The information, opinions and judgments of the markets, projects, currencies and other information mentioned in this report are for reference only and do not constitute any investment advice.

The encryption asset market after March 2024 seems to be passively reduced to a second-rate performance with the theme of 'waiting'. All actors, creators, and producers seem to have forgotten the plot, plot twists, and original themes, just waiting for some 'audience' to get on board, and whether there will be a hurricane tonight.

From mid-March to the end of August, over a period of more than 5 months, the price of BTC has been fluctuating in the 'new high consolidation zone'. During this period, the global market has experienced inflation fluctuations and downturns, ambiguous and clear expectations of a US interest rate cut, speculation on whether there will be a soft or hard landing for the economy, as well as intense market volatility caused by different investors adjusting their positions due to trend changes.

Against this backdrop, some BTC investors in the crypto market first dumped large amounts of positions to lock in profits and drain liquidity, during which speculation shorts, panicked selling, and changes in market sentiment caused adjustments in positions between Altcoins and BTC.

This is the essence of the market movement we have observed during this period.

After 5 and a half months of turbulence, the crypto market entered a downturn. Spot liquidity greatly reduced, leverage was cleared, the rebound was weak, and the rebound price gradually declined, leaving investors in a slump, with a pessimistic and negative mood shrouding the crypto market.

This is the result of market movement and also the internal resistance of the next stage. But in our view, the greater resistance lies outside the market—the uncertainty of macro finance, the hidden concerns of a hard landing in the US economy, and the unclear trend of the US equity market.

The encryption market has entered the final stage of clearance internally, and the distribution of Market Cap and long and short positions has entered a state of preparation for upward movement. However, the on-site funds are relatively weak and do not have the confidence and ability to make independent decisions.

URPD: 2.91 million+ chips poured into the "new high consolidation zone"

In the past 8 months, the market has been continuously fluctuating. When we look at on-chain, we can face the orderly results of the chaotic movements.

Bit Network URPD (3.13)

The URPD indicator is used to describe the statistical analysis of the price of all unspent BTC, which can effectively insight into the final result of chip distribution. The above figure shows the BTC distribution structure when Bitcoin hit a historic high on March 13th. At that time, 3.086 million chips were accumulated in the "new high consolidation zone" (53,000 to 74,000 US dollars). As of the closing price on August 31st, the chips distributed in this range reached 6.002 million, which means that at least 2.916+ million BTC have been bet in this range in the past 5 months.

BTC URPD (8.31)

In terms of time, BTC started the bullish trend in mid-October last year and reached its historical high on March 13, taking more than 5 months to rise. Now, it has been in the "new high consolidation zone" or "Sideways" for more than 5 months, with the highest price of $72,777 and the lowest price of $49,050, experiencing more than 7 swing trading. This oscillation has resulted in the exchange of more than 2.916 million chips (the actual data is much higher, as the exchange data of centralized exchanges has not been fully reflected on-chain), which has greatly consumed the market's liquidity.

BTC achieves market capitalization

Through the 'Realized Market Cap' compiled based on the cost of procurement, we can observe that after the market entered a new high consolidation zone in March, although the price failed to further break through, the realized Market Cap is still rising, which means that large-scale low-cost chips have been repriced during this period. BTC, which has been repriced upwards, can be converted into support or form pressure under specific conditions.

So we maintain a neutral attitude towards the distribution of URPD. There are indeed enough chips of sufficient scale to achieve the exchange, and there is enough capital to see a good price in this pricing. However, the nature of this capital is unknown, and whether it will provide support or pressure to the market in the future still needs to be observed.

Long and Short: Big Dumping and Re-cooling

We consider the market cycle as a large turnover in the time dimension between long-term investors and short-term investors, during which they exchange between BTC and USD.

Long and Short Position Statistics (Weekly)

BTC started its uptrend in mid-October, followed by a large-scale sell-off since December. The sell-off reached its peak in February and March, leading to a market correction after reaching new highs during this period, gradually forming a "consolidation zone at new highs."

