Jul 20, 2021
Foundations
July Market Outlook
Strong houses require solid foundations.
Investors who may have missed or under-allocated to crypto prior to the spring 2021 all-time highs may understandably be holding off on any further allocations until a new price floor is established.
After a record-setting first five months of 2021 we’ve seen crypto prices stabilize over the past eight weeks. Bitcoin has mostly held its head above the $30k level during this time.
As we discuss on this month’s market webinar, we also see on-chain evidence of a more reasonable price base. Crypto prices are poised to resume an uptrend later this summer if macro volatility picks up and reflation views gain traction again.
Summary:
- Market Movements
- Crypto prices continued sliding in June, but major cryptoassets are still positive six months into 2021 with bitcoin +20% YTD and Ethereum +205% YTD.
- Traditional markets in June lent some market support to the view expressed by Fed officials that inflation concerns are “transient” with gold seeing a major decline while long-dated US treasury bonds rallied
- While stocks had a positive June concerns over the COVID Delta variant and other factors have sparked selling pressure in July as markets weigh the possibility of a slower economic recovery
2. On-chain insights: Highlights from the Blockchain.com data science team
- On-chain activity dropped in the month of June
- Average daily fees per transaction dropped from $15 / transaction to $6 / transaction
- The estimated hash rate (in EH/s) decreased in June from 161 EH/s to 120 EH/s
3. What we’re reading, hearing, and watching
1. June Market Movements
In June Bitcoin (BTC) followed-up May’s major sell-off with a relatively modest decline. Bitcoin finished June -6% for the month. Ethereum fared worse and was down -14%.
However, major cryptoassets are still positive six months into 2021 with bitcoin +20% YTD and Ethereum +205% YTD. And over a 12-month time horizon crypto continues to vastly outperform every other major asset class (BTC +281% and ETH +889%).
Table 1: Price Comparison: Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar (% Change)
In traditional markets, gold also saw a major decline -7% while long-dated US treasury bonds rallied +4%. These developments and other data points, such as declining lumber prices, would seem to lend some market support to the view expressed by Fed officials that inflation concerns are “transient”.
However, headline inflation data continues to come in hot. Overall, the jury is still out on whether inflation will abate as quickly as Fed officials have forecasted. For more on the inflation outlook please have a listen to our recent podcast with financial historian Niall Ferguson.
As we go to press in July, the rapidly spreading COVID Delta variant and other factors have sparked selling pressure on stocks in July. Markets are again weighing the possibility of a slower economic recovery as anecdotal examples of vaccinated individuals becoming infected grow more common.
Any recovery slowdown may renew calls for additional monetary and financial stimulus, which was one of the major drivers of bitcoin’s 2020 price rally. Crypto, in contrast with stocks, has also already experienced a major price correction in May-June, down now just over 50% from its all-time high (Figure 1).
Figure 1: BTC market cap to on-chain estimated cost basis (MVRV) is back to a reasonable 1.7x
In short, should the Delta variant force policymakers to apply more stimulus we feel investors will once again look to allocate back into bitcoin.
2. On-Chain Analysis
Each month, we dive into on-chain data to explore interesting trends or movements on the Bitcoin network. Overall, on-chain activity dropped in the month of June.
Table 2: June vs May Bitcoin network activity
The average daily fees per transaction continued to drop in the month of June from $15 / transaction to $6 / transaction. But as we saw in May, these reduced fees did not bring on an increase in activity.
Decrease in the estimated hash rate
The estimated hash rate (in EH/s) decreased in June from 161 EH/s to 120 EH/s.
China’s continued crackdown on crypto led to the closure of mining operations. These closures seem to have ultimately led to this month’s decrease in hash rate. However, we’ve already seen mining hubs previously located in China relocated to other areas, including Texas and Kazakhstan.
3. What we’re reading, hearing, and watching.
Crypto
- BBC News: The Lazarus heist: How North Korea almost pulled off a billion-dollar hack
- Bitcoin Magazine: Bitcoin 2021: Pay Me in Bitcoin
- Bitcoin Magazine: Bitcoin is the Only Way Out: The Jack Dorsey Interview
- CoinTelegraph: The female speakers who made an impact at Bitcoin2021 in Miami
- Jim Bianco (via Threader): Stablecoins/Tether(USDT) to pushback on the FUD about USDT
- Marginal Revolution: Crypto talks by Balaji and Vitalik
- NBC News: At a summer cap, juice boxes and bitcoin mining
- Reuters: EXCLUSIVE El Salvador bitcoin transfers soar, but still a fraction of dollar remittances
- The Daily Gwei: #271 Attack on Titan
- The Information: Solana’s Bid to Take on Ethereum
- The Regulatory Review: DeFi, Disintermediation, and the Regulatory Path Ahead
- Uncommon Core: Intro to Solana — with Kyle Samani, Su Zho, and Hasu
Beyond Crypto
- Axios: Half of the pandemic’s unemployment money may have been stolen
- BBC News: The Lazarus heist: How North Korea almost pulled off a billion-dollar hack
- Double Pulsar: The hard truth about ransomware: we aren’t prepared, it’s a battle with new rules, and it hasn’t near reached peak impact
- Project Syndicate: Xi’s Historic Mistake
- ProPublica: The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the wealthiest Avoid Income Tax
- Wall Street Journal: When Americans Took to the Streets Over Inflation
Important note
The research provided herein is for your general information and use and is not intended to address your particular requirements.
In particular, the information does not constitute any form of advice or recommendation by Blockchain.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
Appropriate independent advice should be obtained before making any such decision.
Footnotes:
- Average daily number of confirmed transactions in the public blockchain
- Average daily number of estimated payments in the public blockchain
- Average daily number of unique addresses used as inputs and outputs in the confirmed transactions
