Crypto Still Consolidating 1H-21 Gains During Slower Summer Months But Mining Stocks & On-Chain Data Offer Some Positive Early Signs
In our first crypto weekly of 2H 2021, we dive into the following:
- Crypto Had Strong 1H vs. Global Assets Despite Volatility
- Bitcoin Still Consolidating After Sell In May & Go Away Correction
- Bitcoin Trading Volume Down As Market Enters Summer Doldrums
- Ethereum Resuming Outperformance vs. Bitcoin After Recent Pause
- Smaller Cap Crypto Assets Underperforming vs. Bitcoin But Starting To Turn
- Crypto Mining Stocks Peaked vs. Bitcoin During Feb & Bottomed Mid-May
- Investors Selling At A Loss Bodes Well For Tightening Supply Environment
- Flow Momentum Shifting Back From Stablecoin Cash On Sidelines to Crypto
Crypto Had Strong 1H vs. Global Assets Despite Volatility
It’s said that strong markets tend to stay strong. Crypto had a very strong start to the year but had a very rough finish to the first half, yet most of the crypto market still managed to outperform all other global asset classes during 1H-21.
Source: Fundstrat, Bloomberg
Bitcoin Still Consolidating After Sell In May & Go Away Correction
As crypto has entered the portfolios of many institutional investors, we believe broader market trends are playing a bigger role. The old saying of sell in May and go away seems to have played out with Bitcoin and crypto during 2021.
Over recent months, Bitcoin has been absorbing large gains from 2020 and early 2021 and remains in a choppy consolidating market for now.
Source: Fundstrat, Bloomberg
Bitcoin Trading Volume Down As Market Enters Summer Doldrums
We think part of the choppy market price action as of late can be explained by the lower trading volumes that have been see as we enter the summer months. These lower volumes are reflected in both reported exchange data and consistent with the conversations we’re having with OTC trading desks who are seeing a similar slow down as well. We think this lower liquidity makes Bitcoin and crypto a bit more reflexive to supply / demand changes and could make it easier for us to see a sharper move in either direction.
Source: Fundstrat, Skew
Ethereum Resuming Outperformance vs. Bitcoin After Recent Pause
Ethereum, which we have been recommending an overweight in vs. Bitcoin since early 2020, has started to outperform BTC again over recent weeks.
Source: Fundstrat, Bloomberg
Smaller Cap Crypto Assets Underperforming vs. Bitcoin But Starting To Turn
Smaller cap higher beta crypto assets tend to outperform during bull market upcycles and underperform during market corrections.
Alts had been outperforming during the early part of the year but have cooled off recently. On May 17 we mentioned markets could see a temporary rotation back into Bitcoin, which we’ve since gotten during this sell off. As the market has stabilized, alts are trying to find a relative bottom vs. BTC where they can start outperforming again. Alts have started to turn slightly since the low put in during the last weekend of June, that may have been the start of a rotation back. But we think it’s still too early to say.
Source: Fundstrat, Bloomberg
Crypto Mining Stocks Peaked vs. Bitcoin During Feb & Bottomed Mid-May
Crypto mining stocks are higher beta plays to Bitcoin and their performance has been a leading indicator for Bitcoin at times. Most crypto mining stocks peaked relative to Bitcoin back in late February and March before Bitcoin peeked in mid-April. Since the Bitcoin sell off, most crypto mining stocks bottomed in May and have been outperforming relative to Bitcoin over recent months.
Source: Fundstrat, Bloomberg
This trend is even more apparent when looking at the average relative performance of the mining stocks listed above.
Source: Fundstrat, Bloomberg
We think this price performance may reflect the following:
- Money flowing into and out of public crypto mining stocks may be an early signal for traditional institutional interest in crypto increasing or decreasing – with the recent uptrend possibly being one sign that money may start flowing back into the space
- Crypto miners on the ground expectations for spot price performance and mining profitability reflected in their guidance to investors
Following the mining ban in China, many producers have gone offline and Bitcoin hash rate has fallen substantially over recent week. Investors may be expecting greater profitability for operational crypto miners post this hash rate reduction.
Source: Fundstrat, Glassnode
Investors Selling At A Loss Bodes Well For Tightening Supply Environment
We find on-chain data analysis to be helpful for gauging market activity. One metric we find insightful is SOPR or Spent Output Profit Ratio. SOPR is calculated by taking the realized value and dividing by the value at creation of a spent output. Or simply: price sold / price paid. When SOPR is above 1 it implies owners of the asset are in profit at the time of the transaction. Below 1 implies sellers have capitulated and sold at a loss.
In a bull market, as we believe we are still in today, a SOPR below 1 can indicate a local bottom as sellers are reluctant to sell at a loss. In a bear market, a SOPR rising above 1 may catalyze further selling as investors are waiting for the point at which they are break-even on their position to sell.
In May, during the recent bitcoin correction SOPR crossed 1 and has held there since until recently. If this bull market is not yet over, this could be a similar set up to the ones we saw during 2017 where SOPR touched just briefly below 1 before making moves higher.
Source: Fundstrat, Glassnode
Flow Momentum Shifting Back From Stablecoin Cash On Sidelines to Crypto
The Stablecoin Supply Ratio gauges this through the relationship between Bitcoin supply and stablecoin supply. A low SSR implies high quantities of stablecoins on the sidelines – or more buying power to purchase risk-on digital assets. SSR appears to have bottomed in May and has been steadily increasing since. The SSR Oscillator smooths the metric and gives us a gauge of flow momentum – which had been shifting from BTC to stablecoins but has slowed, bottomed, and started shifting back.
Source: Fundstrat, Glassnode
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