Bitcoin dips to $38,000 on sell-the-news action before rebound

Is it time to buy the dip?
Team Halogen
January 29, 2024

Market Movements

Global Macro Highlights

🇨🇳 China Boosts Stimulus by Allowing Banks to Keep Smaller Reserves
🇯🇵 BOJ keeps ultra-easy policy, signals conviction on hitting price goal
📈 S&P 500 clinches third-straight record close on tech strength
📊 US GDP grows at an annual rate of 3.3% in Q4 vs. 2.0% expected
📉 US Core PCE inflation declines to 2.9% vs. 3.0% forecast

Source: Bloomberg

It was a heavy week for global macro, with mixed results across the major asset classes. 

US data painted a fairly rosy picture for risk assets, with Q4 of 2023’s preliminary Growth Domestic Product (GDP) numbers closing stronger than expected at 3.3% (expected 2% from economists polled by Dow Jones) and inflation, as measured by the change in Personal Consumption Expenditures (PCE) Price Index declines to 2.9% pace in December, from 3.2% a month earlier, below economists’ estimates of 3%. 

The S&P 500 makes a new all time high at 4,906 points before trailing off into Friday’s close, led by the continued outperformance of the ‘Magnificent 7’ - which consists of Google's parent, Alphabet; Amazon; Apple; Facebook's parent, Meta; Microsoft; Nvidia; and Tesla. Performance would have been even better if not for Tesla dragging things down (shares slumped by more than 12% post-earnings on Thursday; lost more than 26% this year), after ‘failing’ to provide proper guidance for future earnings.

On the other side of the world, the People’s Bank of China had announced Tuesday measures to boost liquidity and stimulate the local economy. The immediate impact was support in Chinese and Hong Kong equities, with the Hang Seng rebounding off a year to date low at 14,794 to close 4.2% higher at 15,952.24 for the week.

The area of concern though, has been the knock on effect in commodity prices. Brent Crude is up 5.66% on the week to close at above $83 per barrel, while copper trails at only up 1.7% at $3.85. 

Moves in US treasury yields were relatively benign, with the 10Y still hovering around 4.14% and trading in a 12 bps range for the week. The market had been dialling back expectations for rate cuts this year, with the probability for a March cut now 50/50. 

Malaysia Market Highlights

⏸️ Bank Negara Malaysia keeps OPR steady at 3%
📈 FBM KLCI index rises for third day; Ringgit at 4.7277

Source: The Edge

As widely expected, Bank Negara Malaysia (BNM) held interest rates steady at 3%. 

BNM continued to sound upbeat on domestic growth prospects (notwithstanding that Q4’s GDP 1st GDP numbers missed estimates, 3.4% YoY vs estimated 4.1% YoY) and moderating inflation, with the caveat that the inflation outlook will be influenced by subsidy rationalisation programs.

Source: Monetary Policy Statement by Bank Negera Malaysia

What was somewhat unusual was the specific paragraph addressing the recent Ringgit weakness. As we’ve pointed out before, USD/MYR has been reacting mainly to the external environment as the currency lacks a compelling narrative to attract inflows. Despite BNM’s assurances that current prices do not reflect the fundamentals (MYR remains undervalued on a trade weighted basis), that doesn’t change the fact that there’s currently no catalyst to change that perception.

As of January 26, the Ringgit closed at 4.7300, slightly weaker compared to last week's closing of 4.7185.

Crypto Market Highlights

💸 FTX Sold About $1B of Grayscale's Bitcoin ETF, Explaining Much of Outflow
📉 Bitcoin breaks below $40k as spot ETF hype wanes
✏️ SEC delays decision timeline for BlackRock's proposed spot Ethereum ETF to March

Source: Bloomberg

The ‘sell the news’ price action continued in earnest in the earlier part of the week, with Bitcoin trading pressured for the better part of it. The $40,000 price support broke on Tuesday, prompting another rush of liquidations and pushing the token down to a low of $38,555 on Binance. The rout stopped short of breaching $38,000, which might have pushed things further into the low $35,000s. 

Sell pressure continues to be attributed to outflows from Grayscale Bitcoin Trust (GBTC) since it was converted into an exchange-traded fund earlier this month. Onchain analytics continued to track at least 10,000 Bitcoin being sent to Coinbase on a nearly daily basis, ostensibly to be sold down for redemptions. 

The FTX estate had also been identified as a major divestor, having had a major stake in the trust before it was a fund, and now needing to liquidate as part of its bankruptcy proceedings. The brokerage Marex Capital Markets has sold more than two-thirds of the 22.28 million shares FTX held – worth close to $1 billion. Net inflows into the system have also since waned, with Day 9 and 10 since launch posting a combined net outflow of approximately $240 million (though these two days also saw a slowdown in the pace of GBTC outflows).