Starting from May, the significant reduction in long positions' selling has led to a resurgence in buying. Over the past seven to eight months, the pace of buying has noticeably accelerated, with this group acquiring 630,000 BTC from the lowest point to August 31. The selling mainly comes from short positions and Miner's dumping.

In our June report, we pointed out that there would be two major dumpings in each round of the Bull Market, and the second one would completely drain the market capital and destroy the Bull Market. What has happened in the past few months is only the first wave of dumping. This wave of dumping has lasted for more than 5 months and is nearing its end, as can be clearly seen from the on-chain distribution results.

BTC HODL Waves

HODL Waves shows that the new coins in March have decreased rapidly, which means that speculative activity has dropped significantly, and the sub-new coins in March ~ June are also accelerating their downward trend (which is also an important component of the chips in the new high consolidation area). Most of these BTC holders entered the market after the ETF was approved, which should be a "single-cycle long lot". This means that most of their BTC holdings will be transformed into long-hand Holdings, as evidenced by the 470,000-strong surge in Long-Hands Holdings in August. In the foreseeable coming months, Long-Hands Holdings will continue to rise rapidly.

The cooling of the BTC Holdings structure is the result of BTC returning from short to long positions during the "new high adjustment period". This transformation will significantly reduce market liquidity. The decline of liquidity often drives the BTC price further down when funds are scarce, and pushes the price up when funds are abundant.

So, we can conclude that after more than 5 months of volatility, the market is ready for the main direction of PA to be determined mainly by the direction of fund flow (rather than internal chip conversion).

Capital Flow: Turned-off ETF Channel Funds

In the November 2023 report, we stated that the flow of funds in the mid-October Stable Coin channel was positive, marking the first time since February 2022 and representing a new stage. After that, BTC started a big pump.

Main Stablecoins Inflow and Outflow Statistics (Monthly)

During the more than 5-month adjustment period, May and June were the moments when market funds were the most scarce, with only $1.201 billion flowing in those two months. This pessimistic situation is being reversed, with inflows reaching $2.696 billion and $5.09 billion in July and August, respectively. The inflow of these funds indicates their recognition of the price range of the new high consolidation and their bullish view on the medium- and long-term of the second half of the Bull Market.

In January of this year, after 11 BTC ETFs were approved in the United States, the funds from this channel began to become an important independent force. In previous reports, we have repeatedly pointed out that the funds in this channel have independent will, and because of their size and action, they will become an important force in pricing BTC. In the panic selling caused by the German government dumping in July, the BTC ETF channel funds took decisive action and picked up rich and cheap chips.

However, as the confirmation of the US interest rate hike in August became more certain, the unexpected interest rate hike of the Japanese yen caused aggressive Arbitrage traders to Close Positions, triggering a severe shake-up in the global stock market, affecting the BTC ETF, which is considered a high-risk asset. The continuous dumping from ETF holders at the beginning of the month caused BTC to plummet to $49,000, hitting a new low for several months and breaking through the lower boundary of the 'new high consolidation zone.' Subsequently, the ETF channel funds gradually flowed back (stablecoin catch the bottom funds also poured in later), pulling the BTC price back to $64,000. By the end of the month, as the ETF channel funds flowed out again, the BTC price once again pullbacked below $60,000.

August 11 BTC ETF Fund Overall Fund Inflow and Outflow Statistics (Daily)

In terms of the monthly perspective, the net inflow of funds through the BTC ETF channel this month is -72.83 million USD, which is the second worst month in history, only better than April.

11 BTC ETF Fund overall capital inflow and outflow statistics (monthly)

We will merge two funds to see—

Stablecoin and a total of 11 BTC ETF channel fund inflows and outflows (monthly)

Although stablecoins have seen inflows for three consecutive months, the ETF channel saw outflows this month, resulting in only $5 billion in overall inflows in August, lower than July's $5.9 billion. EMC Labs believes that under the background of increasingly stable chip distribution, the inflow of funds is the fundamental reason why BTC can rebound to $65,000 after the big crash in August. However, the decrease in fund inflows resulted in this month's high of $65,050 being far below July's $70,000. The decrease in funds comes from the outflow of funds from the ETF channel, which decreased from $3.2 billion in July to $72.83 million this month.

