The charts and themes from the past week that tell an interesting story in crypto and investing

1. ETFs are coming

“Bitcoin spot ETFs are coming” has been a running meme in the Bitcoin space for the last 3 years. Back in June 2022, Grayscale filed a suit against the SEC after the rejection to convert their trust fund into a spot ETF. Bitcoin ETFs currently exist, but they are futures-based, rather than spot. The major difference between both is in the dynamics — a spot ETF invests in the underlying asset directly, while a futures ETF invests in futures contracts on the underlying asset. A spot ETF buys and holds Bitcoin on the spot market, whereas a futures ETF buys and holds futures contracts on Bitcoin.

Grayscale had their day in court, back in March. That was perceived to be positive based on sentiment by crypto communities, as Grayscale would finally be able to convert their trust to a spot ETF. We came so close to victory last week, as the SEC was supposed to give a ruling on August 18th — but they failed to. The new date is yet to be known, but it’ll probably be in the coming weeks.

After the hearing back in March GBTC traded from a -45% discount to NAV up to -15% to NAV. The trade was simple, buy GBTC shares at a discount and redeem Bitcoin when it converts to a spot ETF. Bitcoin traded at $20,000 back in March, a -45% discount to the NAV of GBTC shares implied a price of $11,000. So you had the choice to either buy BTC on the spot market for $20,000, or buy Bitcoin for $11,000 via GBTC, banking on the fact that they’d be able to convert their trust to a Bitcoin spot ETF, and you’d be able to redeem your GBTC shares for Bitcoin. That’s a more sophisticated but profitable trade than buying Bitcoin on the spot market.

The NAV traded up to -22% but has since receded to -25%, due to the failure of the SEC ruling on August 18th. And the uncertainty as to when the trust would be converted to an ETF.

2. Bullish halvings

This is the beauty of Bitcoin — it’s programmed, untampered monetary policy. The Bitcoin halving event is a beautiful example of how Bitcoin is designed to become more scarce over time. By cutting the block reward in half, the Bitcoin network ensures that there will only ever be 21 million Bitcoins mined. This makes Bitcoin a deflationary asset, which means that its value is expected to increase over time.

Every 210,000 blocks — roughly 4 years, the rewards miners get from mining a block is cut in half. The first halving took place in November 2012, when the amount of BTC mined per block was cut from 50 BTC to 25 BTC. The second halving was in July 2016 (from 25 BTC to 12.5 BTC). The third halving was in May 2020 (From 12.5 BTC to 6.25 BTC). The next halving is expected to occur at a block height of 840,000 sometime around April 2024.

Zooming out, we can see the halving event on a log scale up until 2140, when the last Bitcoin will be mined. So far, ~19.5M BTC has been mined, with the remaining 1.5M BTC left to be mined over the next 120 years. That’s if the Bitcoin network survives up until then.

If you are a Bitcoiner, you can already tell where I’m going with this. If halving can be priced in or not. Generally, in the traditional markets, an event can be said to be priced in, if it’s known beforehand. For instance, if Coinbase beat earnings in Q2. While there might be insiders who know beforehand if Coinbase beat earnings or not, the general public doesn’t know until their earnings call. If they beat their earnings estimates, it’s bullish Coinbase and everyone buys $COIN. This dynamic occurs in markets because the information isn’t known until it is known.

But with Bitcoin halving, it is different. Despite everyone knowing that it must happen and perhaps buying $BTC in anticipation of that. It still doesn’t mean it’s priced in because supply has yet to be shrunk.

The supply is shrunk with each halving. If demand remains constant or increases, with less supply coming into circulation, the price should go up in response to that. So it doesn’t mean much if people are long $BTC before the halving, the real magic happens post-halving — when supply is shrunk. That’s why I think the halving can’t be priced in.

The next oft-debated topic is how bullish the halving effect is. What’s not up for debate is the diminishing event Bitcoin price has experienced every cycle. This dynamic has also played into the halvings. Price rallied 92x post the first halving, 30x post the second halving, and 7.7x post the third halving. Going by that you can expect the price to go up less post the fourth halving, probably 3.5x ish. These are just my expectations, but the team at Blockware Intelligence thinks otherwise. In their recent 2024 Halving Analysis report, they expect the price to rally 12x post-halving. Assuming a price of $35,000, that’s a BTC price of $400,000 at the peak, and it takes 500 days to achieve this feat. I advise you to read the report to see how they came up with those numbers.

3. A couple more liquidations

“Bitcoin is a stablecoin” was a meme that was beginning to catch on, as price traded sideways for months, alongside volatility contracting, reaching levels not seen in the last 3 years. Well, that meme was put to rest as we saw volatility come back into the market. Bitcoin had a flash crash to $24k but has since recovered to be trading at $26k.

Below, is Bitcoin’s realized volatility, annualized monthly. Before the flash crash, BTC vol was at lows not seen since September of 2020 — in hindsight, this was the beginning of the bull run. I’m not saying that similar dynamics happen here, but it’s something to keep an eye on.

While volatility seems to have come back into the market, from what we saw last week. Volatility is contracting over a long enough time frame. Bitcoin as an asset is becoming less volatile by every epoch.

Back to the present. The high volatility movement we saw last week, resulted in a wipeout in OI. Fun fact, We saw more Open Interest wiped out last week, than we saw either during the FTX collapse, 3AC bankruptcy, or Terra Luna crash. It’s hard to believe because we saw “devil candles” during those periods. The last time we saw a similar amount of OI wiped out was back in December 2021.

What other, “this hasn’t happened in a long while” did we see as a result of the uptick in volatility? Price traded below the 200-day and 200-week moving average simultaneously, for the first time since January. It’s easy to think that we go lower from here, but I’d advise you to hold your horses.

Price also traded below the STH RP. This isn’t out of the ordinary as we saw this back in March, only for the STH RP to be reclaimed days later. What we need to see, to prove this was a fake-out to the downside, is for the price to reclaim the STH RP, currently at $28k. Otherwise, we might be in for lower prices.

4. On the flip side

Despite the largest wipeout we have seen in OI YTD, the amount of losses realized is nothing to sneeze about. This shows that most of the OI were in deep profits. We had more wipeout in OI than we did during the FTX collapse, yet we had more losses realized then than now. This shows a healthy market overall.

The funding rate has also flipped negative. As you know, negative funding rates are the author of bull markets.

If you are not here for the money, but here for the tech, you will like the fact that difficulty keeps hitting new all-time highs. Indicating how secure and robust the Bitcoin network is.

If you are here for the money, but not here for short-term price action, you will love to see over 70% of coins haven’t moved in the last 2 years.

And that’s it for this week.

Have a great week everyone!

-Pascal

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Pascal Abams is a Content Fellow