From different perspectives such as fundamental analysis, technical analysis, and cyclical conventions, now is not the best time to hold ETH, while Bitcoin is expected to reach a historic high in the future. This article is sourced from an article written by 10x Research and compiled, translated, and written by Odaily.
In the first article, 10x Research mainly analyzed the pessimistic reasons for the future market of ETH; in the second article, 10x Research predicted that a new high for BTC is imminent.
The following are the core contents extracted from the two articles of 10x Research.
Regarding ETH: Why are we so bearish?
In the past month, the market value of Ethereum has increased by 22% to $454 billion, while Ethereum’s fee revenue has decreased by 33% to only $128 million.
Fundamentally, this is because Ethereum has become relatively “irrelevant” at the transaction activity level, with most meme activities moving to Solana or Layer2 networks. For deep value investors, this may not be anything new.
From a technical analysis perspective, if ETH falls below the $3,725 point, it may trigger a large number of stop-loss trades. The current trend of ETH appears very fragile, failing to rise further, and many newly established long positions have reached or fallen below the breakeven point.
Cryptocurrency enthusiasts generally refer to this technical pattern as “Bart,” where the price of a token needs to undergo a certain consolidation after a sharp rise, during which the price may sharply drop due to triggered stop-loss trades. Our three reversal indicators have all turned bearish.
Historically, June is the second worst performing month for ETH, with an average return of -7% (September being the worst, at -12%), while the average returns for the other ten months are positive.
In conclusion, from different perspectives such as fundamental analysis, technical analysis, and cyclical conventions, now is not the best time to hold ETH. Another piece of evidence for this conclusion is the overextended long positions in the futures market (tilted towards long positions).
Note: In financial market terminology, “overextended long positions” are used to describe a phenomenon in the market where there are a large number of positions held in a particular direction (long or short) for a specific asset or investment product. When the majority of participants in the market tend to take the same trading direction, “overextended long positions” imply the risk of being overly biased towards that direction.
Open interest in futures contracts has increased from $8 billion in mid-May to $12.8 billion. Financing rates exceeded 20% for a few days but have now dropped to 11.9% as there are no new longs being deployed, making it very expensive to hold long positions. Due to the uncertainty of the timing of ETF approvals, more traders may choose to close positions.
The net inflow of spot Ethereum ETFs may also be disappointing. Similar to the situation with GBTC, we may see outflows of 50% (40-50 billion USD) in Grayscale’s ETHE, while the levels of inflow for other ETFs may only reach around 20% of BTC ETF (135 billion USD over five months), which is around 27 billion USD. With an inflow of 27 billion USD compared to the outflow of 40 billion USD from ETHE, the price of ETH may be under pressure.
For institutions or asset managers, the reasons to add ETH to their multi-asset investment portfolios are not sufficient. ETH is not positioned as digital gold, with its trading volume representing only a small portion of Bitcoin, posing certain liquidity risks. The current risk-free rate in traditional finance is around 5.2%, while the staking yield of ETH is only 2.6%. Therefore, the incentive for traditional finance to purchase ETH ETFs is minimal, especially since current ETFs do not allow staking.
It is still uncertain when the SEC will ultimately approve the spot Ethereum ETF (S-1), and US President Biden has just vetoed a congressional resolution aimed at overturning the SAB-121 resolution, once again confirming the government’s anti-cryptocurrency stance. ETFs need to wait for the S-1 form to take effect before trading can begin, but the schedule for the SEC to approve these S-1 forms is still undetermined (it could be today or several months later).
Following the positive impact of the approval of the 19b-4 on May 23, ETH rose from $3,000 to $3,600, and then climbed to $3,800 in the following days. Considering that the US government has just conveyed new unfriendly information about cryptocurrencies (Biden’s veto), is this over 25% increase in price reasonable?
We prefer Bitcoin more, and even if the S-1 is approved, the conversion outflow of ETHE will put pressure on ETH. Overall, “long Bitcoin, short Ethereum,” “sell Ethereum call options, buy Bitcoin call options” may be more favorable trading strategies.
For ETH, $3,725 will be a crucial point (at this point, we will close all long Ethereum positions). If ETH falls below this level, we may see a large number of stop-loss trades being triggered, further driving down the price of ETH, which may even hinder Bitcoin from reaching a new high.
Regarding BTC: Will a new high come?
We have emphasized the reasons for being bullish on BTC in our reports on May 21, May 26, and May 30.
For traders, now is the time to take risks to achieve greater Beta. As predicted, Bitcoin mining-related stocks are also rising. Influenced by a $100 million financing from Tether (possibly increasing by another $50 million), Bitdeer rebounded by 13% last night, while Bitfarms, as a major participant in the industry, also rebounded.
The US economy is slowing down, but this is currently a good thing. GDP growth is only slightly above 1%; the ISM Manufacturing Index has been in a contraction state for several months; employment is weakening, negatively affecting consumer spending; there was another key and forward-looking employment indicator last night – job vacancies significantly slowed down. All of these will lead to a decrease in inflation.
We will receive more employment data this Friday, and we will get the CPI inflation report next week. The trend of Bitcoin will adjust based on the changes in CPI (if CPI rises, Bitcoin will fall; if CPI falls, it will rise). If the CPI growth rate is 3.3% or lower, it is likely to push Bitcoin to a new historic high.
On May 15, when the inflation rate reached 3.4%, lower than the previous month’s 3.5%, we turned bullish, with Bitcoin’s price close to $62,000 at that time. This price coincides with our model, as our midterm trend model originally predicted that if Bitcoin’s price could reach $65,000 on May 16, we would turn bullish, and if the closing price exceeded $71,500 (the recent price is $70,500), it would trigger another buy signal.
Bitcoin has now broken through the smaller triangular range in the chart (purple line), and the larger triangular range (purple dashed line) may also be broken around $71,500. If the decrease in the US employment rate or the decrease in the inflation rate can make Bitcoin close above this line, we will firmly set the target price at a new high, which may be achieved between this Friday and next Wednesday. Therefore, we expect that by the end of next week, Bitcoin will reach a new historic high (exceeding $73,500).
The SEC has recently issued a risk warning about cryptocurrencies, a pattern that has appeared before the approval of Bitcoin spot ETFs and other SEC-regulated crypto products, perhaps indicating that the S-1 form for the spot Ethereum ETF will be approved soon. Nevertheless, we still prefer Bitcoin, and positions will return to Bitcoin once again.
Since Saturday, additional positions in Bitcoin futures contracts have increased by $1.6 billion. Last night, Fidelity’s spot Bitcoin ETF saw an inflow of $378 million, Ark’s ETF saw an inflow of $140 million, and BlackRock saw an inflow of $275 million (a total of $880 million in one day), the second-highest in history.
The options market expects Bitcoin’s volatility to be around ±6.6% by the end of next week. If it rises, the target price will be $76,000. The implied volatility is still relatively expensive, at around 52-53%. Building leverage through perpetual futures or Bitcoin mining companies may be a better strategy.
In conclusion, Bitcoin may soon reach a new historic high, and now is the time to take on more risk and build larger positions.