Abstract

• From a historical perspective, regulatory lawsuits and investigations tend to occur near the bottom of bear markets or when bull markets are about to start.
• We believe that the overall trend in the third quarter will still be characterized by volatility, followed by the initiation of a bull market towards the end of the year or early 2024.
• Considering that many altcoins are considered securities, we recommend converting a portion of altcoin holdings into Bitcoin and Ethereum at the moment.

Macro Analysis

Regulators Targeting the Crypto Industry Again

This week, the U.S. Securities and Exchange Commission (SEC) took further steps to tighten its control over the digital currency industry. They increased their scrutiny of BinanceUS and requested a freeze on the funds of BAM Trading and BAM Management. In addition, a lawsuit was filed against Coinbase.

BAM Trading and Sigma Chain were identified as market makers for BinanceUS. If the SEC’s request is granted, Binance’s efforts to comply with regulations in the United States will become even more difficult.

The CEO of Coinbase argued that when the SEC approved its listing, it was implicitly approving Coinbase’s business model. However, the SEC clarified that approving the listing does not mean approving Coinbase’s entire business operations. Moreover, the SEC has categorized certain altcoins as securities. If the SEC succeeds in this matter, it could significantly reduce Coinbase’s revenue, potentially cutting it by half or more.

SEC releases negative news to complete absorption, releases positive news to create a peak

The analyst @blockTVBee has summarized the Securities and Exchange Commission’s (SEC) interventions in the cryptocurrency industry and compared them to the Bitcoin price chart. Their conclusion is that the SEC’s actions resemble a type of market manipulation: releasing negative news to create opportunities for buying and releasing positive news to drive market peaks.

Since 2017, the SEC has seldom filed lawsuits or conducted investigations into crypto-related entities during bear market phases. Instead, their lawsuits and investigations have been more frequent during the bottom of bear markets or when bull markets are on the verge of starting. Therefore, it can be inferred that the current period is similar to the early stages of a bull market, aligning with the SEC’s renewed focus on the cryptocurrency industry.

The Return of Interest Rate Storm

The Reserve Bank of Australia, which had halted its rate hikes in April, surprised the market this week by unexpectedly raising interest rates by 25 basis points to 4.1%. This move took the rates to their highest level since April 2012, catching many off guard. At the same time, the Bank of Canada also surprised observers by raising interest rates to 4.75%, reaching their highest level since 2001. The central bank justified this decision by pointing to signs of an overheating economy and by removing the statement that had anticipated inflation to retreat to 2% by the end of 2024. The central banks of Australia and Canada are often considered indicators of the policy direction of the Federal Reserve, leading to speculations about whether the Fed will adopt a similarly hawkish stance.

Currently, the U.S. dollar tightening cycle is nearing its conclusion. Market expectations, as indicated by the CME FedWatch Tool, suggest that there won’t be another interest rate hike on June 15th. However, it is anticipated that there will be a 25 basis point hike at the July meeting, which will maintain the highest rates until the end of the year. After that, a downward interest rate cycle is expected to commence in November.

Our Perspective

The ongoing U.S. debt crisis has reached a resolution with the recent launch of the latest Treasury issuance plan. Cash balances are expected to increase to $650 billion by the end of September, indicating that at least $650 billion in liquidity will be withdrawn from the market. Some institutions estimate that the impact of new debt issuance on the economy is equivalent to a 25 basis point interest rate hike by the Federal Reserve. We believe it is highly likely that the Fed will pause its rate hikes in June but continue with an increase in July. Additionally, issuing U.S. bonds will affect market liquidity. As a result, we expect the third quarter to remain volatile, followed by a market rally towards the end of the year or early 2024, driven by the upcoming interest rate cuts and the halving event.

The SEC’s classification of many altcoins as securities have prompted many individuals to exchange their altcoins for BTC and ETH. Whether it’s due to bank failures or the SEC regulatory storm, the current crisis presents a good opportunity to accumulate BTC and ETH at lower prices. We also recommend considering converting a portion of altcoin holdings into BTC and ETH in the current high-pressure regulatory environment.

Technical Analysis

Bitcoin’s price action has been highly volatile this week. Initially, there were concerns about a breakdown and the possibility of a sustained sell-off. However, the situation has taken a positive turn. Bitcoin has remarkably disregarded the barrage of negative news and has recovered from the significant bearish candle caused by the initial Binance SEC lawsuit. You can observe this trend reversal in the chart provided below.

