The crypto market continued to be sluggish in July, with multiple factors affecting Bitcoin prices.

After experiencing a downturn in the first two months, the crypto market in July did not see the expected rebound. On the contrary, some negative factors intensified investor panic, causing the price of Bitcoin to decline and dragging the entire crypto market down. Despite the heavy blow to the market, the emergence of some positive factors has led many to believe that the crypto market may start to see a turnaround in the fourth quarter of 2024.

Current Important Bearish Factors

Mt. Gox compensation triggers market panic: Bitcoin price plummets

The compensation issue of the Mt. Gox incident has attracted significant attention from the market, with a selling pressure of up to 142,000 BTC and 143,000 BCH, which once triggered market panic on June 24, causing the BTC price to drop to around 60,000 dollars.

With the official launch of Mt. Gox's compensation on July 5, BTC broke below the support level of $60,000 under heavy selling pressure. During this process, BTC miners showed signs of capitulation. Historical experience indicates that this usually means the price has reached the bottom. The last comparable drop in hash rate occurred in 2022, when the trading price of Bitcoin was $17,000.

An industry expert believes that most market participants are unaware of the seriousness of the potential decline in Bitcoin's four-month volatility range. Currently, cryptocurrency leverage is close to historical highs (excluding CME), but in this case, our range is longer (18 weeks compared to 13 weeks), and there has not yet been extreme flushing.

The initially estimated low point of $50,000 may be overly conservative, and we might see a more extreme pullback to the $40,000 range. Such a pullback could cause considerable damage to the market, and it may require several months of consolidation/downward trend (recovery period) before a reversal to an upward trend could occur.

German government sells off: liquidates nearly half

During the morning session of the day, the German government transferred more than 10,000 Bitcoins in batches to crypto exchanges and market makers. This action caused the price of Bitcoin to drop below $55,000 at one point. However, according to data from the data platform, during the US stock market closing period (around 01:56 AM Beijing time on Tuesday), the German government address reclaimed 2,898 Bitcoins, worth approximately $163 million, mainly from several major exchanges.

According to data from the platform, the German government's sell-off plan has been completed by nearly half. Since the sell-off began last month, its Bitcoin holdings have decreased from nearly 50,000 coins to 27,461 coins, with the current holding value being approximately $1.5 billion.

Recently, the headlines in the industry have focused on events such as the German government's sell-off and the Mt.Gox refunds. Many analysts believe that this is the main reason for the recent sharp drop in Bitcoin. However, an analyst from a certain trading platform attributes the decline to normal seasonal weakness.

Despite the market decline, data released by a data company indicates that the inflow amount for digital asset investment products reached $441 million last week. Among them, Bitcoin investment products accounted for the largest share of the total inflow of crypto products ($398 million), with a proportion as high as 90%. By region, the inflow of funds mainly came from the United States, amounting to $384 million. Other significant buying came from Hong Kong ($32 million), Switzerland ($24 million), and Canada ($12 million), while Germany experienced an outflow of $23 million.

The Bitcoin mining market is building a bottom.

Recently, the price of Bitcoin fell to $54,000 (now restored to $57,000), making survival even more difficult for miners who were already struggling due to a sharp decline in profits caused by the halving. According to surveys, if the price of Bitcoin drops to $54,000, only ASIC miners with an efficiency exceeding 23W/T will be able to profit, and only a few models of mining machines can barely sustain.

The selling behavior of miners is also considered to be part of the reason for this price decline. In response to cash flow issues after the halving, the sell-off by mining companies continues, with 30,000 Bitcoins from miners entering the market in June alone.

According to data from a certain data platform, under the estimated energy cost of $0.07 per kilowatt-hour, only ASIC miners with a power rating of 26 W/T or lower can be profitable when the Bitcoin price is $54,000. Specifically, models such as Antminer S21 Hydro, Antminer S21, and Avalon A1466I achieve breakeven at prices of $39,581, $43,292, and $48,240 respectively. Other models need the Bitcoin price to exceed $51,456, $53,187, and $54,424 to be profitable.

In this context, as the tide of inscriptions recedes, whether for cash flow reserves or industry migration and exit, mining companies naturally choose to sell Bitcoin to survive.

Fortunately, as the price of Bitcoin decreases, small and medium-sized mining farms are gradually shutting down, and the difficulty of Bitcoin mining is rapidly falling, signaling the end of miners' surrender. On July 9, data showed that the difficulty of Bitcoin mining was adjusted down by 5% to 79.5T, with the average hash rate across the network in the past week being 586.72EH/s. Since May, the amount of Bitcoin sent by miners to exchanges for sale has significantly decreased, and the over-the-counter trading volume has noticeably dropped. As of June 29, the total trading volume at the over-the-counter trading desks of mining companies has been exhausted, indicating that selling pressure has eased.

Overall, the price fluctuations of Bitcoin have had a huge impact on the survival of miners, but as the market adjusts, miners' selling behavior is gradually decreasing, and the industry may welcome a new balance.

