Bitvavo Market News - Crypto market recovers after volatile week

There was little impact from the May bank holiday on the financial markets last week. Important economic indicators kept stock market prices in check. Is the volatility of last week behind us? And have digital currencies found their way back to an upward trajectory? Find out in this edition of Bitvavo Market News.

Market update

For many investors, the past week was a roller coaster. Stocks, bonds, precious metals, and crypto all fluctuated significantly. Bitcoin dipped in the first few days down to €52,900, marking the lowest point of the current correction. On Thursday, it began its journey back upwards. The turning point was the culmination of US Federal Reserve Chairman Jerome Powell's speech and a weak US jobs report.

Everything hinges on how hard the Federal Reserve applies the brakes. Until now, it has focused primarily on inflation, which had to decrease first. On Wednesday night however, Powell said that going forward he will also consider the second part of his mandate: employment. If unemployment rises, this will serve as justification to lower interest rates.

Thursday saw the release of employment data. Unemployment was higher than expected and fewer jobs were added than market forecasters had anticipated. In this case, bad news was good news, and as a result, financial markets surged upwards. The price of bitcoin rebounded to around €61,000 on Monday, which is back in the price range observed since early March.

Most cryptos reached their peak around March 14, nearly eight weeks ago. Since then, prices have been falling. Bitcoin is now about 13% below its peak, while ether is 22% down and solana 29%. Beyond these three currencies, the variations are more pronounced. In some categories, losses have been limited or essentially recovered, such as memecoins and AI coins. Other currencies, however, are experiencing more substantial declines.

In the chart below, we have included Aave as a representative of decentralized finance (DeFi). At -40%, Aave is still doing relatively well. Uniswap, GMX, and DyDx sit well below Aave, however. Past results show that recovery for such currencies can be just as rapid, but usually only after the major players have entirely ended their periods of correction.

For bitcoin, the correction is considered officially finished when the price sets a new record surpassing €67,500. A daily close above €63,100 is a good omen in any case. It signifies that the series of lower highs has been broken. This price is also above the 40-day average, which has frequently acted as the boundary between rising and falling trends.

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Is the price of ether about to explode?

The anticipated arrival of the spot ether ETF on the U.S. market has been cause for speculation for months now. In less than three weeks, we will know whether the US regulator will give the green light or not, and if the regulator will force market participants to reconsider their application strategies.

Approval could be the catalyst that causes the price of ether to skyrocket. To that end, analysts point to the changing relationship between supply and demand; the former increasing, the latter decreasing.

On the supply side, the first thing highlighted is the mechanism that has, since the summer of 2021, ensured that a portion of paid transaction fees are removed from circulation. This is commonly known as 'burning' in the crypto world. Thanks in part to the relatively low issuance of new ether, the total ether supply has since fallen slightly by -0,35%.

The behavior of ether owners is another point under scrutiny. They seem resolute, since more than half of their holdings have been fixed for more than two years. In addition, part of the total supply is locked in smart contracts (38%) and part fixed for generating staking returns (26%).

Source: Glassnode

On the demand side are users who need ether to pay their transaction fees, investors looking for a passive income, and speculators gambling on a price increase.

The approval of ether funds has the potential to attract a new group of investors. Ether optimists are confident that approval is inevitable. If not in May, then later this year. They correlate the performance of bitcoin ETFs to the introduction of these new funds. Surely a price explosion is next on the cards if all these factors are in place, right?

There are also a variety of signals that make this optimistic scenario uncertain. Let's look at two of these.

First is a regulator seeking to assert authority over the U.S. crypto market by means of enforcement. Only bitcoin seems to have escaped, while ether has fallen right in the SEC's sights. Last week it was revealed in a lawsuit against the regulator that it had been investigating "certain securities, including, and not limited to ETH" since April 2023. In doing so, the regulator appears to be going back on earlier statements made about ether, prompting concerns among US politicians that SEC Chairman Gary Gensler may have misled them.

However, American politicians supporting crypto are currently in the minority, which brings us to the second signal: that the political will to curb the growth of the crypto world is now greater. The Democrats in particular, including influential Senator Elizabeth Warren, are prioritizing this issue. Since Gensler was appointed by these same figures, their informal influence over the regulator's agenda is palpable.

As always, there are pros and cons. In spite of this, there is no question that May will be an important month for ether.

In other news

• Could Australia also see spot bitcoin ETFs this year? According to Bloomberg, there is a good chance that Oceania's main exchange will approve multiple funds this year. The significant influx of dollars into U.S. ETFs would be the main driver for this decision. In Australia, self-managed pension assets could provide substantial inflows.

• Tether reports a profit of $4.5 billion in the first quarter of 2024 according to the latest quarterly report. In total, the company issued more than $12.5 billion in USDT, with net equity surging by 61% to $11.37 billion. The company holds more than $90 billion in government bonds in its vault as collateral. Tether fortified its own reserves by $1 billion and currently possesses more than 75,000 BTC, which is worth nearly $5 billion.

• Solana poised to establish itself as third major crypto currency suggests Franklin Templeton, a major U.S. asset manager operating globally. "The network has proven itself on multiple fronts. Low costs and fast transactions that can be processed in large volumes. This is where Solana really shines." Compared to a month ago, the price of solana is down more than 20 percent.

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