Cryptocurrency markets added $10 billion in value last week despite Bitcoin falling -2%. We take a look at Bitcoin fundamentals and argue that the next bull market could be surfacing. In addition, traditional markets ended last week positive, but overall sentiment shifted to conclude the week. Why are traditional investors still hesitant, and what does this mean in the near term?
Global crypto markets added $10 billion in value last week, with total market capitalization hovering around $264 billion. Altcoins captured some market share as Bitcoin fell -2% last week. In addition, Bitcoin dominance levels stayed fairy stable, as the leading digital asset still controls about 64% of the market. Among the top 25 cryptocurrencies by market cap, CRO was the best performing digital asset last week, surging +8.4% . It seems like a couple developments have fueled CRO recently. For the longest time, Bitcoin was the only cryptocurrency on Twitter that had its own “special badge” when incorporating a hashtag. Recently, Twitter granted CRO its own badge, which has sparked some interest in the project. In addition, crypto.com recently announced some major updates which now have the exchange operating at 10x efficiency.
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Bitcoin Cooling Down After The Halving
Following the Bitcoin halving in mid May, the digital asset has failed to make a significant move. Many investors were looking for a strong rally post halving, but Bitcoin has done the opposite, rejecting the $10,000 push. Since COVID-19 surfaced in March, Bitcoin has continued to mock traditional asset movements, which has limited the short-term upside. Most recently, reports by Skew showed decreasing spot volumes on large exchanges. Recently, activity was nearly 50% lower than its three month average daily volume. On June 26th, around $1 billion in Bitcoin options are due to expire. With this being said, Bitcoin could experience some strong volatility next week. With Bitcoins price experiencing strong consolidation, you could see heavy price action in either direction next week.
Bitcoin Value Metrics
In a previous report on Bitcoin valuation, Visionary Financial continues to watch a few metrics including mayer multiples and market value to realized values. Historically speaking, these fundamentals have been extremely important in terms of predicting bull / bear markets. “Market Value To Realized Value” ( MVRV ) helps us assess overvaluation vs undervaluation. Unlike traditional market cap, MVRV adjusts for lost Bitcoins and also looks at the aggregated market price of all Bitcoin UTXOs when they were last moved. With this being said, a ratio of 3.7 has historically proven to be an area where Bitcoin is considered “overvalued” , while a ratio of 1 has put Bitcoin in “undervalued” territories.
Recently, Bitcoins MVRV is sitting at 1.60, which historically puts it at undervalued levels. Despite momentum being halted from global uncertainties, we still believe the bull market was initiated in March when MVRV bottomed out around 0.90. If we look at recent bull runs for Bitcoin, most of them were initiated around 1.0 levels.
Mayer Multiples also help us assess overbought vs oversold scenarios in Bitcoin. Mayer Multiples provide this sentiment by studying long-term price action. If we take the current Bitcoin price and divide it by the 200 day moving average, we then have a Mayer Multiple. Historically speaking, any ratio above 1.0 has represented a bull market for BTC, and anything below 1.0 has represented a bear market. At the time of this report, Bitcoins Mayer Multiple hovers around 1.13. With this being said, one could argue that BTC is in the beginning of a bull market.
Bitcoin Hash Rate
In previous reports, Bitcoin hash rate has been an important fundamental following the halving in Mid may. Bitcoins hash rate failed to surge above the 1 year high post halving which raised some concern. After falling to December 2019 lows, the hash rate stabilized and built some upward momentum. Last week we saw another drop in Bitcoin hash rate which caused a sell-off. We continue to watch Bitcoins hash rate to assess investor and miner sentiment. We still believe that the hash rate needs to break above the 1 year high to fuel the next bull run. Hash rate currently resides around 105M TH/s, with the yearly high being around 123M.
Bitcoin Vs Traditional Markets
Despite the slowing momentum post halving, Bitcoin has still performed very well year to date, seeing +28% growth. In comparison to traditional markets, the Dow Jones has seen -9.3% YTD, and the S&P 500 has seen -4.1% YTD. In terms of portfolio diversification, Bitcoin has still been one of the best performing assets. With Bitcoin applied, portfolio managers around the globe have had the ability to de-risk their investment portfolios, especially during COVID-19.
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Stocks ended the week positive as the Dow Jones finished the week +1%, and the S&P 500 rallied for almost 2%. Investors were watching U.S Retail sales, as reports showed record growth of 18% in May. During the earlier stages of COVID-19, lockdowns caused sales to experience record declines. The drastic improvement in May was a positive sign as some states are making great progress in re-openings. In addition, stock sentiment grew with rumors brewing around a $1 trillion infrastructure plan. To top it off, the Federal Reserve made it clear that they plan to expand financial support by buying up corporate bonds. It’s worth noting that many uncertainties still exist, especially around COVID-19. We take a deeper into the current positives and negatives that the market is experiencing during these interesting times.
Consumers – As mentioned above, one of the positive catalysts last week was the data around retail sales. With retail sales showing +17% growth in May, it indicates that consumers are staying afloat. In addition, it shows that other measures like unemployment benefits and financial stimulus are working. The reason consumer spending is so important is because it has a large impact on GDP. With consumer spending accounting for nearly 70% GDP, last week’s data is a positive momentum builder relating to economic healing.
Labor Markets – Last week, initial claims came in around 1.5 million. Despite this number being slightly higher than expected, it’s also a number that is going down week over week. For the last 11 weeks now, initial jobless claims have declined. Investors by now understand that the recovery is going to be a marathon compared to a sprint. As long initial claims continue to fall, this will be a positive indicator for stocks.
Federal Reserve – The Fed wasn’t lying when it initially said it would use all resources possible to support the economy. The economic downturn has put substantial pressure on corporate debt levels. With this being said, the Fed’s announcement last week regarding the purchase of corporate debt added some ease. This is nowhere near the long-term solution, but for the time being, it has aided in investor comfort.
Apple Closing Stores – One of the biggest blows to close out last week’s session was the announcement that Apple was re-closing some of its storefront due to concerns over a “second wave.” States that are currently struggling such as Arizona, Florida, North Carolina, and South Carolina all witnessed Apple stores going into a 2nd mode of shutdowns. This will be an important development to follow. If other major companies follow suit, this could put significant pressure on markets. We all know by now that the market has a weak immune system when it comes to uncertainty.
Cruise Lines – The market also experienced cruise lines suspending all sailings from U.S ports until mid September. This has added additional uncertainty as the market has no idea if a COVID-19 “second wave” is in route. Right now many people argue that select states are still witnessing the 1st wave, while others believe this is a pure sign of a 2nd wave. With Apple and Cruise Lines going into defense mode, many investors fear an “uneven recovery” that could slow down overall recovery.
Geopolitical and Elections – Outside of overall COVID-19 “second wave” fears, uncertainties continue to mount around geopolitical issues and upcoming elections.
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