The SEC also delayed its decision on the outstanding Ethereum ETF applications. Though widely expected, this didn’t certainly help Ethereum, which has reversed most of its Year-to-Date gains (though still positive on the year vs. BTC). ETH and the altcoin complex had a pretty poor week compared to BTC this week, and key altcoins such as BNB and ADA declining by 3.6% and 4.1% respectively, while BTC gained 2%. 

Friday saw a fairly strong recovery in Bitcoin though. In the late London trading session, Bitcoin broke out of consolidation to the upside, spurring short liquidations and reclaiming the $41,000 level quite easily. Bitcoin traded to a high above $42,200 before trailing off slightly into the close. 

What are we monitoring for the week ahead

Looking Ahead: Our Insights

The market still operates on a ‘bad news is good news’ reaction function, and the Q4 GDP numbers in the US don’t help the case for rate cuts by the Fed. Still, other leading data has not been looking too hot on that front - namely employment, which shows some cracks beneath the headline numbers. All in, the market has dialled back its overwhelming expectations for Fed rate cuts, though the consensus still points to 6 cuts to land at 4.00% by year end. 

We go into next week watching the FOMC event closely. Chair Powell was certainly dovish in the December press conference, which was subsequently walked back heavily by his colleagues as the market took his words to heart and ran far with them. Which set many up for disappointment in January, with higher rates being the tactical trade of the month. Though market pricing remains more balanced now with March pricing at 50/50, the situation can change pretty quickly at this week’s meeting.

While the Chinese stimulus wave movie is an old one, the timing this time does seem to be a bit uncanny, as far as impact on oil prices is concerned. Combined with the ongoing Red Sea events, it's gotten the market talking about a potentially outsized effect on energy prices. Which of course, feeds into the inflation picture for the Fed’s decision making. It’s early days into this move, but this is something to keep an eye out on, especially with positioning in oil seemingly tilted towards shorts.

Bitcoin’s rally ahead of the $38,000 level came fast and furious, despite a lack of bullish catalysts. The up move seems to be a combination of dip buyers ahead of $38,000 and an attempt to liquidate shorts in Bitcoin futures and ETH/BTC long positions. The rally helped breathe life into the altcoin ecosystem as well, with many major alts back into the middle of recent ranges (as opposed to trying to break through support).

That said, the structural catalysts for lower Bitcoin still remain for now. It’s hard to ignore the continued selling of Bitcoin by GBTC (which has sold over 100,000 BTC since its ETF launch date), though the slowdown in pace has helped somewhat. Other on-chain analysts have also picked up increased selling from miners, which has been noted to be a usual activity ahead of Bitcoin halvings. Furthermore, positioning in futures continues to stay elevated, with Open Interest increasing into Friday’s close amidst short liquidations.

Based on the daily charts, the bounce from the $38,000 support paints a relatively optimistic picture at first glance. A clean break of $40,000 pushed Bitcoin into the air pocket below, where it remained short lived and reclaimed $40,000 decisively for the week. The one warning signal that does flash in the aforementioned chart is daily volumes on Friday, which printed lower than the preceding selldown. 

From an allocation perspective, we continue to advise that it’s better to have some skin in the game (and for those of you who bought the break below $40,000, well done). It’s still a little early to say that this year’s low is in place, so there’s a decent chance patience will be rewarded. For now, the $44-$45k levels will be crucial for BTC to regain in the near term.

On ETH, the token has certainly given back a lot of its gains, as speculators have been washed out. This move is somewhat reminiscent of last August’s meltdown in Bitcoin, after a successful run up in July and speculation surrounding the spot Bitcoin ETFs ran high. Following the same pattern, we can expect a period of languish for ETH as it consolidates, before the narrative takes over explosively.

Thank you for reading and we’ll see you next week!

Team Halogen

Disclaimer: The information, analysis, and viewpoints presented here are intended solely for general informational purposes and should not be construed as personalised advice or recommendations for any specific individual or entity. For personalised investment decisions, individual investors are advised to consult their licensed financial professional advisor. The opinions expressed by the Manager are based on certain assumptions or prevailing market conditions, and they are subject to change without prior notice. This material is being distributed for informational purposes only and should not be regarded as investment advice or an endorsement of any particular security, strategy, or investment product. While the information provided herein may include data or opinions from sources believed to be reliable, its accuracy and completeness are not guaranteed. Reproduction of any part of this material in any form or reference to it in other publications is strictly prohibited without the express written permission from Halogen Capital Sdn Bhd. Halogen Capital Sdn Bhd and its employees assume no liability regarding the use of this material or its contents.

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Team Halogen
January 28, 2024
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