LTP Research: Risk aversion heats up in cryptocurrency market, Bitcoin bullish sentiment is insufficient

1. Directory

May Summary

Market Commentary

• macro review

-Bitcoin CME Futures CFTC Commercial Institutions Holdings

• Bitcoin price model

-CEX May spot and derivatives trading volume

• Hourly trading volume of Bitcoin perpetual futures in May

-Bitcoin Perpetual Futures and Ethereum Perpetual Futures CVD, Bid/Sell Ratio and Delta

-Litcoin Halved

-Layer 1 and Layer 2 Popular Tokens

-GameFi/Metaverse and DeFi Performance

Key News Summary

Forecast of key market fluctuations in June

appendix

2. Summary for May 2023

2.1 Macro market

In May 2023, the US debt ceiling crisis and ongoing quantitative tightening further fueled risk aversion in cryptocurrencies.

The US Congress is expected to raise the debt ceiling in early June. As a result, the US Treasury will be able to issue bonds to fund the depleted Treasury Account (TGA). This will drain market liquidity, thereby weakening risk appetite for cryptocurrencies.

Ahead of the mid-June FOMC meeting, CME fed funds futures reflected market expectations favoring a pause in rate hikes, despite claims from Fed officials that inflation remains too high.

2.2 Digital asset market

As of May 31, bitcoin was trading above its 200-week moving average and short-term cost to holders, but several on-chain and exchange indicators point to a lack of bullish sentiment for bitcoin and ether.

Despite the overall market decline, LTC, CFX, TRX and XRP gained considerable volume and outperformed BTC (see Chapter 2.10).

We expect higher volatility in June as the mid-June FOMC meeting looms.

3. Macro Comments

quantitative tightening

The Fed is in the process of quantitative tightening. It can be seen that its balance sheet continues to decline every month (see Appendix Figure A), and the market risk appetite has weakened. As systemic risk in the US banking sector eases, the $400 billion increase in balance sheets achieved in March has been wiped out in April and May. We expect risk appetite for cryptocurrencies to continue to weaken as the Federal Reserve and the European Central Bank continue to tighten their balance sheets in the second half of 2023.

U.S. Treasury Debt Ceiling Final Agreement

President Biden and House Speaker McCarthy reached a final agreement on raising the national debt ceiling on May 28, 2023. The US Congress is expected to raise the debt ceiling in early June. After the debt ceiling is raised, the US Treasury will issue bonds to fund depleted Treasury accounts. Since the Fed is implementing a quantitative tightening program, bonds will be absorbed by the market, so the market will favor low-risk assets, and the risk appetite for cryptocurrencies will weaken.

Inflation and Interest Rates

The U.S. unemployment rate hit a record low of 3.4% in April, pointing to a strengthening labor market. April CPI and CPI (MOM) was 0.4%. While inflation has been falling, the latest MOM does not see a decline in deflation. Despite Fed officials' claims that this level of inflation is still unacceptable, CME federal funds rate futures reflect the market's preference for no rate hike, as shown in Exhibit B of the Appendix.

4. Digital asset market review

4.1 Positions of Bitcoin, Gold, US Dollar Index (Inverted) and Bitcoin CME Futures CFTC Commercial Institutions

Source: LTP Research, 2023. Data obtained from Glassnode, CBOT, and CFTC as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In May, Bitcoin had a strong negative correlation with the U.S. dollar index, or a positive correlation with the inverted U.S. dollar index. Bitcoin’s price action is similar to that of gold.

Additionally, most commercial institutions trading Bitcoin futures on CME have short positions, with a long-short ratio of 0.29.

Therefore, the investment sentiment of commercial institutions towards Bitcoin was risk-off in May. If Bitcoin will continue its upward trend, we may see commercial institutions reduce their short positions and build long positions as a risk-positive signal.

4.2 Bitcoin Price Model, Stablecoin Circulation Supply and Stablecoin Supply Ratio Oscillator

Source: LTP Research, 2023. Data fetched from Glassnode as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

As of May 31, Bitcoin was trading above its long-term and short-term holder costs, realized price, and 200-week moving average.

However, since March 2022, the total circulating supply of stablecoins has continued to decline, indicating a lack of foreign capital entering the market.

In addition, the TVL of DeFi has been on a downward trend, showing weak performance.

The stablecoin supply ratio oscillator has declined after hitting overbought territory in March, indicating a slowdown in the purchasing power of stablecoins against BTC.

If Bitcoin falls below the support of its 200-week MA and short-term holder costs, the price may retest the realized price region.

4.3 Spot and derivatives trading volume in May 2023

Source: LTP Research, 2023. Data obtained from Tokeninsight as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In May, the overall spot and derivatives trading volumes of major cryptocurrency trading platforms decreased compared with April.

Binance has the largest spot and derivatives trading volume, followed by OKX and Bybit.

