Cautious Bullishness in Bitcoin & Crypto Amid Warnings of Further Downsides

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The crypto market saw modestly higher prices on Monday, despite warnings from analysts and institutional investors that the market could fall further as contagion from recent insolvencies continues to spread.

As of Monday at 16:17 UTC, bitcoin (BTC) traded at USD 19,819, up 4% for the past 24 hours but down 7% for the past 7 days. Meanwhile, ethereum (ETH) stood at USD 1,115, up almost 6% for the day and down 9% for the week.

The uptick in crypto prices came while the crypto research and investment firm CoinShares reported an increase in capital flows to the new short bitcoin exchange-traded fund (ETF) known as BITI.

In total, short bitcoin funds saw inflows of USD 51.4m last week, indicating increasing bearishness towards the number one cryptoasset among investors who prefer these more traditional investment vehicles.

The short bitcoin inflows made up the vast majority of total crypto fund inflows for the week, with only USD 4.9m flowing into ETH-backed funds and USD 4.4m flowing into crypto multi-asset funds.

Compared to the week before, last week’s inflows mark an improvement from the record USD 423m outflows – even though most of last week’s inflows went into the new short bitcoin ETF.

MTD – month-to-date; YTD – year-to-date; AUM – assets under management. Source: CoinShares

‘Convinced’ of more downside

Commenting on the state of the crypto market on Sunday, the Singapore-based crypto trading firm QCP Capital said its “positive outlook is waning,” while adding that they are “convinced” that any near-term upside will be capped.

According to the firm, the main reason for this bearish outlook is earlier comments from US Federal Reserve (Fed) Governor John Williams about the need to “get real rates above zero,” and the fact that quantitative tightening (QT) started in the US on June 15 and is set to be ramped up further going forward.

In addition, the trading firm also said about the credit crisis among firms in the crypto space “is not over,” warning that “there might still be some liquidations on the horizon.”

Worth noting is that the comment pointed to by QCP Capital about real rates might mean something different in reality. 

“Even if there is some tightening of financing conditions and nominal interest rates, real interest rates will go from very very deeply negative, to nothing or next to nothing,” Dutch central bank President Klaas Knot, said during a discussion at the World Economic Forum in May this year.

Bullish 4th of July

Meanwhile, the on-chain analysis firm Santiment said that today – the 4th of July holiday in the US – has so far been marked by “a massive uptick in longs on exchanges.”

Still, the analysts warned that overly eager bulls are often a contrarian signal, and said liquidations of leveraged long positions could follow.

Also bullish was Martin Hiesboeck, Head of Blockchain and Crypto Research at payments provider Uphold, who said in an emailed commentary on Monday that BTC “may well be nearing a bottom.”

“It wobbled aimlessly and on little volume around the [USD 19,000] mark this week, and while some indicators point to a level around [USD 12,000 – USD 15,000] as the approaching end of the bear phase, a quick capitulation may be followed by either prolonged, or a spectacular rebound,” Hiesboeck said.

An extended bear market

Commenting last week, Tom Loverro, a general partner at venture capital firm IVP and former Board Observer for Coinbase, said he expects an extended bear market for crypto.

“2023 will be mostly flat to down, until indifference sets in, signaling a long-awaited spring thaw,” he said, adding that he expects macro conditions to improve in the second half of 2023.

“The bottom will come not during this current fear & loathing phase but later, after indifference sets in, crypto is no longer making headlines, and the tourists have left. That process will take many months,” he said.

Also offering a rather pessimistic outlook, Cathie Wood’s investment firm Ark Invest said in a monthly bitcoin-focused report from Friday that contagion from the trouble at firms like Celsius (CEL) and Three Arrows Capital has sent bitcoin into “capitulation.”

But although the coin has already entered the capitulation phase, further downside could still be ahead, the firm warned, citing high levels of unrealized losses and uncertain macro conditions as risks for the price.

On the positive side, Ark’s report said that bitcoin is now trading below various measures of its on-chain cost basis for the first time in two years.

“Trading below these levels is atypical and suggests extremely oversold conditions. Only four times in history has bitcoin traded below price levels relative to these means,” the report said.

Source: Ark Invest

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