League of Traders Weekly Report (2nd week of July 2023)
The Weekly Report is our summary of key indicators and recent events in the crypto world that professional traders are closely monitoring. This report and other relevant information are first shared via the official League of Traders Telegram channel.
Here are our notes for the second week of July!
- Bitcoin Chart/Ethereum Chart
Bitcoin reached a year high at $31,500 before dropping down to $30,000. This can be attributed to factors such as a delay in Bitcoin’s ETF approval, which diminished the effect of price support, and macroeconomic factors like the rise in US bond yields, which were unfavorable for Bitcoin.
Ethereum, on the other hand, dropped from $1,950 to about $1,850. Although there was a positive indicator with an increase in Ethereum’s total staking amount, negative indicators had a greater impact due to the decrease in on-chain activity and the reduction in Ethereum’s quantity burned through fees. However, further analysis indicates that the overall supply ratio of Ethereum within cryptocurrency exchanges has reached a historic low, suggesting that there may be limited selling pressure on Ethereum. This can be interpreted as a positive view of Ethereum’s long-term rise.
Bitcoin's dominance in terms of market capitalization recovered from the early 51% range to the mid-51.5% range. The recent rise is due to momentum triggered by Bitcoin ETF applications, which increases the likelihood of Bitcoin, playing a leading role in the market, contributing positively to the cryptocurrency market.
2. Major Economic Indicators
- US100 (Nasdaq 100)
Last week, NASDAQ struggled to continue its upward trend and entered a consolidation phase. However, according to BlockShow Chart, an analysis firm for cryptocurrency derivatives, the 90-day correlation between Bitcoin and the NASDAQ index is 0.02, while the correlation between Bitcoin and the S&P 500 index is 0.08, indicating nearly zero correlation. Therefore, when trading cryptocurrencies, it would be helpful to track the movements of traditional assets based on changes in US interest rates rather than relying heavily on the US100 index.
- US Dollar Index
The US Dollar Index rose to 103 and then declined to a high 101. There may be an additional decline in the US Dollar Index due to the sharp rise in US bond yields.
- Gold Futures
The prices of gold futures have been showing a neutral trend. Gold prices have demonstrated relative stability compared to the significant increase in US bond yields. However, the downward trend that has been ongoing since May continues, and a strong rally that breaks the $2,000 level is needed for a rebound. If the prices of gold futures break above $2,000, there is the possibility of renewing the rally to new highs, and Bitcoin may move in sync with that.
- US Bond Yields
The US 10-year bond yield has risen sharply from 3.8% to 4%. This can be interpreted as a result of concern regarding prolonged monetary tightening as US employment-related indicators have exceeded expectations by a large margin. It is worth noting that long-term bond yields are rising faster than short-term yields. The fact that the rise in interest rates is centered on long-term bonds rather than short-term bonds indicates that the market’s concern has shifted from “how much more will the Fed raise the benchmark interest rate” to “how long will high-interest rate levels persist in 2024.” If high yields on US bonds continue, the asset market will inevitably face a period of correction.
3. Bitcoin Market Data
- MVRV Z score
The MVRV Z-Score is 0.719, showing a slight decrease compared to last week’s 0.75. From a long-term perspective, the range still indicates undervaluation rather than overvaluation. However, in the short term, it is not a favorable range for additional accumulation. If you plan to increase the allocation of Bitcoin in your portfolio, it is worth considering entering after the MVRV Z-Score has further declined.
- Indicator explanation: The MVRV Z-score is a measure that determines whether Bitcoin’s market cap is overvalued or undervalued by dividing the difference between Bitcoin’s market cap and realized cap by the standard deviation. If the MVRV Z-score is below 0, Bitcoin should be considered as undervalued. In the overheated market that reached the All-Time High (ATH) in 2021, scores of 6 or higher were shown.
- aSOPR
The aSOPR (Average Spent Output Profit Ratio) has been recording above 1 since the start of July, but failed to confirm a bullish market as it briefly dropped down to 0.97 last week. Although the aSOPR has recovered above 1, it has not maintained a level above 1 for more than a month, indicating that it is still too early to confirm a full-fledged bullish market.
- aSOPR is short for Adjusted Outfit Profit Ratio, a value obtained by dividing the price of received bitcoin in the past by the price at the time of transmission. When aSOPR is less than 1, it indicates a downtrend, and when it is above 1, it indicates an uptrend. aSOPR is a more accurate value that removes meaningless transactions within the hour for adjustments.
- Open Interest
Open interest in Bitcoin futures has slightly decreased. However, despite the overall decrease in open interest, the fact that long-fund Bitcoin positions on CME have reached an all-time high suggests that institutions anticipate a mixed short-term market and a long-term upward trend for Bitcoin.
4. On-chain data
- Exchange inflows and outflows
Since the end of May, there has been a continuous dominance of outflow in exchange positions. This indicates that the group accumulating Bitcoin spot positions holds a quantity advantage over the group selling, and the exchange positions are positive for the price.
- Number of Whale Wallets
The number of whale wallets with a balance of 10k or more has been decreasing for the second consecutive week. As mentioned in the last Weekly Report, when the price of Bitcoin is above 30k, some whales perceive it as a significant resistance level and reduce their exposure. If the number of whale wallets increases or remains stable above 30k, it can be seen as an indication of a potential substantial upward rally.
5. Last week’s major news:
- Global markets shaken by sharp rise in US bond yields
The sharp rise in US bond yields has unsettled asset markets. This comes as US employment-related indicators have significantly exceeded expectations, leading to concerns about prolonged monetary tightening. Experts suggest that the surge in US bond yields indicates a reduced possibility of interest rate cuts in 2024 and emphasize the need to monitor the potential spread of economic burdens resulting from prolonged monetary tightening.
- Binance executives leaving amid regulatory crisis
Amid increased regulatory scrutiny leading to a decline in market shares overseas, key executives of Binance, the world’s largest cryptocurrency exchange, have reportedly left the company. Binance’s Chief Communications Officer, Patrick Hennessy, announced his departure on Twitter. Fortune reported that other senior executives are also leaving the company. The confirmed departures include a member of Binance’s legal counsel and Senior Vice President Steven Christie, among others. Binance founder Changpeng Zhao commented that employee turnover is a common occurrence in companies and can happen at any time.
6. Major economic events
- Major economic events last week
The most notable macroeconomic indicator last week was the employment report in the US. Particularly, the ADP Nonfarm Employment Change showed an increase of over 497k, more than double the predicted 228k, significantly surpassing expectations. This led to an additional rise in US bond yields and caused significant volatility in asset markets.
- This week’s major economic events
This week, the release of the US Consumer Price Index for June is highly anticipated. The YoY indicator compares this year’s prices to last year’s prices. If the YOY indicator of the Consumer Price Index exceeds expectations, it could provide further justification for maintaining a higher interest rate. To support price increases in asset markets, it would be preferable for the Consumer Price Index to align with or fall below expectations.
Summary
Positive indicators: Exchange outflows and inflows, bitcoin dominance, bitcoin open interest
Negative indicators: US 10-year bond yields, aSOPR
Overall Review: The US employment report exceeded expectations, leading to a rise in US bond yields. As a result, financial assets other than US bonds have shown relative weakness. However, with the increase in long fund Bitcoin long positions and consistent exchange outflows, a long-term upward trend centered around Bitcoin is expected to continue. Therefore, increasing Bitcoin allocations during price declines could be a favorable strategy.
