EarnBIT monthly: Crypto market insights from July 2024
Key takeaways
- Fed’s rate cut in September is almost certain; a historic “soft landing” is also possible.
- Bitcoin gained ground in July, supported by Trump enthusiasm.
- Ether was weighed down by spot ETF outflows due to Grayscale exits.
- Trump intends to make the US a “Bitcoin superpower” with a strategic BTC reserve.
- Mt. Gox still holds $3B BTC following July transfers; creditors will likely HODL.
- German government finalized its $3B BTC sales.
- Hopes for Ripple Lab’s settlement with the SEC fueled an XRP rally; August token unlock may support the bullish trend.
Macroeconomic background
The market dynamics reflected growing expectations of a Fed rate cut. On July 31, Fed chair Jerome Powell gave the traders what they were hoping for, saying the September trim was “on the table,” provided the inflation data remains encouraging.
July marked the anniversary of the Fed’s hawkish hike to a 23-year high of 5.25%-5.5%. According to Powell, the economy now looks “completely different” while being “historically unusual” and “a welcome outcome.”
Powell also emphasized the agency’s non-political status, stating that its decision-making does not consider the US presidential race. Given the inflation cooling, the Fed will watch the labor market closely, weighing it and prices more equally in a “closer-to-even” focus.
CME FedWatch reflects absolute certainty in a rate cut at the next FOMC meeting on September 18, with most traders (86.5%) expecting a 25-bps reduction. According to Bloomberg, this trim may kick off cuts every quarter through 2025.
US inflation
The Consumer Price Index (CPI) cooled in June due to lower gas, car, and grocery prices. The core index dropped to 3.0% YoY from 3.3% in May, with a MoM decline of 0.1%.
That was the first month-on-month decline since May 2020 and the slowest annual pace of growth since June 2023. The core index, which is more important for the Fed, showed the same monthly decline with 3.3% versus 3.4% on an annual basis.
The July CPI report comes out on August 14.
The June PCE (Personal Consumption Expenditures) data also reflected slight easing in line with expectations, from 2.6% YoY to 2.5% with a 0.1% MoM increase. The core index, which more accurately reflects long-term trends, was stuck at 2.6% with a 0.2% MoM uptick.
Overall, inflation inched closer to the Fed’s 2% target. This progress alleviated fears that the Q1 inflation flare-up was a re-acceleration. The economy grew, and the labor market stayed on solid footing.
The Q2 GDP significantly exceeded expectations with a 2.8% growth as businesses continued investing and consumers kept opening their wallets. Thus, the US economy may pull off a historic soft landing, returning to the inflation target without a recession. Previously, this only happened once in the 1990s.
US labor market
In June, the US economy added 206,000 jobs, below 276,000 in May but above the 200,000 Dow Jones forecast. Government jobs accounted for a large share of the addition (+70,000).
Analysts expect a further reduction to 177,000 in the July report due August 2. Meanwhile, unemployment has climbed to 4.1% — the highest since late 2021.
Crypto market in July: Key developments
Cryptos benefited from subsiding inflation, but sell-off fears and the lackluster debut of ether spot ETFs suppressed growth. Performance was significantly dispersed across tokens, with Bitcoin forging ahead on major political announcements.
The total market cap returned to $2.4T after shrinking in early July. The Fear and Greed Index eventually restored the neutral 52–53 range, rebounding from extreme fear caused by worries about Mt. Gox redemptions.
BTC: Sell-off concerns and Trump’s plans
This year’s results solidify July’s status as a historically bullish month. BTC gained 2.95% overall, supported by rate cut expectations and Donald Trump’s rising reelection odds.
The coin slipped from $63K on July 1. It bottomed out at $54K on July 5 — after the Mt. Gox trustee transferred $2.7B of BTC, while the German Federal Criminal Police Office moved $175M+ worth of coins.
Rebounding, BTC rose to $68K, then higher after Trump’s July 27 Bitcoin 2024 appearance. On July 29, the price approached $70K ($69,842.89) and sank as the US government moved $2B worth of BTC seized from Silk Road.
ETH: Disappointing spot ETF debut
In stark contrast to BTC, ETH lost 5.88% overall. Launched on July 23, eight spot ETF funds saw net total inflows only twice, with a 4-day negative streak in between.
ETH moved similarly to BTC, which fell in the early weeks after the launch of spot Bitcoin ETFs. In both cases, the Grayscale Trust was the culprit as investors migrated to products with lower fees.
After the July 1 hike to $3.5K, ETH sank to $2,858.89 on July 5 on broader sell-off fears and rebounded, surpassing $3.5K on July 23 — the day of the ETF launch. A sharp drop culminated in $3K on July 25, and the coin struggled to trade higher, finishing the month close to $3.3K.
Primary market drivers: July 2024 and beyond
Launch of spot ether ETFs
On July 22, the SEC approved S-1 filings for eight spot ether ETFs, marking a significant milestone for crypto following January’s spot Bitcoin ETF launch. The funds from major wealth managers, including BlackRock, Fidelity, and VanEck provide easy access to the second-largest coin via traditional brokerage accounts.
Spot Bitcoin and Ether ETFs cover over 72% of the liquid crypto market. Matt Hougan of Bitwise stated, “Traditional asset management can no longer ignore crypto.”
Yet the newly launched ETFs experienced significant outflows, largely attributed to the legacy Grayscale Ethereum Trust (ETHE). Before its conversion to an ETF, ETHE held approximately $10B worth of ether.
Since its conversion, it has seen outflows exceeding $1.8B in just one week, according to Farside Investors. Analysts suggest ETHE’s high fee of 2.5% drove investors away, contributing to the decline in ETH’s price.
