Mads Eberhardt

We are bullish on the crypto market in the near term, given the numerous positive factors on the horizon. These include increased liquidity, declining exchange balances, the historically strong month of July, dwindling Bitcoin miners’ reserves, and the imminent post-halving period, during which Bitcoin has traditionally generated exceptional returns. That being said, there are also several bearish factors to consider.

The crypto market took a hit last week after a more hawkish-than-expected FOMC meeting by the U.S. Federal Reserve. In our opinion, the market will soon return to its levels before last week’s downturn. Numerous positive factors are on the horizon, including an imminent surge in liquidity.

It is evident that U.S.-based Bitcoin ETFs have facilitated an increase in basis trading. Therefore, it is important not to view each dollar of Bitcoin ETF inflow as equivalent to one dollar of buying pressure on Bitcoin. We estimate that $5 billion to $10 billion of the assets under management by Bitcoin ETFs are attributable to basis trading.

Although it is unlikely that this week will surpass last week in terms of positive crypto developments, there is still plenty on the horizon to be optimistic about. This includes Trump’s ongoing pro-crypto statements, the launch of exchange-traded products in the U.K., and the imminent increase in liquidity.

While macroeconomic factors like improved liquidity and a favorable CPI report boost optimism, crypto-specific factors such as disappointing institutional holdings in Bitcoin ETFs, an unfavorable seasonal trend for crypto, and stagnant Tether (USDT) supply suggest bearish trends.

This weekend saw Bitcoin, Ethereum, and the broader crypto market surge, despite our bearish stance. It seems the market rose primarily due to anticipated improvements in liquidity conditions. However, our bearish arguments remain intact, and we continue to hold the same market position.

The crypto market lacks drivers to push prices higher, yet many factors loom that could lead to declines. Short-term narratives are unconvincing, and the buying pressure prior to the Bitcoin halving – motivated by expectations of rising prices – has faded, resulting in bitcoins returning to the spot markets.

We anticipate the market will soon acknowledge the decreasing tensions between Israel and Iran, coupled with an improvement in US liquidity as tax season wraps up. There are now more compelling reasons to be bullish rather than bearish, despite the recent negative turn in the crypto futures market.

Recent weeks have seen a notable absence of volatility in the crypto market. However, current indicators suggest that we are on the cusp of a change. We anticipate increased volatility in the coming weeks, predominantly characterized by an overall upward trend.

Suddenly, the tipping point was reached. Late last week, the crypto market underwent a correction, eliminating excessive leverage and optimism. We see this as akin to typical corrections seen in any bull market, rather than the beginning of a new downward trend.