4.4 Hourly Trading Flow of Bitcoin Perpetual Futures (Binance) in May

Source: LTP Research, 2023. Data fetched from Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In May, the busiest trading hours for Binance Bitcoin perpetual futures occurred during the overlap between London and New York trading sessions. The peak trading traffic time is 14:00-15:00 (UTC), and the total trading volume of Binance Bitcoin Perpetual Futures reached 1,135,662.5 BTC, with a total of 9,441,597 transactions. During the Asian session, the period with the highest trading flow occurs between 00:00-02:00 (UTC).

4.5 Bitcoin Futures Open Interest and Funding Rate

Source: LTP Research, 2023. Data fetched from Glassnode & Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

After the liquidation on April 26, the total open interest in Bitcoin futures began to rise again.

Positive funding rates and rising total open interest suggest that overall investment sentiment is bullish.

4.6 Bitcoin Volatility Index and long-short liquidation

Source: LTP Research, 2023. Data fetched from Glassnode & Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

Options 1-week and 1-month volatility are at low levels as Bitcoin consolidated in May.

The options open interest put/call ratio has surged as Bitcoin failed to breach the $28,000 mark. This suggests traders are buying more put options to hedge against a potential price drop.

In May, two major forced liquidation events occurred in the Bitcoin market. The first occurred on May 12, when Bitcoin broke through the support position of retail investors and liquidated long positions of more than 50 million US dollars; the second occurred on May 12. On March 29, Bitcoin broke through the $28,000 mark and liquidated short positions worth more than $25 million.

4.7 Binance Bitcoin Perpetual Futures CVD and Bid/Sell Ratio

Source: LTP Research, 2023. Data fetched from Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In May, the CVD of Binance Bitcoin perpetual futures was in a downtrend, indicating that sellers dominated the trading volume.

Bid-ask ratio and Delta further confirm that sellers dominate the downtrend.

4.8 Binance Ethereum Perpetual Futures CVD, Bid/Sell Ratio and Delta

Source: LTP Research, 2023. Data fetched from Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In May, the CVD of Binance Ether perpetual futures was in a downtrend, indicating that sellers dominated the trading volume.

The Bid-Bell Ratio and the Delta indicator further confirm that sellers dominate the downtrend.

4.9 July 4.9 LTC Halving

Source: LTP Research, 2023. Data fetched from Glassnode & Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

LTC will be halved in July, and the recent trend has strengthened. In addition, the number of active addresses on the LTC chain has increased significantly.

4.10 Performance of Layer 1 and Layer 2

Source: LTP Research, 2023. Data fetched from Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In L1, TRX, LTC, XRP and ETH outperformed BTC in May. LTC’s strength is attributed to its upcoming halving event in July. The lawsuit between XRP and the SEC that started in 2020 may finally come to a conclusion in early June, so the recent volatility is relatively large. CFX and TRX have performed strongly recently as the Hong Kong government embraced open digital asset trading.

In May, CFX, TRX, OP, and LTC saw the largest increases in trading volume. We have discussed CFX, TRX and LTC, but the reason for the increase in OP volume is because there was a massive unlock on May 31st, so traders sold early.

4.11 GameFi/Metaverse and DeFi Performance

Source: LTP Research, 2023. Data fetched from Binance as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

In May, GameFi/Metaverse and DeFi underperformed L1s.

It’s worth noting that there could be another round of hype around the GameFi/Metaverse concept cryptocurrency, as Apple will unveil a new VR headset at WWDC in June.

5. News Highlights

Tether said it would use realized profits to buy bitcoin as a stablecoin reserve.

7 Doomsday Scenarios If the US Breaks the Debt Ceiling.

Celsius released hundreds of millions of dollars worth of ETH.

Ledger crypto wallet security issues.

Apple VR/AR Mixed Reality Headset.

Binance Introduces Binance Portfolio Margin Mode Portfolio Margin is an advanced trading mode offered by Binance, designed for experienced traders looking for added leverage and flexibility in a variety of trading products. It uses a unique approach to margin calculation and risk management to provide a more comprehensive assessment of a trader's overall risk.

ETH Foundation transfers 15,000ETH to Kraken on May 6, triggering sell-off

Transaction hash：0x940d58c99c8175afbf5aa4483bce8ed750b56ea7cd831ffc8e77ec014a3d7b3b

The lawsuit between Ripple and the SEC that began in 2020 may finally come to an end in the coming days.

What happened on May 30th? Large-scale $OP will be unlocked on May 31, and a major upgrade will take place on June 6.

6. Forecast of key market fluctuations in June

June Economic Events

7. Appendix

Source: LTP 2023. Data obtained from ST. LOUIS FED as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

It is worth noting that the Federal Reserve and the European Central Bank are currently implementing quantitative tightening programs, showing that their balance sheets continue to decline.

Source: FiscalData.Treasury.Gov as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

Source: Data obtained from CBOT and CFTC as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

Notably, the fed funds future is converging with the effective fed funds rate, suggesting that most traders no longer expect further rate hikes.

Source: Hyblock Capital, as of June 1, 2023. It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any particular security or digital asset.

LTP Research Review:

A large number of long positions will be liquidated in the $22,000 to $25,000 range.