, these emergency rescue measures are not traditional quantitative easing (QE), and quantitative tightening (QT) is still ongoing. Once the banking crisis subsides, the Federal Reserve's balance sheet will shrink again, and liquidity will also be under pressure.
At the same time, the U.S. Treasury is facing the test of the debt ceiling. As early as January, the U.S. government had reached the debt ceiling and could not continue to raise funds by issuing bonds. It could only use the deposits in the TGA (Treasury General Account) to cope with expenditures, which improved the overall liquidity to a certain extent. However, the deposits of TGA have dropped from 500 billion U.S. dollars in January to 200 billion U.S. dollars, and may be completely exhausted in the next three months, which will have a negative impact on the liquidity of the market.
However, in the long run, we are at the tail end of the tightening cycle, and the interest rate cut cycle is about to start, laying the foundation for a new round of bull market. Although BTC may experience a pullback due to liquidity, compared with last year, this year's adjustment will not be a one-sided decline, but more likely to appear in the form of range fluctuations. BTC once retested the 120-day moving average on March 11. In this round of adjustment, it is expected to be supported near the 120-day moving average of $25,000. If the market experiences a panic deep pullback, this will also become a good layout opportunity.
BTC may find support near the 120-day moving average of $25,000
2. Meme coins surged, Ethereum Foundation sold off, and altcoins still need to consolidate and change hands
The recent performance of Meme coins has been eye-catching, and historically, the peak transaction volume of Meme coins has often become an indicator of the market top. PEPE rose 200,000 times in a month and even landed on the Binance exchange. The peak market value exceeded US$1.5 billion, which triggered the market's enthusiasm for buying Meme coins. On May 5, the transaction volume of major Meme coins on the Ethereum chain reached US$700 million, exceeding the level of the bull market in October 21, which caused market concerns.
In addition, the Ethereum Foundation transferred 15,000 ETH to the Kraken exchange on May 6, triggering a market decline. Historically, the Ethereum Foundation usually sells ETH when the rise is high, which corresponds to the short-term top. In fact, the selling pressure of 15,000 ETH is not large, but the high winning rate of the Ethereum Foundation in recent years has led the market to form a decline expectation, which has triggered a larger-scale sell-off.
The total market value of stablecoins is still declining, and no new funds are entering the market. The market has begun to realize that compared with all-star projects with low circulation and high valuations, Meme coins with full circulation and low valuations are more popular, which has led to the transfer of funds from large-cap altcoins to low-cap Meme coins, further draining the liquidity of the secondary market. The total market value of cryptocurrencies excluding BTC and ETH has fallen below the 120-day moving average. Before positive signals appear, the decline of altcoins may continue for some time, and the market needs to complete the bottoming through sufficient trading turnover.
3. Ordinals ecosystem is in full swing, ETH is deeply deflated, and will become a bull market booster
Since we published the research report "Bitcoin's "Satoshi" Era Arrives: Ordinals Protocol and Lightning Network May Activate Bitcoin Ecosystem Explosion", Bitcoin Ordinals Ecosystem has experienced explosive growth, with BTC's daily network fees exceeding $15 million, the total market value of BRC-20 tokens exceeding $700 million, and the leading ORDI rising more than twenty times. Through the experiments of Ordinals Protocol and BRC-20, we have seen new possibilities for Bitcoin, which has made the Bitcoin ecosystem more diversified. We believe that more native applications will emerge in the future, and they will become an important booster for Bitcoin's rise in the next bull market.
The Shanghai upgrade of Ethereum was successfully completed, and the selling pressure of ETH was not as strong as expected. Since ETH has good liquidity and abundant derivative tools, the potential selling pressure may have been absorbed by futures hedging and derivatives such as lsdETH. The market has already taken into account the negative factors in advance, which indicates that the Shanghai upgrade has become a signal of "the negative factors are exhausted", and the total pledged amount of Ethereum is also rising.
The meme craze has pushed up the fees of the Ethereum network. Since May, the average Base Fee has exceeded 100Gwei, which has promoted the burning of ETH. The supply of ETH has decreased by 130,000 in the past month. According to the burning rate in the past 30 days, the supply of ETH will decrease by 1.31% per year, becoming a crypto asset with deflationary properties. ETH/BTC has bottomed out and strengthened, and the deflation mechanism will also be strengthened in the bull market, further reducing the supply of ETH.
Conclusion
Whether it is the macro environment or the indicators of the Crypto market itself, they all point to short-term bearishness and long-term bullishness. BTC may be supported near the 120-day moving average of $25,000, and pay attention to the layout opportunities brought by the golden pit.
