The Weekly Report is our summary of key indicators and recent events in the crypto world that professional traders are closely monitoring. This report and other relevant information are first shared via the official League of Traders Telegram channel.

Here are our notes for the first week of August!

1. Bitcoin Chart/Ethereum Chart

The asset market, which had been showing signs of decline since last Friday, plunged on Monday, leading to a ‘Black Monday.’ Notably, the Korean, Taiwanese, and Japanese stock markets, closely linked to the US Nasdaq, a hub for the semiconductor and AI industries, experienced significant falls. Bitcoin’s price also plummeted from $68,800 to $54,000, failing to surpass the $70,000 resistance level mentioned last week.

Several factors are being cited as triggers for this decline, with Japan’s interest rate hike considered the primary cause. Japan, which had kept the yen low to benefit export companies, raised interest rates due to sluggish domestic demand and efforts to protect its economy. This led to an outflow of funds from major stock markets, previously driven by the yen carry trade.

Furthermore, international instability has worsened due to Iran’s announcement of retaliation against Israel. Additionally, former US presidential candidate Trump exacerbated the situation by suggesting that seized Bitcoin should be sold to resolve the US government’s debt.

We will review additional indicators and comment on whether this decline marks the end of the bull market following the halving in the general commentary.

BTCUSDT Chart (Binance)

Cryptocurrency ETFs have seen their first outflows in five weeks. According to a report released today, digital asset investment products, including Bitcoin and Ethereum spot ETFs, experienced $528 million in outflows at the end of the last week.

By fund, Grayscale Bitcoin Trust (GBTC) saw $806 million in outflows, Fidelity Bitcoin Trust (FBTC) saw $193 million in outflows, and Ark 21Shares Bitcoin ETF (ARKB) saw $123 million in outflows. Conversely, BlackRock Bitcoin Trust (IBIT) saw a net inflow of $641 million.

Since the launch of Ethereum spot trading last week, Ethereum’s price has dropped from to $3,100 from $3,500, with a partial recovery to $3,290. The slower-than-expected fund inflow since the ETF’s launch suggests a typical “buy the rumor, sell the news” pattern.

A major drawback of spot ETFs is the lack of staking income. Staking allows Ethereum holders to earn additional income while supporting network stability, but spot ETFs do not offer this benefit, reducing their appeal for long-term holders. This limitation is expected to be addressed early next year, but until then, the attractiveness of Ethereum spot ETFs for long-term investment may be limited.

Spot Bitcoin ETF flows (The block)

Spot Ethereum ETF flows (The block)

Ethereum has had its worst week since the launch of its spot ETF. The price has fallen from $3,290 last week to around $2,300. As illustrated in the chart above, the large-scale fund outflows after the spot ETF launch and the substantial exchange of wstETH to ETH by Jump Crypto, along with the transfer of 66,000 ETH to exchanges such as Binance and OKX, have exacerbated the decline.

While the decline is steep and a rebound seems possible, additional positive factors are necessary for a sustained rise.

ETHUSDT Chart (Binance)

Recently, Bitcoin dominance has increased from 56.71% last week to 57.59% this week. This indicates that Bitcoin is gaining a larger share of the overall cryptocurrency market. Despite the virtual asset market experiencing a significant decline, Bitcoin dominance has risen because the trading of Bitcoin spot ETFs and others have been relatively inactive, resulting in a smaller decline. In an unstable market like the current one, Bitcoin, with its lower volatility and large market cap, may be preferred. We should also consider the possibility that Bitcoin dominance could rise to the 60% range.

Bitcoin dominance chart (CoinMarketCap)

2. Major Economic Indicators

• US Bond Yields

Last week, the US 10-year Treasury yield fell from 4.178% to 3.760%. This decline resulted from the high unemployment rate, highlighting Sham’s Law. According to Sham’s Law, if the average US unemployment rate over the past three months is 0.5% higher than the lowest point in the past year, the economy is likely in a recession. This theory has successfully predicted recessions in the past and is gaining traction again.

In particular, the unemployment rate in July was 0.53% higher than the lowest point in the past year. This increase led to a sharp decline in the US stock market due to fears of an economic recession. Consequently, the market anticipated that the US Federal Reserve, mindful of recession concerns, would quickly cut interest rates, causing US Treasury yields to plummet.

