Introduction: Looking ahead to the second half of the year, despite the uncertainty in the macro environment, BTC has the potential to experience an upward trend, and we are optimistic about the market’s performance in the second half of the year.
Summary
Recently, the US SEC sued Binance and identified multiple tokens as securities, causing panic selling of altcoins. In our opinion, the bottom may be approaching, and funds from altcoins are flowing into BTC and ETH. The market will complete the bottom-building process through fluctuations. Looking ahead to the macro environment in the second half of the year, we analyzed three scenarios of US economic development and their impact on the crypto market. Although the process may not be smooth sailing, BTC will rebound after experiencing fluctuations.
Short-term fluctuations may continue, but the bottom is close
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SEC regulatory events triggered altcoin selling, short-term attention to whether BNB will stabilize
The SEC filed a civil lawsuit against Binance and identified ADA, SOL, MATIC, and other tokens as securities, causing the market to once again worry about regulation. For compliance reasons, some institutional investors had to sell their altcoins, and even the trading platform Robinhood will remove these altcoins, causing short-term selling pressure in the market.
ADA, SOL, MATIC and other tokens recognized as securities by the SEC plummeted
BNB’s largest drop also exceeded 20%, and its trend can be used as a barometer of the market, representing the market’s interpretation of the regulatory event. When Binance’s FUD caused a run on withdrawals in December last year, BNB fell to a low of $220 and then rebounded and stabilized. $220 is an important price level, both a support level for the previous low and a widely watched Venus hacker “liquidation price” (in fact, Binance said it has taken over the hacker’s position and there will be no liquidation). This time, BNB retested the low of $220 and then quickly rebounded. Binance also launched a new round of Launchpool to boost the BNB price. If BNB can stabilize and fluctuate for a period of time, it indicates that the market is gradually digesting the negative impact of the SEC.
BNB has found support at the previous low of $220.
Altcoins have fallen back to their lows, while BTC prices remain strong, indicating that the bottom may be near.
From a price perspective, many altcoins have fallen back to their lows before the January rally, and even below the lows of November last year. The Binance regulatory incident is fundamentally different from last year’s FTX explosion, and there is no evidence that Binance has misappropriated user assets, so the worst-case scenario may be that Binance closes its US station, making it less impactful on the market than last time. Considering that altcoins have fallen back to previous lows, there is limited downside potential from here, and we may be near the bottom.
The total market capitalization of cryptocurrencies excluding BTC and ETH has fallen to the level after the FTX explosion in November last year.
At the same time, BTC and ETH have relatively strong prices, with gains of around 50% since the beginning of the year, even in the face of regulatory negative news, indicating that large funds still have confidence in the market. Funds on altcoins may not have flowed out of the market, but have instead gathered toward BTC and ETH.
BTC and ETH have gains of around 50% since the beginning of the year.
Of course, the SEC may have a small chance of increasing sanctions against the crypto industry, but after experiencing a round of decline, the risks have been released and there is limited downside potential from here. In the short term, the market is likely to build a bottom through volatility, thus digesting the negative impact.
Three scenarios for the crypto market to rise in the second half of the year
Looking ahead to the second half of the year, the overall macro situation will gradually move in a favorable direction. The United States is still the country with the greatest influence on the global crypto market. Based on the US economic situation and the corresponding monetary policy of the Federal Reserve, we may encounter three situations: 1) The US economy does not decline, and the US stock market enters a bull market, and funds overflow into crypto assets; 2) The US economy experiences a mild recession, the Federal Reserve lowers interest rates at the end of the year, and BTC benefits from the loose expectations and rises ahead of time; 3) The US economy experiences a deep recession, causing a liquidity crisis, and the Federal Reserve restarts QE, and BTC will experience a rapid rise similar to March of this year.
