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Mixed Macro Messages and Bitcoin’s Ongoing Battles
This week, all eyes are on the upcoming CPI and PPI data, crucial for gauging US inflation trends. A higher-than-expected reading would signal persistent inflation, likely leading the U.S. Federal Reserve to maintain its high interest rate regime. This outcome would naturally shift investor attention away from cryptoassets, as investors seek the relative safety of fixed-income assets, like U.S. Treasuries. That being said, U.S. inflation does appear to be on a downturn, with GDP decreasing to 1.4% in the first quarter of the year, a rapid deceleration from the end of last year. Growth slowing down is important for prices to be tamed. Last month’s PCE reading also came in at 2.6%, in line with expectations. Furthermore, the latest jobs report highlighted that the total number of Americans collecting unemployment benefits rose for the ninth straight week, reaching 1.86M, the highest level since November 2021! Coupled with unemployment rising to 4.1%, this indicates a labor market slowdown, which could ease inflationary pressures further.
However, global liquidity is falling steeply as shown in Figure 1 below, evidenced by a 13% increase in U.S. repo volume in June. This indicates that financial institutions are turning to collateralized borrowing to secure short-term funds, signaling reduced cash availability and higher borrowing costs. Similarly, in Europe, the EU repo volume crossed over €300B, tightening liquidity conditions further. Less global liquidity means reduced cash flow into risk-on assets, potentially pressuring the crypto market despite dwindling inflationary pressures.
Figure 1 – EU and U.S. Central Bank Balance Sheet
Source: TradingView
Looking within crypto, Bitcoin is currently facing a combination of industry-native factors that are contributing to the recent price decline. The German government has been consistently selling close to 1,000 BTC or almost $58M per day, over the last week, from their seized stash originating from the pirating website Movie2K. This ongoing selling pressure could continue for approximately two to three more weeks until the rest of their holdings standing at 26K BTC are liquidated. Additionally, the Mt. Gox repayment program has commenced, with nearly 47,000 BTC transferred to unidentified wallets that have not made any further moves yet. This indicates that this amount, equating to $2.7B worth of BTC, will be the first stack reimbursed back to creditors.
It’s worth highlighting though that creditors will receive their allocation over multiple days through different exchanges, which should somewhat mitigate the selling pressure. Tax considerations are also another reason why the selling is unlikely to materialize in a short timeframe given the price appreciation that BTC has undergone in the last decade since the exchange’s hack.
That said, Bitcoin’s liquidity appears sufficient to withstand potential selling pressure without significant market impact. Even on the slowest days, the average inflow to exchanges has been around an average of 20K BTC, as shown below in Figure 2. Additionally, it takes approximately 500 BTC on the most liquid exchange, Bitfinex, to cause a 2% drop in BTC price, and an average of 250 BTC on the next three most liquid platforms to produce a similar price movement. Therefore, a 10-15% drawdown seems plausible for the worst-case scenario of creditors selling all their holdings immediately, which we don’t believe will be the case. In addition, individual investors with large amounts could also sell over the counter (OTC) to get a better rate and avoid price slippage, which could further reduce the market impact of their BTC offloading.
Figure 2: Total transfer volume of BTC to exchanges
Source: Glassnode
Another factor to consider is miners’ selling pressure. After disposing of nearly 30K BTC in June, miners have finally reduced their selling activity in the past two weeks. This marks their current reserves at around 1.9M BTC, seen below in Figure 3, the lowest point in the last 10 years. Finally, Bitcoin’s mining difficulty is set to decrease by 5%, marking the second largest drop since the FTX collapse. This reduction will benefit miners by enabling them to produce more Bitcoin with less effort, likely improving their profitability.
Figure 3: Bitcoin Miners Balance
Source: Glassnode
On another positive note, on-chain data shows that Long-term holders (LTHs) have stopped reducing their BTC supply since late June. This is a positive development, as LTHs maintaining a stable supply is crucial for Bitcoin to sustain its upward momentum. Similarly, Bitcoin’s MVRV ratio, which compares its current market price to its ”realized price” (the average price at which each coin was last moved), suggests that Bitcoin is currently trading at levels similar to June 2021 when it was around $30K. Notably, Bitcoin rebounded from the $30K price level to reach its all-time high later in 2021. This could be an encouraging sign of Bitcoin’s growth potential in terms of relative valuation during the current market cycle.
