The crypto market did not rebound in July as expected after experiencing a sluggish period in May and June. On the contrary, a series of negative news has intensified investors' concerns, leading to a fall in Bitcoin prices, which in turn affects the entire crypto market. Despite this, the combination of several favourable factors, such as large-scale repayment plans, rising expectations for interest rate cuts, and the U.S. elections, has led many observers to believe that the crypto market may begin to see a turnaround in the fourth quarter of 2024.

Major Favourable Information Factors in the Current Market

The large-scale compensation plan triggers market panic

The launch of a significant compensation plan has attracted high attention from the market. The potential selling pressure of over 280,000 coins triggered panic in the market on June 24, causing the price of a certain cryptocurrency to fall to around $60,000.

With the compensation officially starting on July 5th, the cryptocurrency has fallen below the $60,000 support level under heavy selling pressure. During this process, miners have shown signs of capitulation. Historical experience indicates that this usually means the price has hit the bottom. The last comparable hash rate decline occurred in 2022 when the cryptocurrency was trading at $17,000.

A seasoned investor believes that most market participants are not aware of the severity of the potential fall in the four-month volatility range. The closest similar situation was in May 2021 when mainstream cryptocurrencies also experienced a parabolic rise. Currently, cryptocurrency leverage is close to historical highs (excluding certain platforms), but in this case, our range time is longer (18 weeks compared to 13 weeks), and there has not yet been extreme flushing. During the bull market from 2020 to 2021, we experienced several similar situations.

The initially estimated low point of $50,000 may be overly conservative, and we might see a more extreme pullback to the $40,000 range. Such a pullback could cause significant damage to the market and may require several months of fluctuations/downward trends (recovery period) before a reversal to an upward trend could occur.

The government of a certain country is selling off on a large scale.

Recently, a certain country's government transferred over 10,000 coins of encryption in batches to exchanges and market makers. This action caused the price to briefly fall below $55,000. However, according to information from a data platform, during the U.S. stock market closing period, the government address recovered 2,898 coins of encryption, amounting to approximately $163 million, mainly from several major trading platforms.

Data shows that the government's sell-off plan has been completed for nearly half. Since starting the sell-off last month, its holdings have decreased from nearly 50,000 coins to 27,461 coins, with a current holding value of about $1.5 billion.

Despite the fall in the market, data released by a research institution indicates that the inflow amount of digital asset investment products reached 441 million USD last week. Among them, a major encryption currency investment product accounted for the largest share of the total inflow of encryption products (398 million USD), with a proportion as high as 90%. Regionally, the inflow of funds mainly came from the United States, amounting to 384 million USD. Other significant buying came from Hong Kong (32 million USD), Switzerland (24 million USD), and Canada (12 million USD), while the outflow of funds from Germany was 23 million USD.

The cryptocurrency mining market is bottoming out.

Recently, the price of a certain mainstream cryptocurrency fell to $54,000 (it has now recovered to $57,000), making survival even more difficult for miners who have already seen their profits plummet due to the halving. According to surveys, if the price falls to $54,000, only ASIC mining machines with an efficiency of over 23W/T will be able to profit, and only a few models of mining machines can barely sustain.

The miners' selling behavior is also considered part of the reason for this price fall. To cope with cash flow issues after the halving, the selling by mining companies continues, with 30,000 coins from miners entering the market in June alone.

Data from a mining pool shows that based on an estimated energy cost of $0.07 per kilowatt-hour, only ASIC miners with a unit power of 26 W/T or lower can be profitable when the price is $54,000. Specifically, several high-efficiency miners achieve break-even points at $39,581, $43,292, and $48,240. Other models, however, need prices to exceed $51,456, $53,187, and $54,424 respectively to be profitable.

Against this backdrop, as the tide of inscriptions recedes, mining companies naturally choose to sell off to survive, whether for cash flow reserves or for industry migration and exit.

Fortunately, as prices decline, small and medium-sized mining farms are gradually shutting down, and mining difficulty is rapidly decreasing, signaling the end of miners' capitulation. On July 9, a data platform showed that mining difficulty was reduced by 5% to 79.5T, with the average hash rate across the network at 586.72EH/s over the past seven days. Since May, the amount of cryptocurrency sent by miners to exchanges for sale has significantly decreased, and over-the-counter trading volume has noticeably dropped. By June 29, the total trading volume at over-the-counter trading desks for mining companies had been exhausted, indicating that selling pressure has eased.

Overall, price fluctuations have had a significant impact on the survival of miners, but as the market adjusts, the selling behavior of miners has gradually decreased, and the industry may welcome a new balance.

Favourable Information Worth Paying Attention To

The large-scale repayment plan is expected to drive new highs in the crypto market.

