Market View
Some relief in bitcoin’s supply overhang alongside shifts in the US political landscape have allowed the token to catch up to the sharp USD devaluation in July, with the multilateral DXY index down over 2% MTD. (Bitcoin is often valued in USD, so it tends to benefit from a weaker USD.) But Mt. Gox repayments remain a source of pressure, following the distribution of around 50k BTC to exchanges since July 5th leaving the trustee with a balance of 90.3k BTC based on Arkham Intelligence data.
That may help explain why bitcoin’s market depth on our exchange has seen a higher imbalance between bids and asks recently. More specifically, we have seen an increase in the amount of total sell orders placed within 5-10% of the mid price. That suggests that we may be seeing some profit taking at current levels and/or a greater willingness by market participants to sell into price appreciation, which may limit price moves to the upside (see chart 1). That is consistent with our thesis that markets are likely to be choppy in 3Q24 with a fair bit of range trading before rallying in 4Q24. However, there’s still very low transparency on the distributions from exchanges to individual creditors, and we believe that any sales linked to the in-kind Mt. Gox repayments are more likely to be gradual and orderly.
Meanwhile, we’ve previously argued in our July Monthly Outlook that the US elections would be an important driver for crypto markets in 2H24. Subsequent to that, there have been reports from Bloomberg, Reuters, and CNBC over the last week discussing how gains in both stock and crypto markets have materialized over investor speculation that former President Donald Trump’s chances of winning the presidency may have increased following the attempt on his life over the weekend of July 13-14. From our perspective, what’s been interesting is how prominently crypto has started to feature in this election cycle:
- Trump is speaking at the Bitcoin 2024 Conference in Nashville next week (July 25-27)
- There appears to be a potentially pro-crypto vice-presidential candidate on the Republican ticket, Senator J.D. Vance from Ohio. Vance’s 2022 financial disclosure (last amended in October 2023) reveals ownership of between $100,000 and $250,000 BTC, which would make him the first VP candidate to publicly own bitcoin if elected.
- Anita Dunn, a senior advisor to President Joe Biden, meanwhile met with several crypto leaders last week in a roundtable set up by Democratic Representative Ro Khanna of California and accompanied by Senator Kirsten Gillibrand of New York.
- The White House meeting followed unprecedented bipartisan passage of pro-crypto policies in both the US House of Representatives and the US Senate in May, which included support from senior Democratic leaders and several current Democratic House members who are running for Senate.
Finally, we’ve seen US spot bitcoin ETFs recover net inflows in earnest, attracting US$1.97B between July 5 (post-US holidays) and July 17. These inflows have pushed the aggregate number of BTC held by US spot ETFs to a new all time high of over 900k BTC, representing 4.56% of total circulating supply. That has been accompanied by an increase in CME open interest, which has risen back to 31.7k futures contracts ($10.3B) after falling to a two-month low of 26.8k contracts in early July, suggesting institutional investors have been putting on the basis trade in anticipation of the exhaustion in the supply overhang that’s been putting pressure on markets since mid-June. Indeed, the BTC basis trade on CME futures has yielded between 10% and 12% this past week, up from lows of about 6% during the first week of July.
