10x Research: Pessimistic about ETH's prospects, expects BTC to reach a new high

Author: Markus Thielen, 10x Research

Original translation: Azuma, Odaily Planet Daily

Editor's note: This article is a compilation of two market analysis articles published by the well-known investment research institution 10x Research last night and this morning. In the first article, 10x Research mainly analyzed the reasons for pessimism about the future market of ETH; in the second article, 10x Research predicted that BTC will reach a new high soon.

The following is an excerpt of the core content of the two articles of 10x Research, compiled by Odaily Planet Daily.

About ETH: Why are we firmly bearish?

In the past month, Ethereum's market value has increased by 22% to $454 billion, while Ethereum's fee income has fallen by 33% to only $128 million. Fundamentally, this is because Ethereum has become relatively "insignificant" in terms of trading activity, and most of the meme activity has moved to Solana or Layer 2 networks, which may not be new to deep value investors.

From a technical analysis point of view, if ETH falls below $3,725, a large number of stop-loss trades may be triggered. ETH's current trend is very fragile and has failed to rise further. Many newly established long positions are at or below the break-even point. Crypto enthusiasts generally refer to this technical pattern as "Bart", that is, the price of a certain token needs to be consolidated after a sharp rise, at which time the price of the coin may fall sharply due to the triggering of stop-loss trades. All three of our reversal indicators have turned bearish.

Historically, June is the second worst month for ETH, with an average return of only -7% (September is the worst, at -12%), while the average returns of the other ten months are positive.

In summary, from the perspectives of fundamentals, technical analysis, cyclical practices, etc., now is not the best time to hold ETH. Another testimony to this conclusion is that the futures market's positions are overstretched (biased towards long positions).

Odaily Note: In financial market terminology, "overstretched positions" are usually used to describe a phenomenon in the market, that is, there are a large number of positions in a certain direction (long or short) in a certain asset or investment product. When most participants in the market tend to take the same trading direction, "overstretched positions" implies the risk of being overly biased in this direction.

Futures open interest has increased from $8 billion in mid-May to $12.8 billion, and the funding rate was over 20% on some days, but has now dropped to 11.9% because no new longs are deployed, the cost of holding longs is very expensive, and more traders may choose to close their positions due to the uncertainty of the timing of ETF approval.

Net inflows into spot Ethereum ETFs may also be disappointing. Similar to the situation with GBTC, we may see 50% ($4-5 billion) of outflows on Grayscale's ETHE, while other ETFs may only see 20% of the BTC ETF ($13.5 billion in five months), or around $2.7 billion. $2.7 billion in inflows against $4 billion outflows from ETHE may put pressure on the price of ETH.

For institutions or asset managers, there is no strong reason to add ETH to their multi-asset portfolios. ETH is not positioned as digital gold, and its trading volume is only a small fraction of Bitcoin, which has certain liquidity risks. The current risk-free rate of traditional finance is about 5.2%, while the staking income of ETH is only 2.6%, so there is little incentive for traditional finance to buy ETH ETFs, not to mention that ETFs are not allowed to be pledged at present.

It is still uncertain when the SEC will finally approve the spot Ethereum ETF (S-1), and US President Biden has just vetoed Congress's resolution to overturn SAB-121, reaffirming the government's opposition to cryptocurrencies. ETFs must wait until the S-1 form becomes effective before they can begin trading, but the timeline for the SEC to approve these S-1s has not yet been determined (it may be today or a few months later). Under the positive influence of the approval of 19 b-4 on May 23, ETH jumped from $3,000 to $3,600, and climbed to $3,800 in the following days. Considering that the US government has just conveyed a new message that is not so friendly to encryption (Biden's veto), is this more than 25% increase reasonable?

We prefer Bitcoin. Even if S-1 is approved, the conversion outflow of ETHE will cause selling pressure on ETH. On the whole, "long Bitcoin, short Ethereum", "sell Ethereum call options, buy Bitcoin call options" may be a more winning trading strategy.

For ETH, $3,725 will be an extremely critical point (at this point we will close all long Ethereum positions). If ETH falls below this level, we may see a large number of stop-loss transactions being triggered, pushing the price of ETH further down, which may even drag Bitcoin down to a new high.

About BTC: Will new highs come?

We have highlighted the bullish case for BTC in three reports on May 21, May 26, and May 30.

For traders, now is the time to take risk to get more beta. As we predicted, Bitcoin mining stocks are also rising. Bitdeer rebounded 13% last night on the impact of Tether's $100 million financing (and possible additional $50 million), while Bitfarms, one of the major players in the industry, also rebounded.

The US economy is slowing down, but this is actually a good thing at the moment. GDP growth is only slightly above 1%; the ISM manufacturing index has been in contraction for several months; the employment side continues to weaken, which has a negative impact on consumer spending; another key and forward-looking employment indicator, job openings, slowed significantly last night. All of this will lead to a decline in inflation.

We will get more jobs data this Friday and the CPI inflation report next week. Bitcoin moves in the direction of the CPI (up, bearish; down, bullish), and a CPI growth rate of 3.3% or lower will likely push Bitcoin to new all-time highs.

We turned bullish on May 15th when inflation hit 3.4%, down from 3.5% the previous month, and Bitcoin was trading near $62,000. This price also coincided with our model, which originally predicted that the medium-term trend model would turn bullish if Bitcoin could reach $65,000 on May 16th, and a close above $71,500 (the recent price was $70,500) would trigger another buy signal.

Bitcoin has now broken out of the smaller triangle range (purple line) in the chart below, and the larger triangle range (purple dotted line) may also be broken at around $71,500. If a decline in US employment or a reduction in inflation can allow Bitcoin to close above this line, we will firmly set our target price at a new high, which may be achieved between this Friday and next Wednesday. Therefore, we expect Bitcoin to hit a new all-time high (over $73,500) by the end of next week.

The SEC recently issued a risk warning about cryptocurrencies, a pattern that has previously appeared before the approval of Bitcoin spot ETFs and other SEC-regulated crypto products, which may mean that the S-1 form for the spot Ethereum ETF will be approved soon. Despite this, we still prefer Bitcoin and our positions will return to Bitcoin again.

Additional exposure to Bitcoin futures contracts has increased by $1.6 billion since Saturday. Last night, Fidelity's spot Bitcoin ETF received $378 million, Ark's ETF received $140 million, and BlackRock received $275 million (a total of $880 million in one day), the second highest in history.

The options market is expecting a volatility of about ± 6.6% by the end of next week, with a target price of $76,000 if it rises. Implied volatility is still relatively expensive at about 52-53%. Building long leverage through perpetual futures or Bitcoin mining companies may be a better strategy.

In summary, Bitcoin may soon hit a new all-time high, and now is the time to take more risk and build a larger position.

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