US10YPrice Government Bond Rate (TradingView)

• US Dollar Index

The US dollar index also dropped significantly, from 104.275 last week to 103.084 this week, along with US bond yields. This decline was influenced by policy changes such as Japan’s interest rate hike and the reduction in US Treasury yields. However, as the tendency to seek safe assets grows stronger in an unstable market, the dollar index is expected to decline less sharply than bond yields or the stock market.

US Dollar Index (TradingView)

• US100 (Nasdaq 100)

The Nasdaq 100 dropped from 19,100 last week to 18,000 this week. Analysts suggest that the AI bubble is bursting, as AI and semiconductor stocks, led by Nvidia, have fallen sharply. The decline was further exacerbated by the withdrawal of yen carry trade funds due to Japan’s interest rate hike and instability in the Middle East. Given its continuous rally since the end of last year, it is important to consider that this adjustment may persist for some time.

Additionally, some existing institutions classify virtual assets like Bitcoin in the same category as tech stocks. Thus, if the decline in the Nasdaq halts, the rebound of virtual assets is likely to be even stronger.

US100 (TradingView)

• Gold Futures

The price of gold futures rose from $2,398 last week to $2,433 this week. Despite ‘Black Monday,’ gold maintained its status as a safe asset and showed low volatility. The prospect of a US interest rate cut and rising recession concerns provided justification for the increase in gold prices. Viewing Bitcoin as digital gold, this situation could positively impact Bitcoin prices.

Gold Futures (TradingView)

3. Bitcoin Market Data

• MVRV Z-score

The MVRV Z-score has significantly dropped from 2.204 last week to 1.586 this week. This sharp decline suggests the market has exited the overvalued zone but has not yet reached the levels of overheating seen in the 2017 and 2021 Bitcoin bull cycles. Currently, the indicator leans more towards a bearish outlook for Bitcoin. The critical question is whether another rally will occur if the MVRV Z-score approaches or surpasses 6.

• Indicator explanation: The MVRV Z-score is a measure that determines whether Bitcoin’s market cap is overvalued or undervalued by dividing the difference between Bitcoin’s market cap and realized cap by the standard deviation. If the MVRV Z-score is below 0, Bitcoin can be considered to be undervalued. In the overheated market that reached the All-Time High (ATH) in 2021, scores of 6 or higher were shown.

Bitcoin: MVRV Z-Score (Glassnode)

• aSOPR

The aSOPR (Adjusted Spent Output Profit Ratio) indicator has fallen below 1, decreasing from 1.014 last week to 0.9964 this week. Having been above 1 for the past month, this drop below 1 indicates a higher likelihood of a bear market over a bull market.

• aSOPR is short for Adjusted Spent Outfit Profit Ratio, a value obtained by dividing the price of received bitcoin in the past by the price at the time of transmission. When SOPR is less than 1, it indicates a downtrend, and when it is above 1, it indicates an uptrend. aSOPR is a more accurate value that removes meaningless transactions within the hour for adjustments.

Adjusted SOPR (Glassnode)

• Open Interest

Open interest in the Bitcoin perpetual futures market has sharply declined from $18.83 billion last week to $16.01 billion this week. During the same period, the estimated leverage ratio increased from 0.197 to 0.201. This reflects a temporary outflow of funds from the perpetual futures market. The size of open positions is expected to decrease significantly, which will reduce price volatility. However, for an additional rally, open positions need to fall below $13 billion. Currently, the risk level remains high, so additional positions can be considered once the open interest drops below $13 billion.

Outstanding Open Interests by Exchanges (Glassnode)

Exchanges’ combined estimated leverage ratio (Glassnode)

4. On-chain data

• Exchange inflows and outflows

Bitcoin has been continuously flowing into exchanges for the past six weeks. This recent inflow suggests a potential sell-off in anticipation of a decline. Therefore, it is crucial to monitor the flow of funds into Bitcoin spot ETFs and changes in Bitcoin holdings on exchanges. The point at which funds start flowing into spot ETFs and exchange inflows cease could mark the beginning of a rebound.

Bitcoin: Exchange Net Position Change(Glassnode)

• Number of Whale Wallets

The number of whale wallets holding more than 10,000 BTC briefly rebounded but fell again with the sharp decline in Bitcoin. This number is currently at its lowest level of the year. An increase in the number of whale wallets might signal a potential rebound. As of now, no upward pattern is evident.

