Bitfinex Alpha | Bitcoin Bulls and Bears Fight It Out as Economic Outlook Looks Complex

The economy remains resilient, which means rates will continue to rise

In an intriguing turn of events, the US manufacturing sector is charting a rebound, reporting surging orders driven by strong demand for transportation equipment. Great news for the economy! But is it? The longer-term trend still seems soft, and this looks like a re-stocking exercise following the manufacturing demand slump last year. As rate rise expectations increase, the more defined trend is for consumers to redirect more of their spending towards services as identified in previous editions of Bitfinex Alpha.

In contrast, what seems more resilient is the housing market, where there continues to be strong demand with a significant rise in newly built home sales, driven by inventory shortages in the resale market and despite high mortgage rates. This encouraging rally was underscored by a robust 12.2 percent rise in sales in May, exceeding forecasts and marking the largest jump since February 2022. But we should wonder what the Fed thinks about all this. They want to curb inflation, and that will surely mean seeking to curb the drivers of housing demand.

US trade dynamics also look positive.  May saw a welcome shrinkage in the US trade deficit as imports receded. However, the deficit remains 10 percent higher than the first quarter, threatening to curb Q2’s economic growth. That said, this setback could be offset by increased inventory investment, portraying a complex economic landscape where the factors of trade and inventory investment are delicately balanced.

The consumer sector, a crucial economic pulse, is also looking buoyant, with the Conference Board reporting that consumer confidence has surged to a 17-month high. Outperforming forecasts, the 7.2-point jump in June points towards easing concerns over recession and inflation and demonstrates a resilient economic environment.

However, the Fed’s preferred Personal Consumption Expenditure index print for May showed only a small decline to 4.6 percent, excluding food and energy, compared to 4.7 percent in April. And in the job market, as we have been accustomed to seeing, stickiness continues, with jobless claims unexpectedly dropping to a four-week low. 

Crypto markets are in a tussle

In crypto markets, the price of BTC continues to hover around the key $30,000 range, and the latest on-chain metrics and investor behaviour suggest we may be at the genesis of a new bull run. The nuance is in the data – Bitcoin’s Spent Output Profit Ratio (SOPR) and Net Unrealised Profit and Loss (NUPL) indicators have edged into the green, hinting that, on average, all BTC exchanging hands is being done so at a profit since its initial breach of $29,500. 

However, the devil, as always, is in the detail. On-chain data from CryptoQuant reveals a significant spike in miners sending BTC to exchanges, an activity often seen in two scenarios: either during bear market capitulation or during the nascent stages of a bull market. This move seems to be aimed more at derivative trading activities, however, building positions using Bitcoin as collateral rather than direct selling on the spot markets, thereby muting any immediate bearish pressure on prices.

Meanwhile, Bitcoin’s Spent Output Profit Ratio (SOPR) has remained above one for a fortnight, indicating that market participants, keen on future price appreciation, do not have to sell at a loss and are confident in their spot positions to either realise partial profits now or hold for higher. This is providing a critical supportive base for the BTC price as we await further bullish signals.

Investor cohort behaviour, as reflected in the Long-Term-Holder vs Short-Term-Holder SOPR ratio, is showing signs of increased profit-taking by the former group. However, with exchange netflows remaining moderate, this selling likely represents a partial profit realisation, rather than a sweeping bearish turn.

The tug-of-war between bullish and bearish sentiment is evident in Bitcoin’s order flow data as well. High positive deltas at the $29,500 and $31,000 levels indicate robust buying interest, absorbed largely by limit sell orders. This balance between market buys and sells has created a critical zone that could dictate Bitcoin’s trajectory in the coming weeks. In conclusion, whilst we’re seeing a complex blend of investor and miner behaviour, the overall tone seems cautiously optimistic. 

Crypto news flow is positive

Against this market backdrop, the news agenda is largely positive. HSBC Hong Kong has become the city’s first bank to offer Bitcoin and Ether ETF trading.

Tether is partnering with the Georgian government to foster blockchain technology growth in the country. And Bitfinex has launched a peer-to-peer trading platform in Latin America, focusing on Venezuela, Argentina, and Colombia. Business intelligence firm MicroStrategy also continues to bolster its Bitcoin holdings, recently purchasing an additional 12,333 BTC. In the UK, the Law Commission recommends acknowledging and protecting digital assets, highlighting the nation’s progressive stance towards cryptocurrencies. 

In contrast, Lightspark CEO David Marcus, along with Ethereum’s co-founder Vitalik Buterin, has voiced concerns over the United States’ stance towards digital asset adoption and raising concerns over the competitive edge other countries are gaining in this rapidly growing sector.

With an economic outlook that remains complex, a Bitcoin market that hints at more growth and a positive news agenda, it all makes for another interesting week of trading ahead.

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