The positive aspect of Bitcoin’s price behavior in this situation is that it indicates a lack of selling pressure in the market. Despite the negative news, such as the SEC’s lawsuit against Coinbase, prices either rising or remaining unaffected suggests a divergence between the news and investor sentiment. Bitcoin and Ethereum’s status as non-securities by the SEC may contribute to this resilience. However, market conditions can change quickly, and the absence of selling pressure at present does not guarantee a sustained positive trend.

The positive divergence in Bitcoin’s price despite negative news presents an excellent opportunity for Buy-The-Dip trades on Bitcoin. At Pionex, we are taking advantage of this divergence and the resulting high volatility and recommended placing buy-the-dip orders at $24,500 and $24,000. These orders were based on the belief that Bitcoin had potentially reached its lowest point, offering low-risk returns of 22% and 28% for the investments made. These returns were quite solid, especially considering the market panic at the time. If you missed these opportunities, don’t worry, as there are still promising trade recommendations available in the current market.

Our perspective is currently bullish, unless the recent lows around $25,500 are breached once more. The market has demonstrated resilience even in the face of negative news, leading us to trust this trend unless the chart indicates a resurgence of sellers. In the event that we fall below $25,500, we would exit our position and observe whether the price stabilizes within the range of $23,000 to $24,000.

ALTs

As we mentioned during our livestream, the altcoin market is experiencing a decline following comments made by the SEC chairman, who classified many altcoins as securities. You can find the link here to see which ones were specifically mentioned. Given the potential risks of delisting from exchanges, reduced liquidity, and limited hedge fund participation due to the regulatory scrutiny faced by unregulated securities, we do not recommend investing in altcoins at this time.

However, it is worth noting that some altcoins have reached support levels, having fallen between 25% to 50% since the lawsuit was announced. Matic, for example, is approaching its 52-week low at $0.5 and may present a value-buying opportunity. We also observe other coins, such as ADA, CRV, AVAX, and APT, entering value zones. We do not endorse these coins specifically but acknowledge that they are approaching areas of support and warrant attention, particularly after experiencing a 20% decline in just one day.

Fundamental Analysis

Investors Lowering Expectations

We believe that the basis of futures contracts (the premium of futures over spot prices) can be seen as an indicator of expected returns. The decline in the basis of futures contracts implies that investors have become more conservative in their expectations for the future performance of Bitcoin and the entire cryptocurrency market. Currently, the basis of Bitcoin futures contracts expiring at the end of March 2024 has experienced a significant decrease, now reduced to below 2%. This indicates that regulatory actions have indeed somewhat lowered traders’ expectations for overall returns in the cryptocurrency market, with Bitcoin as its representative.

Trading Recommendation

BTC

Our focus on trading ETH and BTC in previous recommendations has been driven by their strength and promising future outlook. This emphasis on quality over risk has proven to be the right approach. We continue to observe a market characterized by significant volatility, with a macro bottom around $24,000 and an opportunity for extreme value purchases from $20,000 to $24,500. As we have previously discussed, the current estimated cost of mining a Bitcoin is approximately $24,500, indicating the point at which miners may find it more advantageous to buy from the market. However, short-term deviations from this price are still possible, and we believe that any price within the $20,000 to $24,500 range would represent a zone of value deviation.

• We recommend investing in the BTC Buy-The-Dip with a purchase parameter of $24,500, offering a 5-day investment with an annualized return of 26%. If the Bitcoin price continues to decline, we will purchase the levels ranging from $20,000 to $25,000. The more the price falls, the more Bitcoin we will acquire to lower the overall cost.

ETH

When it comes to ETH, there is slightly more risk compared to BTC, as the SEC could potentially classify it as a security. As a result, we have adjusted our lowest purchase level to $1,500. However, we still consider buying anywhere between $1,500 and $1,700 as acceptable, and we recommend using the Buy-The-Dip strategy to average in. While it is impossible to accurately time the market bottom, we can establish a value range with a higher probability. For the ETH Buy-The-Dip approach, we suggest utilizing a position size of 30% to 40% and purchasing at a price of $1,650. This investment is expected to last for 5 days, with a projected return rate of 30%.