After the breakthrough failure, can Bitcoin continue to rise?
Can Bitcoin rise after its breakthrough failure?
Summary
Driven by the potential benefits of the Bitcoin spot ETF, BTC quickly rose to around $30,000, and then experienced three weeks of volatility, failing to break through the previous high multiple times. We believe that the market will not end until the ETF receives a formal response, and Bitcoin will continue to rise and fluctuate.
Ripple’s victory boosted market sentiment, and popular altcoins will also have performance opportunities. At the same time, we are optimistic about the long-term positive impact of RWAs on the crypto market. It should be noted that macro and regulatory risks may resurface and cause considerable disturbance to the market. We remain cautiously optimistic about the future.
Spot ETF benefits open a small bull market, market trends for another month
In the overall correction in June, USDT confirming the short-term bottom of BTC laid the foundation for a new round of upward movement as chips changed hands during the decline.
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Old Wall Street institutions such as Blackrock have applied for Bitcoin spot ETFs, driving the market to rise rapidly, with BTC returning to the vicinity of the previous high. It is expected to fluctuate and rise in the next month. After Ripple’s victory, XRP rose by more than 100%, and market risk appetite rebounded significantly, providing performance opportunities for popular altcoins.
USDT FUD signals the short-term bottom, chips complete the turnover
Since June, BTC has started a brief downward trend, and Tether FUD reappeared in mid-June, with USDT experiencing a slight decoupling. The USDC/USDT trading pair rose to a high of 1.0042. Last year, USDT decoupled twice, once after the Luna crash, and the other after the FTX scandal, both of which were signals of a short-term bottom.
This decoupling of USDT occurred on June 15th. BTC rose after testing the important support level of $25,000, and the chips shifted from weak hands to strong hands. The turnover at the bottom made the chip structure more stable. The subsequent retracements of BTC’s rise this round have been quite limited, often stopping around $30,000.
Figure: BTC rose after testing the important support level of $25,000 in mid-June
Potential benefits of Bitcoin ETF, market trends for another month
Multiple US asset management giants such as Blackrock and Investco have successively submitted applications for Bitcoin spot ETFs, driving the strong rise of Bitcoin. The issuance of spot ETFs can provide more compliant and convenient investment channels for traditional investors, and is expected to bring billions of dollars in incremental funds to the crypto market.
Looking back at the bull market in the second half of 2021, the market rose due to expectations of Bitcoin futures ETFs, and then fell after the approval of Bitcoin futures ETFs. Therefore, smart money buys in advance before the approval of spot ETFs, restarting a small bull market.
Figure: Multiple Wall Street institutions apply for Bitcoin spot ETFs
This time, the application for a Bitcoin ETF by a well-established Wall Street institution seems to have come prepared, perhaps with the tacit approval of certain regulators.
In terms of timing, the SEC is expected to make a decision on the ARK Bitcoin Spot ETF no later than August 13th, which means we may have about a month of hot market conditions. During this period, smart money is willing to buy Bitcoin on every pullback, making it difficult for Bitcoin to experience a significant decline. After the volatility, it is expected to continue to rise.
XRP surges, popular altcoins will have performance opportunities
On July 13th, a U.S. district court ruled that XRP is not a security token. Following this ruling, U.S. exchanges such as Gemini and Coinbase relisted XRP.
XRP quickly surged, with a single-day increase of over 100%, and market sentiment turned optimistic. Although there is still room for the Ripple lawsuit, this has already shown the regulatory attitude, which is significant for altcoins that may be considered securities. We are optimistic about the future performance of altcoins.
Image: XRP increases over 100% in 4 hours
Although the market experienced a correction on Friday night, strong altcoins have basically regained their losses over the weekend, and the bulls are still in the lead.
Many altcoins are still at relatively low positions, and once new narratives emerge, they will perform well. In the case of a rebound in market risk appetite, as long as BTC maintains volatility, popular altcoins have a great chance of outperforming the market.
Compliance narratives are on the rise, RWA expected to bring incremental funds
Under the influence of compliance narratives, RWA has gradually gained market attention. We believe that RWA may be a strategic-level opportunity, expected to bring billions of dollars of capital inflows to the crypto market and become an important driver of the next bull market.
DeFi yield in bear market decreases, funds continue to flow out
After entering the bear market, DeFi yields have significantly decreased. The APY of USDC on mainstream lending platforms is less than 3%, while the Fed’s aggressive rate hikes have raised the risk-free interest rate to over 5%. As a result, a large amount of funds have exited the market. The total market value of stablecoins has been declining for a year, dropping from $184.5 billion in April 2022 to the current $124.5 billion, with approximately $60 billion leaving the market.
Image: DeFi yield decreases in bear market, approximately $60 billion leaves the market
The funds that are still in the market have been looking for new destinations, and staking ETH has become a popular choice. LSD-Fi based on ETH can provide a coin-based return of about 5%, making it a risk-free return for Crypto-Natives. Currently, the TVL has reached $45 billion.