Positive Factors Worth Noting

The FTX repayment plan is expected to drive the market to new highs.

According to a revised reorganization plan and disclosure statement submitted by a certain bankrupt trading platform to the bankruptcy court in Delaware, USA, it is estimated that the total value of assets that have been collected and converted into cash and are available for distribution will be between $14.5 billion and $16.3 billion, exceeding the $11 billion owed to customers and other non-government creditors. Any excess cash will be used to pay interest to the company's more than 2 million customers.

Currently, the platform has obtained court approval, and creditors can choose to vote on the compensation plan for cryptocurrency in cash or physical form. Creditors must vote by August 16, and the judge will decide whether to approve the plan on October 7. Once approved, the platform will repay the creditors within two months, with the expected time frame being from the fourth quarter of 2024 to the first quarter of 2025.

Although the final compensation method has not yet been determined, some crypto analysts believe that, given that most customers are cryptocurrency enthusiasts, this fund of up to $16 billion will enter the crypto market and become a major catalyst for price increases. Bitcoin is expected to break $120,000, Ethereum will break $12,000, and other altcoins will rise 10 to 50 times.

The expectation of interest rate cuts is clear

The Federal Reserve's decisions on interest rate hikes and cuts are one of the important factors influencing Bitcoin prices, and rate cuts usually drive the market stronger.

Recently, Federal Reserve Chairman Powell stated that inflationary pressures in the United States have eased, but the Fed needs more data to prove that the inflation risks have passed before deciding to cut interest rates. If rates are cut too early, inflation may resurface; if rates are cut too late, it could lead to a slowdown in economic growth and even trigger a recession.

Despite Powell stating that the timing for interest rate cuts remains uncertain, market expectations for a rate cut are rising as the latest U.S. economic data shows a slowdown in economic growth. For instance, the June non-farm payroll data was significantly revised down, and the unemployment rate climbed to 4.1%, the highest level since November 2021. According to a certain interest rate observation tool, as of July 9, the market expects the probability of the Federal Reserve cutting interest rates at the September meeting to rise to 73.6%, with a probability of maintaining the current rate at 22.9%.

Encryption accounting system is about to take effect.

In December last year, the Financial Accounting Standards Board (FASB) in the United States released the first version of accounting rules for encryption digital currencies, requiring companies holding Bitcoin or Ethereum to record changes in their coin value at fair value and reflect them in net income. The new rules will take effect for fiscal years beginning after December 15, 2024, applicable to both public and private companies for the 2025 fiscal year.

For crypto assets, this accounting standard change means that some listed companies will be able to record the highs and lows of their cryptocurrency holdings. This will promote further compliance in the crypto market and attract liquidity injection from mainstream financial markets.

Bitcoin Price Trends After Each Halving

Market trends can be categorized into three types: upward, downward, and sideways. Regardless of how the future market changes, it ultimately cannot escape these three patterns. Trying to predict the market direction is a foolish act; we only need to know how to respond if the market develops in a certain direction.

If the market breaks through the current resistance level and holds above 69000 points, it can be seen as the beginning of an upward trend.

There are two possible scenarios for an increase:

1. Impacting the previous high but not breaking through: The market may approach the previous high but fails to break through, or it may only slightly break through and then pull back. In this case, do not be misled by market illusions, and do not chase the high. You may not even need to exit the market; just reduce some positions, especially if you feel your holdings are too heavy.

2. Breaking previous highs and maintaining new highs: If the market breaks through previous highs and maintains new highs for at least 3 days, attention should be paid to the strength of the breakout, observing whether there is strong upward movement or oscillation within 3 days to 1 week. If the trend is strong and there is a rapid increase after the breakout, you can hold your position and wait for a significant pullback (at least around 10%) to add to your position. If the trend is not strong and the increase is slow, it is advisable to reduce your position at the new highs to prevent false breakouts. At present, the possibility of continued upward movement is relatively low. If the second situation arises and the trend is not strong enough after the breakout, be wary of the risk of a significant drop. References for previous halvings and market trends:

Second Halving (2016.07.10)

Before this halving, Bitcoin surged by 78% within a month. After the halving benefits were realized, it experienced a deep pullback, dropping 30% in a week, with the maximum decline reaching even 40%. Then it started to rise continuously, going from less than 500 dollars to nearly 20,000 dollars. After the halving, the coin price corrected by 30%.

Third Halving (2020.05.12)

In 2020, due to the historically rare black swan event of 312, the market fell sharply before the halving. If we disregard this negative news, Bitcoin also experienced a 20% pullback in the week leading up to the halving. There was a rebound after the halving, but it did not rise significantly, and the market went through a period of volatility. After pulling back from the peak before the halving at the beginning of May, it oscillated until the end of July before breaking upward, oscillating for a full 3 months, during which there were also two instances of pullbacks exceeding 10%.

From the previous two halvings, it can be seen that Bitcoin tends to undergo a correction before and after the halving. The market generally expects Bitcoin to rise after the halving, but how will it be this time? Further observation may be needed.

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