The attitude of the funds in the BTC ETF channel, which is closely connected to the US stock market, has become the most crucial factor determining the market trend.

September Rate Cut: soft landing vs hard landing

Unlike the weak performance of BTC in August, although experiencing violent fluctuations, the US stock market still showed amazing resilience during the same period. The Nasdaq recorded a monthly pump of 0.65%, while the Dow Jones Industrial Average hit a historic high. During this period, there was a lot of discussion about whether to raise interest rates by 25 or 50 basis points in September, but traders' real focus was on the core issue of whether the US economy will have a soft landing or a hard landing.

According to the current trend analysis of the US stock market, EMC Labs believes that the overall tendency of the market is towards a soft landing for the US economy, so there is no overall downward pricing expectation for the US stock market under the assumption of a hard landing. Based on the assumption of a soft landing, some funds choose to withdraw from the 'seven giants' that have already experienced a significant pump earlier (most of them underperformed the Nasdaq this month), and enter other Blue-Chip Stocks with smaller gains, driving the Dow Jones index to achieve a historical high.

Based on past experience, we tend to consider BTC as a 'seven giants' type of asset in the US stock market - with great potential but currently at high risk of overvaluation, hence the massive dumping phenomenon, which roughly synchronizes with the dumping of the 'seven giants'. However, compared to mainstream funds, the attractiveness of the 'seven giants' is much greater than BTC, so after the big dump, the rebound of the 'seven giants' is stronger than BTC.

Currently, CME FedWatch shows a 69% probability of a 25 basis point rate cut in September, and a 31% probability of a 50 basis point rate cut.

EMC Labs believes that if the 25 basis point rate cut is settled on September 9th and there is no major economic and employment data indicating that the economy does not conform to the characteristics of a 'soft landing', US stocks will run steadily. If the seven giants are repaired upwards, the BTC ETF is likely to recover positive inflows, driving BTC upward and once again challenging the psychological barrier of $70,000 and even reaching new highs. If there is major economic and employment data indicating that the economy does not conform to the characteristics of a 'soft landing', US stocks are likely to correct downwards, especially the seven giants. Correspondingly, the BTC ETF channel funds are unlikely to be optimistic. In this case, BTC may decline and once again challenge the lower limit of the 'new high repair period' at $54,000.

This speculation is based on the assumption that there will be no trend change in stablecoin channel funds in September. In addition, we are cautious about stablecoins, although this channel of funds is accumulating, we tend to believe that it is difficult to push BTC out of its independent trend. The most optimistic prediction is that stablecoin and ETF channel funds will flow in synchronously under the background of the seven giants' upward revision, driving BTC upward. If so, breaking the previous high has a greater chance of success.

Conclusion

BTC broke through $54,000 in January this year, reached a new high in March, and has been in a consolidation phase in the 'new high consolidation zone' in April. It has been over 5 months so far, approaching the turning point of the trend since September last year, which means it is close to a trend reversal in terms of time.

BTC monthly trend chart

This is also the reason why stablecoin channels gradually gather and reshape buying power.

However, the real breakthrough still depends on the improvement of macro-financial and core economic data in the United States, as well as the subsequent mainstream capital re-entering the BTC ETF channel.

As the US dollar re-enters the interest rate cycle, September becomes the most important month of the year. The US stock market and the crypto market will give preliminary answers in this month.

EMC Labs (Emerging Laboratory) was founded by encryption asset investors and data scientists in April 2023. It focuses on blockchain industry research and crypto secondary market investments, with industry foresight, insights, and data mining as its core competitiveness, committed to participating in the thriving blockchain industry through research and investment, and promoting the well-being of humanity through blockchain and encryption assets.

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