Bitcoin plunges to $57K! Coinbase analyst: "The downturn of cryptocurrency will continue" Multiple reasons for short-term pessimism.

In the Coinbase Weekly Report on Friday, 8/2, Coinbase analysts David Duong and David Han mentioned: "August seasonality tends to be unfavorable for cryptocurrencies." Looking at historical data, over the past five years, Bitcoin has averaged a 2.8% decline this month (compared to -0.5% over the past decade). The recent market volatility may also be explained by reduced liquidity.

Bitcoin Conference Drives New Narratives, Crypto-Friendly Beyond Partisanship

In this week's report, analysts first mentioned several new market narratives brought about by the Bitcoin conference. The most important one is the Bitcoin reserve asset, with both independent candidate Robert F. Kennedy Jr. and representative of the Republican Party, Donald Trump, pledging support for a Bitcoin reserve fund. Republican Senator Lummis also announced a bill at the conference, implementing a 1 million Bitcoin purchase plan aimed at reducing national debt. Interestingly, the report cited a letter from 14 Democratic members of Congress and 14 candidates to the Democratic National Committee (DNC), indicating that there are voices within the Democratic Party leaning towards incorporating cryptocurrencies into the party platform, suggesting that embracing Bitcoin should be a consensus beyond party lines.

Analysts believe this represents a shift in the Bitcoin narrative. Less than eight months ago, Bitcoin received approval for a spot ETF in the United States, and now serious discussions are underway regarding its potential utility as a national reserve asset amidst the backdrop of growing national debt, which recently exceeded $35 trillion. The formation of such a reserve is a complex process, requiring adjustments by the Federal Reserve to its broader monetary policy and reserve management strategies. Additionally, even if enacted, the Treasury Secretary would still need to "establish a decentralized network of secure Bitcoin storage facilities distributed across the United States."

Macro-Economics Shows Market Participants Are Not Optimistic

In terms of macro-economics, the relevance to cryptocurrencies is relatively low. The price was almost insensitive to the significant bullish steepening of the U.S. 2-year and 10-year Treasury yield curve in July. However, concerns about the U.S. economic growth now seem to have a much greater impact on investor sentiment than optimism about a possible rate cut by the Federal Reserve later this year. At the FOMC meeting on July 30-31, the Fed hinted at an upcoming rate cut. However, market participants have already priced in two rate cuts of 25 basis points this year (in September and November), and due to concerns about weak economic data, they have recently added expectations for a third rate cut in December. In fact, the July ISM Manufacturing Index further slipped into contraction territory with a reading of 46.8, below Bloomberg's median estimate of 48.8.

The sharp decline of the seven major U.S. tech stocks and the massive transfer of BTC by the U.S. government have raised concerns and affected the price trend of cryptocurrencies.

The total inflow for the U.S. spot ETH ETF is $1.5 billion, but there was a net outflow of $483 million in the first seven working days. The Grayscale Ethereum Trust (ETHE) saw an outflow of $1.98 billion. However, the outflow volume for ETHE has been declining daily, which is ahead of the outflows seen in the Grayscale Bitcoin Trust (GBTC). Structural factors have led to GBTC shares being locked until the later stages of the cycle, while ETHE does not face such barriers.

Data shows lower market activity in August compared to June of the same year, with Bitcoin spot trading volume down by 19% in August 2023 compared to June 2023. Analysts stated that Bitcoin futures trading volume on global centralized exchanges also decreased by 30% during the same period. Decreased liquidity and trading volume may lead to increased volatility. Since specific narratives for cryptocurrencies are expected to decrease for the remainder of this summer, we are likely to see similar subdued behavior this year.

Regarding seasonality and liquidity, Bitfinex's Head of Derivatives, Jag Kooner, also stated that in August, many assets may lack liquidity, with August seasonality being one of the reasons. Kooner added, "We are currently seeing several altcoins building significant buy walls at lows, and we expect the Bitcoin price to range between $61,000 and $70,000, providing an accumulation zone."