US economy is not in recession, US stock market brings capital outflow
Since the beginning of this year, the U.S. inflation has fallen more than expected, employment data and the performance of large technology companies have also been good, showing that the U.S. economy is very strong. Driven by the AI fever, the Nasdaq index has risen strongly, with an increase of more than 30% from the low point in January. Apple and Nvidia have reached historic highs. This rise is mainly driven by large technology companies. If the U.S. economy does not decline, the U.S. stock market will continue its trend and enter a comprehensive bull market. In the middle and later stages of the bull market, capital overflow from the U.S. stock market will enter the cryptocurrency market, pushing up market prices.
Looking back at the last bull market, in the early stage of the U.S. stock market bull market, cryptocurrency assets rose slightly, but it was basically following the logic and did not significantly outperform. In the middle and later stages of the U.S. stock market bull market, funds began to overflow from the U.S. stock market to smaller cryptocurrency assets, and cryptocurrency assets ushered in the period of the largest and fastest overall increase, with BTC rising from $10,000 to $60,000 in five months. Therefore, if the U.S. economy does not decline and the U.S. stock market re-enters a bull market, capital will overflow into cryptocurrency assets in the middle and later stages of the bull market.
BTC accelerates its rise in the middle and later stages of the U.S. stock market bull market
US economy is slightly declining, Fed rate cut brings loose expectations
As the Federal Reserve raised interest rates too quickly, there is a good chance that the U.S. economy will enter a recession, but the degree of recession will not be too deep. If the U.S. economy is in recession, the Federal Reserve cannot maintain interest rates at a high level and may start cutting interest rates as early as the end of the year. Interest rate cuts mean that the cost of funds will be lowered, which is conducive to funds flowing into risk assets, and also means that the Federal Reserve has opened a loose cycle. BTC will rise early due to market expectations of Fed interest rate cuts.
Looking back at the last rate cut cycle, the Federal Reserve raised interest rates for the last time in January 2019 and began cutting interest rates for the first time in July 2019. During this period, benefiting from the loose expectations brought by the Federal Reserve’s interest rate cuts, Bitcoin rose from $3,300 in February to $13,000 in June. Therefore, after the Federal Reserve stops raising interest rates, the market will expect the Federal Reserve to start cutting interest rates at some point, and BTC will benefit from loose expectations and usher in a wave of gains.
During the period when the Federal Reserve stopped raising interest rates in 2019, BTC rose from $3300 to $13000. The white line is the effective interest rate of the US federal funds.
The US economy is in a deep recession, and the Federal Reserve has restarted QE to save the market.
Although there is almost no data to suggest that the US economy will have a “hard landing” at present, from a probability perspective, we cannot rule out this possibility. Especially when the market is not fully prepared, once the US economy is in a deep recession, there is a high possibility of a liquidity crisis, and all assets will fall, forcing the Federal Reserve to restart QE to save the market. Cryptographic assets will fall first due to liquidity and risk aversion, and then benefit from the liquidity increase released by QE.
Looking back at the US banking crisis in March of this year, BTC first fell due to market panic and risk aversion, and then the Federal Reserve urgently launched liquidity tools to help banks, and the asset-liability ratio expanded again. BTC benefited from the liquidity released by the small QE, and it only took a week to rise from $20000 to $28000. Therefore, if a liquidity crisis occurs, the Federal Reserve will most likely restart QE, and BTC will repeat the rapid rise in March.
In March, when the banking crisis broke out, BTC first fell and then rose
Conclusion
In the short term, BNB quickly rebounded at the key support level of $220, and is expected to stabilize and oscillate, helping the market digest the negative impact of regulatory events. Altcoins have fallen to the lows of the beginning of the year, and there is limited downside. Funds are gathering towards BTC and ETH, and the market may complete the bottom-building process through oscillation. Looking forward to the second half of the year, although the uncertainty of the macro environment still exists, no matter how it develops, BTC has the hope of ushering in a wave of rise, and we still see the performance of the market in the second half of the year.
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