A similar scenario occurred earlier this year with the Grayscale Bitcoin Trust (GBTC), where BTC experienced a 10% drop in the initial weeks of spot ETF trading.
While many funds exiting ETHE have flowed into competing products, the net outflows for the entire spot ether ETF market total $406.4M at press time.
Before launch, spot Ethereum ETFs were expected to inject billions into the crypto ecosystem. However, the complexity of use cases leaves Ethereum vulnerable to competition from Solana and Bitcoin Layer-2 networks, as noted by former VanEck Digital Asset Strategy Director Gabor Gurbacs.
Trump’s electoral push and “Bitcoin superpower” plan
BTC reacted to political developments through the month. On July 22, it briefly topped $68K on news of Biden leaving the US presidential race. This announcement was seen as “a possibility where, regardless of who sits in the White House, the US government embrace a more constructive stance towards the digital asset industry after November,” as stated by Presto.
At the Bitcoin 2024 conference in Nashville, former President Donald Trump announced his plan to maintain the US government’s BTC holdings. “For too long, our government has violated the cardinal rule every Bitcoiner knows: Never sell your Bitcoin,” Trump declared.
Trump promised to make the US a global leader in cryptocurrency with a BTC strategic reserve, counter the Biden administration’s stringent regulatory stance, and even fire Gary Gensler.
The plans for a a BTC reserve were echoed by Robert F. Kennedy Jr. and US Senator Cynthia Lummis. Lummis announced a bill that would grow the stockpile with purchases of 5% of the total supply over a set number of years.
Bitcoin hit a six-week high on Trump’s Nashville speech. His shift from skepticism to enthusiasm reflects a broader push by the Republican Party to embrace digital assets, contrasting sharply with the current administration’s stance.
Mt. Gox flows and sell-off fears
The defunct CEX Mt. Gox transferred $5B in BTC in July as part of its ongoing process to redistribute roughly $9B worth of coins to creditors defrauded in the 2014 hack.
Mt. Gox sent BTC to various exchanges, including Bitstamp, Kraken, Bitbank, and SBI VC Trade. Bitstamp has begun distributing funds to eligible creditors.
On July 30, the Mt. Gox wallets moved over $2B to addresses linked to BitGo, the final custodian working with the Mt. Gox trustee. As of July 31, Mt. Gox still holds over $3B in BTC.
The market impact of this redistribution remains uncertain. Some creditors may liquidate their newfound wealth, potentially causing selling pressure, while others will likely keep it due to significant appreciation since 2014.
Germany and USA’s Bitcoin selling spree
On July 11, German authorities made their last significant BTC transfer as the state of Saxony depleted confiscated assets. 10,567 BTC, worth over $600M, moved to CEXs and brokers like Flow Traders and Cumberland DRW.
According to Arkham Intelligence, the German authorities’ wallet holds just 0.1 BTC as of August 1, down from nearly 50,000 BTC worth almost $3B in late June when the selling started.
The end of Germany’s $3B sale alleviates concerns about the impact of large-scale selling. Those fears were likely exaggerated, as noted by Greg Cipolaro, the head of research at NYDIG.
BTC’s mid-July correction also coincided with the US government’s transfer of $240M worth of seized Silk Road-related BTC to Coinbase. On July 29, it moved $2B more.
According to Arkham Intelligence, the US government wallet has about $13B of seized coins left as of August 1. Prior government movements of seized assets have often foreshadowed impending sales, further influencing market dynamics.
Ripple Lab vs. SEC settlement hopes
XRP surged on July 30, rising above $0.64, its highest price since March 25. The hike was driven by optimism around a potential settlement between Ripple Labs and the SEC and the scheduled unlocking of $600M worth of tokens.
A recent SEC filing revealed plans to amend its complaint against Binance, focusing on “Third Party Crypto Asset Securities.” While no specific tokens were mentioned, traders interpret this as a positive sign for the ongoing Ripple-SEC lawsuit, potentially signaling its end.
News to watch in August 2024
Spot ether ETF flows
Crypto market analysts are divided on ETH’s future price trajectory post-Grayscale Ethereum Trust outflows. The new ETHE, transformed from a seven-year-old fund, has been liquidating excess ETH daily, shedding nearly $2B in just seven days.
Earlier this year, the Grayscale Bitcoin Trust’s AUM stabilized after being halved. Former Bitwise Chief Investment Officer Matt Hougan predicts a $15B flow into US spot ether ETFs in the first 18 months.
Meanwhile, BlackRock’s Robert Mitchnik and Bloomberg’s James Seyffart suggest that large financial institutions may begin investing in crypto spot ETFs later this year.
Tom Dunleavy, a partner at MV Capital, expects net outflows for spot ether ETFs to resume in August. He noted, “At $1 billion or so a week in ETH outflows, we should settle in a new steady state for ETH by the end of August.”
Behavior of Mt. Gox creditors
A recent Glassnode report indicates a shift towards a long-term holding strategy among investors. The number of wallets holding BTC for over six months has grown, suggesting Mt. Gox creditors will likely follow the HODLing trend.
Glassnode highlights decreased selling pressure from long-term holders (LTHs), who now own 45% of the total BTC supply — more than at past market peaks, indicating strong investor confidence.
Typically, bull markets see LTHs selling to realize profits, as seen in March and April (the Supply Last Active 1y+ and 2y+ plunged). LTHs were cashing out as BTC approached its $73K ATH. The recent slowdown in the decline of these metrics suggests a shift back to a HODLing-dominated market.
XRP token unlock
In August, Ripple is set to unlock 1B XRP, worth approximately $641M. Though increasing token supply might typically lower prices, some research suggests it could boost a bullish market trend due to enhanced liquidity.
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