Market Update August 2024: New bottom or quick recovery?

The active management of Bitcoin holdings by Mt. Gox, the German State of Saxony, and the U.S. government led to significant selling pressure over the past month. In addition, poor stock market performances in Asia and America have caused the crypto market to show deep red figures in recent days. The limited liquidity of cryptocurrencies continues to result in volatile market movements. With MiCAR, the new EU-wide crypto regulation, consumer protection will become part of the oversight. All European crypto companies are currently concerned about this new regulation, which will take effect on the 30th of December for crypto service providers. As of the 1st of July, MiCAR already applied to stablecoins, which now fall under supervision and must be licensed. The first MiCA-regulated stablecoin is offered by Circle, best known for USDC and EURC.

In the coming months, it will become clear which crypto companies and stablecoins will be regulated and continue their growth. At Blockrise, we continuously monitor these developments.

📈 Market Update

A brief analysis on Bitcoin, Ethereum and Blockrise Fundamentals:

Bitcoin Analysis

In July, Bitcoin prices initially fell due to the influx of long-dormant Bitcoins entering the market, resulting in a drawdown of nearly -17%. However, the cryptocurrency rebounded strongly, surging by 30% and ending the month on a positive note. Despite this recovery, the market faced continued pressure from Mt. Gox's ongoing Bitcoin distribution to investors, and the US government's sale of a portion of their "Silk Road" bitcoins.

Yesterday, Bitcoin experienced its steepest 7-day drop since the FTX incident, losing nearly a fourth of its value. This sharp decline was primarily driven by a combination of global market factors. First, stock market fluctuations had a significant impact on the crypto market. Additionally, the Federal Reserve's unadjusted interest rate and rising unemployment rates in the US heighten economic pressures. Third, Japan's second interest rate hike since 2007 added to the yen's volatility, causing friction with other currencies. Meanwhile, geopolitical tensions in the Middle East further increased the risk environment for investors. These factors collectively fueled a widespread sell-off in both the equities and bond markets.

On a brighter note, Bitcoin miners resumed operations, pushing the hashrate to a new record high. The difficulty of finding the next block decreased by -7% since its peak in May, lowering energy costs and boosting profitability for miners.

Ethereum Analysis

In early July, Ethereum followed a similar path to Bitcoin, experiencing a significant drawdown of -21%. The recovery was less pronounced, as the launch of the Ethereum ETF faced outflow challenges, mirroring the issues seen with the Bitcoin ETF launch. Investors capitalised on the "buy the rumour, sell the news" scenario, combined with negative outflows from the Grayscale ETF in its first week.

Ethereum is currently trading at €2,800, with a 7-day drawdown of -33%, showing a stronger reaction to the negative influence from the stock market. Additionally, the ETFs experienced the largest outflow in three months. Despite this, we anticipate a turnaround in the coming months, along with positive price appreciation for Ethereum.

Fundamentals

Blockrise offers comprehensive care with its asset management strategy called "Fundamentals." This strategy involves managing assets in Bitcoin and Ethereum versus a euro position, reassessing and adjusting these positions monthly.

July began with a sharp price drop of -17% for Bitcoin and a price correction of -21% for Ethereum. However, the market responded with strong buying pressure, resulting in a monthly return of +1% for Bitcoin and -11% for Ethereum. Fundamentals limited the impact with the euro position, resulting in a correction of -0,8%. Initially, the allocations were kept at the same ratio as the previous rebalancing: 62.5% in Bitcoin, 17.5% in Ethereum, and 20% in euros.

However, due to the sharp decline in Bitcoin and Ethereum in the first week of August, we subsequently conducted an intermediate rebalance. We reduced the euro position by 5% to 15%, allowing us to increase the Bitcoin position by 5% to 67,5%, while keeping the Ethereum position at 17,5%.

🗞 Crypto Highlights

An overview of the most notable events in crypto:

Ethereum ETF

The Ethereum ETFs now officially represent the second regulated crypto ETF on the stock market. The Bitcoin ETF is recognised as the most successful ETF launch to date, with $17 billion in net inflows since its launch in January.

The Ethereum ETF attracted a trading volume of $1.15 billion on the first day but also experienced a net outflow of $484 million from the costly Grayscale ETF. This significant outflow, similar to that of the Bitcoin ETF, is expected to decrease in the coming weeks, potentially increasing the buying pressure on the Ethereum ETF. Nevertheless, this launch is once again a historic moment for the adoption and acceptance of cryptocurrencies.

Hack at Wazir X

Two weeks ago, Wazir X, one of the largest crypto exchanges in India, was hacked by North Korean hackers, resulting in a loss of $230 million. The hackers targeted a multi-sig wallet, a wallet that requires multiple signatures and contained nearly 50% of the exchange's balance. By hacking the software of three devices used for signing, they were able to transfer the balance. This breach caused enormous selling pressure on the exchange, resulting in Bitcoin trading at a 30% discount compared to other exchanges. Not long after, trading was suspended.

Incidents like these are unfortunately common. Many exchanges use internal software to manage order books and transactions, often consolidating client funds into a few wallets, or sometimes even a single wallet. Although the platform often presents a segregated fund structure, the reality is often different. For investors, the safest way is to trade on the exchange and then transfer the funds to a secure wallet that they own.

🔐 Blockrise update

Over the past month, we have primarily implemented many under-the-hood improvements, making our systems even more robust, secure, and future-proof. This is an important part of launching several new services, including the Blockrise legacy solution. Additionally, a large part of the team is dedicated to the MiCAR application.

In the coming weeks, a completely revamped Blockrise App will be made available. Besides a range of cosmetic improvements, it will now be possible to switch between multiple Blockrise accounts, and prices will load faster.

Expansion of Blockrise

These developments naturally go hand in hand with the expansion of Blockrise. We are actively looking for new talents! Various roles have been posted on the careers page, including Head of Compliance, Risk Analyst, and Office Manager. More vacancies will be posted in the near future as Blockrise continues to grow. References are, of course, very welcome.

Next month, Blockrise will also start its Series A investment round, through which we aim to attract growth capital for international expansion and market acquisition. If you are interested in participating, please do not hesitate to contact our CEO Jos Lazet ( [email protected] ).

🏦 Macro Economy

An overview of relevant global economic events:

Biden's Announcement and Market Reactions

On Sunday, July 21, U.S. President Joe Biden announced that he will not seek re-election. This decision came after increasing pressure from various senators within his political party, combined with declining trust. This was further exacerbated by Biden's debate performance against Trump and his recent conference speech.

After his endorsement of Kamala Harris, the crypto market recovered from a brief dip. Former President Donald Trump has also made several statements about Bitcoin, including a proposal to put Bitcoin on the U.S. balance sheet. For the crypto market, a Republican victory could be favourable due to their more positive stance towards cryptocurrencies. However, stock market analysts remain sceptical, noting that the "Trump Trade" in 2016 was driven by anticipated tax benefits. Currently, analysts argue that the U.S. debt and the strength of the U.S. dollar will persist regardless of the new president.

The IT Glitch of the Century

On 19th July, the infamous "Blue Screen of Death" (BSOD) became a common sight across various industries due to a significant IT glitch. This bug was caused by CrowdStrike, a global IT security company. A corrupted software update affected 8.5 million Windows devices, representing 1% of all Windows devices, highlighting the critical reliance on CrowdStrike by many enterprises. The glitch caused widespread outages, impacting social media platforms, hospitals, and airlines. Despite an initial 18% drop in CrowdStrike's market value, the crypto market thrived, receiving significant inflows as it acted as a digital safe haven amidst the turmoil.

The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.