Ethereum ETF Approval Nears – Bitcoin Risks Loom

👇1-12) All six applicants for spot Ethereum ETFs have filed updated S-1 forms, signaling that SEC approval may be imminent. This development comes in a week when crypto prices could rebound, driven by expectations of a weaker US CPI report on Thursday. In our Saturday report, 'Bitcoin: Preparing for Next Week,’ we detailed this anticipated rebound.

 Bitcoin has hit some support near $55,000

👇2-12) Oversold indicators suggest a short-term reversal in anticipation of a possible mini-rally. Currently, two out of three reversal indicators have turned bullish, and with an RSI reading of 38%, even short sellers may need to hold off until a potential failure at the $60,000-$62,000 level could push prices lower.

Bitcoin appears to be forming a short-term base

👇3-12) The $55,000-$56,000 range is forming a base from a technical analysis perspective. However, given the medium-term technical damage, we anticipate no more than a short-term tactical bullish countertrend rally. Notably, the pattern of Bitcoin declining during Asian trading hours but performing better during European and US hours has persisted.

👇4-12) Despite a 20% decline over 30 days, Bitcoin futures traders have remained relatively long since the SEC requested exchanges to revise the 19b-4 applications on May 20. Bitcoin's open interest increased from 260,000 BTC to 305,000 BTC and currently stands at 277,000 BTC, even as Bitcoin's price dropped from $66,000 on May 20 to $57,000 now. Similarly, Ethereum's position grew from 2.6 million to 3.1 million despite ETH trading at nearly the same $3,068 level.

Futures positions in terms of coins (Bitcoins RHS vs. Ethereum LHS)

👇5-12) Since May 24, the Grayscale Ethereum Trust has nearly closed its net asset value (NAV) discount to just -1.5%, driven by trader expectations of imminent ETF approval. This significantly improved from the extreme -60% discount observed in December 2022. With $9 billion in assets under management, converting this ETN into an ETF would allow investors to redeem their shares freely.

👇6-12) However, this could pose a significant overhang in terms of ETH selling pressure once the ETH ETF starts trading, similar to the impact seen from Grayscale’s Bitcoin Trust (GBTC) in January 2024. GBTC AUM declined by 47%. The potential selling from Grayscale ETH could offset any inflows into ETFs from the other five issuers.

👇7-12) Therefore, a "sell-the-news" event could still occur upon Ethereum ETF approval, despite ETH prices trading at similar levels as when the SEC signaled their approval. Futures open interest remains heavily long in terms of ETH, and potential Grayscale ETH selling could impact the market again.

👇8-12) However, a similar pattern is emerging with Bitcoin, where spot ETF buying is ahead of the CPI data release. This week, we saw $295 million in ETF inflows on Monday, building upon $143 million from Friday. This contrasts with the $4 billion and 20 consecutive days of inflows observed between the May and June CPI data releases. However, there were $1.2 billion outflows following the June CPI print.

👇9-12) The upcoming July 11 CPI data release is expected to decline to 3.1%, matching our expectations and indicating that the market anticipates this improvement. A month-on-month drop in Core CPI to below 0.2% could still impact Bitcoin. However, selling pressure persists from the German state of Saxony, which still has 25,000 BTC to sell. Additionally, Mt. Gox selling pressure could materialize when Bitgo, likely managing claims for several large funds, begins payouts by July 24.

👇10-12) The market is gradually shifting to the potential $16 billion in FTX creditor payouts. Many claims have been purchased by institutions betting on a higher recovery rate, and, likely, these institutions will NOT convert the US dollars they receive into crypto. However, between $3.2 billion and $5 billion could still return to crypto assets. FTX creditors were liquidated at a Bitcoin price of $16,800 in November 2022 and now face the opportunity to buy at $57,000, which hardly seems like an enticing 'discount' for diving back into crypto.

👇11-12) The deadline for FTX customers to vote on the bankruptcy wind-down payments is August 16. The hearing on October 7 will be held, and Judge Dorsey will consider approving the plan. International holders may face up to a 30% tax withholding.

👇12-12) Therefore, we anticipate Bitcoin could rally back to nearly $60,000 before experiencing another decline to the low $50,000 range, creating a complex trading environment. By that time, we expect the market will have mentally digested the selling pressure from Saxony and Mt. Gox. This would pave the way for more bullish narratives to resurface, such as the FTX creditor payout expectations in mid-August and the potential impact of the upcoming US election on Bitcoin.