Monthly Crypto Alpha Report – May 2024

May 2024

As so often, seven turned out to be an important number.

The seven-month green streak had to find an end. Who would have thought that the halving would be celebrated with a fat dump?

Ah well, maybe it’s some kind of poetic justice.

Let’s dive in. 


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A few words on the macro situation first. The second leg of inflation has arrived, and the Fed was in a pickle. Nobody wants higher rates. The Fed couldn’t do much else but keep rates where they are and hope inflation cools…

I read that the Fed has started buying back treasuries to keep the bond market liquid. It’s a sign that they will need to apply more liquidity into the system, which is good for asset prices. 

That was the macro backdrop, now let’s dive into crypto.

A month ago, we were in the potential scenario of bulls being in charge and a breakout from the wedge. But in early April, the signs were piling up that BTC was rolling over.

On April 12 the ascending triangle broke to the downside. The dump on May 1st rubbed quite a bit of salt in our wounds.

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Counting from the peak in mid-March, we have retraced 23%, which is pretty modest compared to previous bull markets, but still the largest correction of the current bull market. Especially for new investors, these can be hard to stomach.

Monthly Crypto Alpha Report - May 2024 - - 2024

Most market watchers now have their eyes on the 52k level. It’s where the 200-day exponential moving average is. A lot of traders are placing bids around those levels. But if everyone thinks these levels will be hit, they often don’t: the market tends to ignore the consensus view. Let’s wait and see.

By the way, looking at the chart around the time of the 2016 halving, it’s not very different from now.

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Back in 2016, the months before the halving were preceded by a run-up, followed by a 30% crash three weeks after the halving, not even including the wick. It took the BTC price a few months to regain the pre-halving peak. Just one scenario we could face…

It’s interesting to see how the inflows for the spot Bitcoin ETFs behaved during this pullback. Here’s a plot from Bitmex Research.

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The red bars are Grayscale Bitcoin Trust outflows, the other colors are the 9 new ETFs. You can see that May 1st was the biggest net outflow day since the launch of the ETFs and also the first day of considerable outflows for the non-Grayscale ETFs. 

It’s clear that the ETF hype has died down since mid March. In the coming days we will know just how paperhanded these ETF buyers are. Now we’ll have to wait for a new wave of buyers, potentially institutions. But they move slowly. That’s ok: we don’t want this bull market to be over in three months.

In the meantime, spot Bitcoin and Ethereum ETFs were approved in Hong Kong. As in the US, the net inflows exceeded expectations. But it’s worth keeping in mind that the Hong Kong market is an order of magnitude smaller than the US, so it can’t move the price to the same extent. Still, it’s a very nice domino to fall in the row of countries that list spot BTC ETFs.

The Halving and Runes

The first thing to note about the April 2024 halving is that it went smoothly. There had been some concern about miners potentially challenging each other, fighting over the first post-halving block and trying to reorg the chain. This didn’t happen but it might have, as it turned out to be the most lucrative block ever – traders were chasing the new Runes. Blocks were filled with them. 

Here’s a chart of the BTC rewards around the halving. After the huge spike, block rewards settled down to … roughly half what they were pre-halving. Unfortunately for the miners, it is called halving for a reason…

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Besides the fact that the halving was a non-event in the good, technical sense of the word, what struck me is that the traditional media covered it. I have a sense that this is a departure from four years ago, when the media couldn’t care less. This time around, I saw some fair and well-written pieces. A sign of maturation. 

Ok, back to the recent sell-off. Let’s talk about some good news. 

First, it appears like the recent sell-off was spot-driven. Whereas the amount of leverage in the 2021 crashes was huge, and moves to the downside did get really nasty, this is currently not the case. Perhaps explained by the fact that open interest is in a downtrend, plus leveraged traders to a lesser degree than in the past use crypto as collateral for their positions. (meaning they no longer have to sell BTC when they get liquidated, causing an even further price drop.)

Second, let’s zoom out for some healthy perspective. Here is an overlay of the current cycle with two previous cycles, aligned at the prior tops (the arrow is the current cycle).Monthly Crypto Alpha Report - May 2024 - - 2024

As you can see, despite the recent correction, we are still ahead of schedule. The current pull-back is healthy and could align us a bit more with previous cycles. We could be at the current 50-60k price levels in December 2024 and still be on schedule.

Ethereum

Let’s talk Ethereum. I get it, ETH holders haven’t been treated so well, price-wise. But looking at the big picture, this looks like a healthy chart. A bull flag in an uptrend. ETH touched its 200-day EMA, which is also healthy. We’ll have to wait if and when ETH can break out. Maybe in early summer? Just a scenario.

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Monthly Crypto Alpha Report - May 2024 - - 2024
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Monthly Crypto Alpha Report - May 2024 - - 2024
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Monthly Crypto Alpha Report - May 2024 - - 2024

Monthly Crypto Alpha Report - May 2024 - - 2024

I bet that only six months ago we would have been very pleased to get a 57k BTC that was near-oversold.

Even though it might feel crappy to see these red candles, know that the current correction is healthy. The greed needed to get flushed out and after some chop, we can resume the next leg of the bull run.


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Monthly Crypto Alpha Report - May 2024 - - 2024

TCL Publishing ltd (director Lark Davis, owner of Wealth Mastery) is not providing you individually tailored investment advice. Nor is TCL Publishing registered to provide investment advice, is not a financial adviser, and is not a broker-dealer. The material provided is for educational purposes only. TCL Publishing is not responsible for any gains or losses that result from your cryptocurrency investments. Investing in cryptocurrency involves a high degree of risk and should be considered only by persons who can afford to sustain a loss of their entire investment. Investors should consult their financial adviser before investing in cryptocurrency.

You can find a full disclosure of all my crypto & venture investments here.

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