According to the revised reorganization plan and disclosure statement submitted by a certain company to the U.S. Bankruptcy Court in Delaware this May, the total value of assets expected to be collected and converted into cash for distribution will be between $14.5 billion and $16.3 billion, exceeding the $11 billion owed to customers and other non-government creditors. The surplus cash will be used to pay interest to the company’s more than 2 million customers.

Currently, the company has obtained court approval, and creditors can choose to vote on the compensation plan for cryptocurrency in cash or in kind. Creditors must vote by August 16, and the judge will decide whether to approve the plan on October 7. Once approved, the company will repay creditors within two months, with the expected timeframe being from the fourth quarter of 2024 to the first quarter of 2025.

Although the final compensation method has not yet been determined, a certain crypto analyst believes that, given that most clients are cryptocurrency enthusiasts, this amount of up to $16 billion will enter the crypto market and become a major catalyst for price increases. A certain mainstream cryptocurrency is expected to break through $120,000, and other cryptocurrencies will also see significant increases.

The expectation of interest rate cuts is clear.

The Federal Reserve's decisions on interest rate hikes and cuts are one of the important factors influencing cryptocurrency prices, with rate cuts typically driving the market stronger.

Recently, Federal Reserve Chairman Powell stated that inflation pressures in the United States have eased, but the Fed needs more data to prove that inflation risks have passed before deciding to cut interest rates. If rates are cut too early, inflation may rise again; if cut too late, it could lead to a slowdown in economic growth or even trigger a recession.

Although Powell stated that the timing of interest rate cuts is not yet determined, as the latest economic data from the U.S. shows a slowdown in economic growth, such as the significant downward revision of June's non-farm employment data and the unemployment rate rising to 4.1%, the highest level since November 2021, market expectations for interest rate cuts are heating up. According to a certain interest rate observation tool, as of July 9, the market expects a 73.6% probability of the Federal Reserve cutting interest rates at the September meeting, with a 22.9% probability of maintaining the current rate.

The encryption accounting system is about to take effect.

In December last year, the Financial Accounting Standards Board (FASB) of the United States announced its first version of accounting rules for cryptocurrency, requiring companies holding certain cryptocurrencies to record their coin value changes at fair value and reflect them in net income. The new regulations will come into effect for fiscal years beginning after December 15, 2024, applicable to both publicly traded and non-public companies for the 2025 fiscal year.

For crypto assets, this change in accounting standards means that some technology companies will be able to record the highs and lows of their cryptocurrency holdings. This will promote further compliance in the crypto market and attract liquidity injections from mainstream financial markets.

Price Trends of Cryptocurrencies After Each Halving

The market trend can be classified into three types: rise, fall, and fluctuation. Regardless of how the future market changes, it ultimately cannot escape these three patterns. Trying to predict the market direction is a foolish behavior; we only need to know how to respond if the market moves in a certain direction.

If the market breaks through the current resistance level and stabilizes above 69000 points, it can be considered the beginning of an upward trend.

There are two possible scenarios for a rise:

1. Impacting the previous high but not breaking through: The market may be close to the previous high but has not managed to break through, or it may have just slightly broken through and then retraced. In this case, do not be misled by market illusions and avoid chasing highs. You may not even need to exit, just reduce some of your position, especially if you feel your holdings are too heavy.

2. Breaking previous highs and maintaining new highs: If the market breaks previous highs and maintains new highs, and stabilizes for at least more than 3 days. At this point, pay attention to the strength of the breakout, observe whether there is a strong rally or a volatile upward movement within 3 days to 1 week. If the trend is strong and rises quickly after the breakout, one can hold positions and wait for a significant correction (at least around 10%) before adding positions. If the trend is weak and the rise is slow, it is advisable to reduce positions at new highs to prevent false breakouts. Currently, the likelihood of continued upward movement seems low. If the second scenario occurs and the trend is not strong enough after the breakout, be cautious of the risk of a significant drop. Reference for previous market conditions before and after halving:

Second Halving (2016.07.10)

Before this halving, a certain cryptocurrency surged by 78% within a month. After the halving, favourable information was realized, leading to a deep pullback, with a 30% fall within a week and a maximum drop of even 40%. Then it began to rise all the way, increasing from less than 500 dollars to nearly 20,000 dollars. After the halving, the coin price corrected by 30%.

Third Halving (2020.05.12)

In 2020, due to the historically rare black swan event of 312, the market fell significantly before the halving. If we disregard this negative information, a certain cryptocurrency also experienced a 20% correction a week before the halving. After the halving, there was a rebound, but it did not rise significantly, and the market went through a period of turbulence. From the peak before the halving in early May, it continued to fluctuate until the end of July when it finally broke upward, having fluctuated for a full 3 months, during which there were also two instances of corrections exceeding 10%.

From the last two halvings, it can be seen that there will be a correction trend before and after the halving. The market generally expects a rise after the halving, but what will happen this time? Further observation may be needed.