Number of Bitcoin wallets holding 10K or more (Glassnode)

5. Last Week’s Major News

• Strong Yen and U.S. Economic concerns cause Nikkei Index to plunge 6%

On the 5th, the Nikkei Stock Average (Nikkei Index) on the Tokyo Stock Exchange began the day with a significant decline. At one point during trading, the Nikkei Index plummeted by over 2,500 points, a 6% drop, reaching its lowest level in seven months during trading hours. Growing concerns about a potential U.S. economic recession are unsettling the market. Additionally, the continued strength of the yen in the foreign exchange market is prompting investors to avoid risks. Tokyo Electron, a semiconductor-related stock sensitive to economic conditions, dropped by over 10% during trading. Export-related stocks, such as those in the automotive sector, are also declining due to the strong yen.

• Black Monday: “Bad is Bad”… JP Morgan maintains forecast of additional 21% decline by Year-End

JP Morgan remains “cautious” regarding the U.S. stock market. According to Bloomberg on the 5th (local time), JP Morgan analyst Mislav Matejka stated, “The current market situation does not seem to be based on the expected recovery,” and that “we are maintaining a cautious stance on stocks.” JP Morgan holds the most pessimistic outlook on Wall Street, targeting the S&P 500 index at 4,200 points by the end of the year. This projection is 21% lower than the closing price last Friday.

• Bitcoin plunge fills CME gap

Bitcoin plunged over the weekend, filling the CME gap it created last month. Some experts predict that another CME gap will form when the Chicago Mercantile Exchange (CME) opens on Monday, with Bitcoin eventually filling this gap as it rises. While Bitcoin spot trading is available 24/7, the CME is closed from the close of trading on Friday until Monday. As a result, Bitcoin futures listed on CME will only reflect weekend price fluctuations on Monday. The gap between the closing price on Friday and the opening price on Monday is known as the CME gap. The CME gap that occurred on the 15th was filled this Sunday as Bitcoin’s price plummeted.

6. Major economic events

Major economic events last week

Last week, the most notable economic indicators were unemployment claims and the unemployment rate. The unemployment rate was reported at 4.3%, significantly exceeding the forecast of 4.1%. This figure aligns with Sham’s Law, which has accurately predicted past recessions. Concerns about a recession led to a global selloff, causing a plunge in asset markets worldwide. Some analysts liken the combined declines of last Friday and Monday to the early days of the COVID-19 pandemic.

Major Economic Events for the 5th week of July 2024 (Investing.com)

This week’s major economic events

This week, employment-related indicators, particularly the number of new unemployment claims, will be crucial. If these claims significantly exceed forecasts, confirming weak employment in the U.S., the market could experience further shocks, making a U.S. recession seem inevitable. Conversely, if the indicators show a positive trend, the decline observed on Monday might be a temporary setback.

Major Economic Events for the 1st week of August 2024 (Investing.com)

Summary

Positive Indicators: US Treasury yield, Bitcoin dominance, Gold futures

Negative Indicators: Cryptocurrency spot ETF fund outflows, MVRV Z-score, aSOPR, Exchange inflows and outflows

Overall Review: Cryptocurrencies are currently showing weakness due to macroeconomic conditions, including Japan’s interest rate hike, heightened concerns about a U.S. recession, and fears surrounding Iran’s potential invasion of Israel. In such a volatile market, it may be prudent to adopt a wait-and-see approach.

However, when evaluating whether Bitcoin’s rally is over, there is still potential for correction and resurgence. The MVRV Z-score is not as overheated as it was during previous peaks, and gold prices remain steady. Historically, every bull market has experienced a 30% correction before reaching new highs. The recent decline, which saw Bitcoin drop below $51,000 — a 30% correction from its previous high — may indicate a sufficient correction range.

From a supply and demand perspective, Bitcoin resembles gold more than tech stocks. With the establishment of Bitcoin spot ETFs, there is now a channel for large-scale fund inflows, allowing for substantial capital infusions at any time. This adjustment period will largely resolve outstanding contracts, and if sufficient adjustments occur, the possibility of a Bitcoin rally reopening remains strong.