Figure 4: Bitcoin’s Market Value to Realized Value (MVRV)
Source: Glassnode
Altogether, there are potential catalysts that could turn the tide in the coming months. For instance, a resurgence in ETF inflows could offset the selling pressure precipitated by the influx of BTC entering the market. Notably, there were days in Q1 when the regulated vehicle absorbed more than 10K BTC, as depicted below in Figure 5. Further, the arrival of new market participants, such as registered investment advisors (RIAs) representing the wealthiest investors, could significantly alter the market’s supply and demand dynamics. In addition, the approval of Ethereum ETFs expected anytime within the next two weeks could also reignite interest in the market. Even if inflows are anticipated to be at best 25% of the $10B invested in Bitcoin’s ETFs in the first few months of the year. It’ll nevertheless catalyze broader interest in the market and can be expected to benefit tokens of the Ethereum ecosystem. Finally, election season is another catalyst for crypto. Particularly in the U.S., Bitcoin has become a polarizing campaigning tool for the Republicans as Trump led the way in advocating for the largest crypto asset by market cap. In fact, the Republican party has officially included the advocacy for BTC as part of their 2024 election campaign, which shows the growing influence of crypto within US politics.
Figure 5: US Spot ETF Inflows Denominated in BTC
Source: Glassnode
This Week’s Calendar
Source: Forex Factory, 21Shares
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Last week, I was in Washington, DC to attend the DC Blockchain Summit and to meet with regulators and policymakers to share our experiences as a crypto-focused asset manager over the last seven years.
The Summit, hosted by The Digital Chamber, included speeches from dozens of members of Congress, regulators, and industry leaders. After listening to presentations and speaking with a number of regulators and policymakers I have one key takeaway: Regulatory clarity for crypto will come much faster than I previously anticipated.
A dramatic shift in tone
As I wrote in January, US policymakers and government leaders—at nearly every level—are embracing this technology. For years, the lack of clear rules for digital assets in the US has been a major obstacle for institutional investors and financial firms looking to enter the crypto space. However, this past week in DC, as well as several of the conversations I’ve had with advisors and wealth managers over the last several weeks, has left me with an even higher sense of optimism.
One of the most striking takeaways from my meetings was the shift in how policymakers are discussing crypto. Just a year ago, many in Washington viewed digital assets primarily through the lens of risk—concerns over fraud, illicit finance, and speculative volatility dominated the conversation. While these concerns still exist, the discussions now are much more nuanced and focused on the opportunities that crypto can create to the American economy and how to address these risks through a clear regulatory framework.
Bipartisan support for legislation
Perhaps the most encouraging sign is the concrete progress being made on both legislative and regulatory fronts. Several key developments indicate that clearer guidelines for crypto businesses and investors could arrive sooner than expected. There is growing bipartisan momentum behind crypto-related legislation. The House Financial Services Committee and the Senate Banking Committee are moving forward with stablecoin legislation, and it is possible legislation could be signed into law as early as this summer. Stablecoins have also been a key focus of regulatory discussions, with growing consensus that they should be subject to clear guidelines similar to those governing payment systems and money market funds.
House and Senate committees are also actively discussing proposals that aim to define the jurisdiction of regulatory agencies, clarify the status of digital assets, and establish consumer protections. Unlike previous years, these efforts are being taken seriously by both parties, increasing the likelihood of meaningful legislative progress.
Adding to these regulatory discussions is the growing demand for crypto exposure from institutional investors. This demand is influencing policymakers and regulators, as they recognize that a lack of clarity is pushing innovation overseas.
What does this shift mean for investors?
The acceleration of regulatory clarity is a significant development for investors. While the approval of spot bitcoin ETFs last year was a watershed moment, it’s just the beginning. Several large financial institutions, including major banks and asset managers, are actively exploring tokenization, digital asset custody, and blockchain-based financial infrastructure. These institutions are engaging with regulators, advocating for a clear framework that allows them to enter the market with confidence.
Uncertainty has been one of the biggest barriers to broader crypto adoption by financial institutions and institutional investors in particular. As regulations become clearer this year, we expect to see:
• Increased institutional participation: With regulatory uncertainty diminishing, more traditional financial institutions will feel comfortable offering crypto products and using crypto technologies such as stablecoins to offer more efficient services, driving further mainstream adoption.
• Growth in tokenization and blockchain use cases: Clearer regulations will pave the way for asset tokenization, improving efficiency in markets like real estate, bonds, and private equity.
• A stronger US crypto market: By establishing a clear regulatory framework, the US can assert itself as a global financial leader, which we believe will help spur more regulatory clarity in other jurisdictions.
Final thoughts
The message from Washington is clear: crypto regulation is coming, and it’s coming faster than many expected. While there are still hurdles to overcome, the shift from uncertainty to structured regulation is well underway. For investors, this marks an important transition. Clearer rules will reduce risks, enhance market stability, and unlock new opportunities for institutional and retail participants alike.
At Hashdex, we remain committed to navigating these changes and providing investors with access to the best opportunities in this evolving landscape. As we move forward, continued engagement with regulators, policymakers, and financial institutions will be key. The crypto industry has a critical role to play in shaping the future of regulation, and by working collaboratively, we can help ensure that the next phase of crypto’s growth is built on a foundation of clarity and trust.
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