Review of the summer market of cryptocurrencies: the sustainability of the rise is in doubt as long-term and short-term news interweaves

Earlier this summer, BTC rallied on several positive news. Most notably, a series of institutions, led by BlackRock, applied to launch a Bitcoin spot ETF. The district court ruling in Ripple Labs' legal battle with the US SEC also boosted the entire market. But the effect of the "boost" was not long-lasting.

Callbacks

Market sentiment around the positive news is fading, and BTC prices are experiencing a pullback. The market is waiting for the decision on the approval of the Bitcoin spot ETF, and the SEC is preparing to appeal against Ripple, and the case is expected to "not be concluded until next year," analysts said. This has brought "a new round of legal uncertainty" to the crypto market.

Moreover, the pullback is also partly due to a broader pullback in risk assets such as stocks, which was triggered by "frothy positioning in the tech sector, rising U.S. real yields, and concerns about Chinese growth." Federal Reserve Chairman Jerome Powell hinted that the Fed is ready to raise interest rates further if necessary and intends to keep borrowing costs high until inflation reaches its stated target.

Callback End

On August 25, a JPMorgan research report said that the sell-off in the crypto market may be nearing its end, and the liquidation of long positions is "largely over." Analysts including JPMorgan strategist Nikolaos Panigirtzoglou wrote that in recent weeks, some negative legal and regulatory news has gradually dissipated. Although the wave of selling "is still having an impact," according to the open interest of CME Bitcoin futures contracts (the number of unsettled and active futures contracts traded on the exchange), this wave of selling seems to be at the end stage. Because the decline in open interest usually indicates that the price trend is weakening. Therefore, analysts believe that the crypto market has limited downside in the short term.

Rising again

On August 29, U.S. court documents showed that Grayscale's request for review was approved and the U.S. SEC's order was revoked. Grayscale filed a lawsuit against the SEC last year because the SEC rejected its proposal to convert its GBTC into a Bitcoin spot ETF. This ruling means that Grayscale has won the lawsuit against the U.S. SEC. Bloomberg ETF analyst James Seyffart said that this does not mean that GBTC will automatically be converted into an ETF, but it does bring things one step closer (to the approval of the Bitcoin spot ETF).

After the news of Grayscale's victory came out, the price of BTC rose by more than 7% and broke through $28,000. Since then, the price has risen to just over $27,900.

It is worth mentioning that according to data tracked by the analysis company Santiment, before Grayscale won, nearly 30,000 BTC (worth $822 million at the current market price of $2.74) were transferred to addresses associated with centralized exchanges. Perhaps some traders anticipated the price increase and prepared in advance by transferring tokens to exchanges.

As the price of BTC rose to $28,000, the average BTC inflow, or the amount transferred to exchanges per transaction, rose to 1.146, the highest level since June 21, according to data tracked by CryptoQuant.

In addition, the average BTC transaction size jumped to its highest point since June. According to Kaiko data, the average BTC transaction size on the cryptocurrency exchange Kraken increased from around $850 to more than $2,000 after the ruling. Research firm Kaiko said that the last time the average Bitcoin transaction size was higher than $2,168 was in June. The average Bitcoin transaction size on most other exchanges also increased significantly.

What about sustainability?

Clara Medalie, director of research at Kaiko, said in an interview that while it was too early to tell how sustainable the price gains were, there were “some small signs that we might be seeing a slight reversal.”

It is worth noting that compared to other “mini bull runs,” the volume on exchanges only rose to a nearly two-week high during this rally. Medalie explained that volume represents the level of participation of market participants in the market, so the lackluster volume data may indicate some weakness behind this move.

Although the average transaction size of BTC jumped to its highest level since June, indicating the activity of large investors, Medalie said: "The approval of the ETF will definitely be a bullish catalyst for the crypto market. But the market is still in a turbulent period, with quite a few bankruptcies and lawsuits going on."

Garreth Soloway, chief market strategist at IntheMoneyStocks.com, predicts that if Bitcoin fails to strongly break through the $28,000 level before the mid-August sell-off, the price of Bitcoin will fall further.