However, pledging ETH in a bear market carries the risk of price decline, and hedging requires a high cost. Therefore, LSD-Fi cannot fully meet the needs of low-risk investors, and the market urgently needs an investment product with relatively low risk and relatively high returns to retain on-chain funds.
RWA projects based on US Treasury bonds can bring incremental funds to the market.
The emergence of RWA is expected to change the dilemma of continuous outflow of funds from the crypto market. RWA tokenizes real-world assets, such as bonds and stocks, to bring real income to the crypto world.
Currently, the yield of short-term US Treasury bonds exceeds 5%. If RWA can provide exposure to US Treasury bonds for DeFi users, that is, provide a channel for global investors to invest in US Treasury bonds, this single asset alone has the potential to bring in billions of dollars in funds.
Image: Short-term US Treasury bond yields, such as 1-month, 3-month, 6-month, and 1-year, exceed 5%.
From another perspective, USDT and USDC are the largest RWA projects with a total market value of nearly $110 billion, but the profits generated by their US dollar reserves have not benefited the market.
On the other hand, RWA projects that provide US Treasury bonds actually take a share of the cake from USD stablecoin operators such as Tether and Circle. By charging lower fees, they can allocate most of the profits back to the market, bringing incremental funds to the market.
Existing RWA projects have made progress but still have a long way to go.
There are already many projects in the industry that are developing in the RWA field. For example, MakerDao has introduced US Treasury bonds as collateral and distributes the interest to DAI holders. The founder of Compound has also started a new venture, hoping to tokenize US Treasury bonds and bring real income to DeFi users. Benefiting from the development in the RWA field, both $MKR and $COMP have performed very well recently.
Image: MakerDao introduces RWA as collateral to earn real income.
Of course, we also need to see that the current RWA projects are not mature yet, and DeFi users have difficulty smoothly obtaining the 5% interest rate on US Treasury bonds. RWA assets still have a long way to go to achieve safety, efficiency, and accessibility as their goals. MakerDao’s exposure to government bonds exceeds $1 billion, but there are also compliance risks, high costs, and insufficient investment efficiency. It will be challenging to further expand its scale in a short period of time.
Compliance, channels, on-chain integration, costs, and promotion all require solid team efforts, and the RWA project still has a long way to go.
But on the other hand, this also means that existing RWA projects are far from reaching their ceiling and still have tremendous room for growth. As more and more RWA projects succeed, RWA-Fi will also become an investment direction similar to LSD-Fi.
MKR and COMP are similar to LDO and RPL, and they have risen first in the early stage of RWA development. As the scale of RWA continues to expand, there will also be upper-layer DeFi projects built on RWA assets, becoming investment opportunities for the mid-to-late stage of RWA. We believe that RWA has long-term strategic significance and will become an important driver of the next bull market.
Beware of macro and regulatory risks, and maintain cautious optimism
Although the pullbacks of BTC in this rally have been small, the current situation is conducive to the bulls. However, we should also note that macro and regulatory risks cannot be ignored and may cause unexpected disturbances in the market. Therefore, we maintain cautious optimism, and the rise of BTC will not be smooth sailing. The period of volatility may be longer than expected.
The Fed may continue to raise interest rates, leading to marginal tightening of liquidity
Federal Reserve officials have repeatedly emphasized that there are still two interest rate hikes in the second half of the year and no rate cuts within the year, which has caused long-term US Treasury yields to rebound, which is not conducive to risk assets. At the same time, the Fed’s balance sheet reduction is still ongoing, and its total assets have fallen below the level before the March bank crisis and will continue to decline in the future.
Under the condition of sustained high interest rates and liquidity extraction, it may be difficult for the US stock market to continue the strong performance in the first half of the year. If there is a significant decline, it will also have a negative impact on the crypto market.
Figure: The Fed’s ongoing balance sheet reduction, total assets have fallen below the level before the March bank crisis
Binance executives resign, BNB performance weakens
In early June, after the SEC filed a lawsuit against Binance, BNB fell sharply, rebounded after touching the key support level of $220, and then began to bottom out and oscillate. Although BTC has risen from a low level to near the previous high, BNB has not risen synchronously and has been oscillating between $220 and $250. Binance has also tried to boost the BNB price through methods such as LaunchLianGuaid and Launchpool.
Several Binance executives have recently resigned, and public opinion is very unfavorable to Binance. Since BTC has risen to a relatively high level, if regulatory issues reoccur, it may cause considerable disturbances in the market.
Figure: BNB performance relatively weak, still oscillating and bottoming at a low level
Conclusion
BTC is facing pressure near the previous high and needs to consolidate for a period of time to digest selling pressure. With the potential positive expectations of spot ETFs, the bulls still have the upper hand, waiting for a good opportunity to push the market higher.
After Ripple’s victory, market risk appetite has rebounded, and popular altcoins will have performance opportunities. RWA will bring incremental funds to the market in the long term, but its short-term development still faces many challenges. At the same time, macro and regulatory risks may still cause disturbances in the market, and the rise of Bitcoin may experience twists and turns. We maintain cautious optimism for the future and are optimistic about the oscillating upward trend of Bitcoin.
