Operation Liquidity Grab: Success

Crypto

Two weeks ago, BlackRock surprised the industry by submitting an application for a spot-based Bitcoin ETF, a move that caught attention because the Securities and Exchange Commission (SEC) has consistently rejected Bitcoin funds based on spot markets for many years. The application from the world's largest asset manager arguably poses a challenge to the SEC's stance, prompting other providers like ARK, WisdomTree, Invesco, VanEck, and Bitwise to also re-enter the race. Even the third-largest asset manager, Fidelity, has re-applied. The pressure on the SEC is intensifying with such a high-profile lineup of applicants. Moreover, an ongoing lawsuit with Grayscale adds to the pressure, with Bloomberg analysts estimating a 70% likelihood of a favorable outcome for the crypto conglomerate. If the SEC loses, it would mean a court-ordered conversion of the Grayscale Bitcoin Trust (GBTC) into a spot ETF, leading some market observers to speculate that the agency is seriously considering approving the current ETF requests from BlackRock and others. On Friday, the SEC instructed some applicants to provide additional information about their Bitcoin ETFs, gloriously reported by the Wall Street Journal with a notion of “according to people” scary-title-non-news article that caused more volatility than needed and gave an excuse to market makers to run stops and tap liquidity in both directions. All long position stops placed anywhere below the swing lows created in the last few weeks got taken out. But not before BTC pushed above 31k (running short stops) giving some hope of a breakout. Timed news? Coordinated liquidity grab? Maybe. Especially looking at the bounces across the market afterwards. Meanwhile, a decision on the spot BTC ETFs could potentially be made as early as August.

Furthermore, the approval of the first leveraged Bitcoin fund also signals a potential relaxation in SEC regulations. The product, named the "2x Bitcoin Strategy ETF (BITX)," offered by ETF issuer Volatility Shares, tracks double the performance of the S&P CME Bitcoin Futures Daily Roll Index. Although the fund is also based on CME futures markets, its approval is noteworthy because leveraged products are generally considered riskier for investors. As a result, the BITX fund is expected to be one of the most volatile ETFs in the United States. The timing of its approval adds to its significance.

Let’s have a look at the charts.

BTC/USD

1-Day Timeframe

From a higher timeframe chart perspective nothing has changed structurally since last week. We are following the sideways consolidation pattern and even got that liquidity grab towards 29.5k. All it would probably take to now to break the 31 - 31.5k barrier would be news that Blackrock and others comply with the SEC’s demand and provide the additional information that’s being requested. Chart structure wise that news (if it will be the “cause” of the break through) could drop within two weeks. But rather than speculating, let’s just see how PA will further develop from here. As mentioned last week already, as long as 30k is not lost (no consecutive daily candle closes below), I am leaning toward this being a bullish consolidation. The shakeout on Friday may just have been the first of several, but I took the opportunity to position myself long and would reconsider my positioning if we get confirmation of 30k support loss. My target areas, if the ETF narrative will be utilized, are 34 - 35k and 40 - 44k. However, without getting too excited, let’s not forget to keep an eye out for negative divergences on the RSI.

ETH/USD

1-Day Timeframe

Price has been hovering below the channel EQ on and off since June 22. The Friday scare in the markets last week was a lot kinder to ETH. While Bitcoin’s open and close were very close together, with long wicks on both ends, ETH managed to close that day with a gain of approx. 80$. Today the price is pushing several equal highs of around 1,942$. If price manages a sustained move above 1,965$ from here, the way towards 2,020 - 2,035$ should be open. On the downside I would not want to see the price drop below 1,740$, or the ship may turn around to still go for liquidity around 1,500 - 1,600$.

Legacy

The major benchmarks concluded Q2 (and H1) on a positive note, thanks to surprising growth and inflation figures. The S&P 500 recorded its best weekly gain since the end of March 2023, while the rally extended to small-caps and value shares helping the S&P 500 perform exceptionally well. The tech-focused Nasdaq Composite remained ahead of other benchmarks, boasting a remarkable six-month gain of almost 32%, marking its best year-to-date performance since 1983.

An outstanding achievement came from Apple, which achieved a market capitalization above 3 trillion USD, becoming the first publicly traded company to do so. The Wall Street Journal highlighted that Apple's valuation now exceeds that of five entire sectors in the S&P 500, including materials, real estate, utilities, energy, and consumer staples. Looks healthy.

The released inflation data on Friday significantly contributed to positive market sentiment. According to the Commerce Department, the personal consumption expenditures (PCE) price index rose by 0.1% in May, leading to a year-over-year increase of 3.8%, its lowest level since April 2021. The core PCE index, which excludes food and energy and is the Federal Reserve's preferred inflation measure, also retreated to 4.6% on a YoY basis. Although still above the Fed's 2% target, this eased concerns of a potential reacceleration in price pressures following April's unexpected increase. Personally I think the market is too eager to be optimistic, but overall, as traders, we should be more concerned about what the charts tell us, not our personal bias.

S&P 500 

1-Day Timeframe

The S&P 500 managed to break through the 0.702 fibonacci retracement level once again, making a higher from the week before. Notice the RSI making a lower high, not having gone back above 70. We should keep an eye on this move potentially developing into a textbook negative divergence this week. Since trading in the U.S. will be limited in the first half of this week, price action mainly after Wednesday will count, as the FOMC minutes release on that day may also lead to some unnatural volatility. Even if a negative divergence develops and plays out, I would not expect the pullback in price to be too harsh, before then continuing towards the 0.786 fibonacci retracement level. Only if the S&P 500 drops under 4,155$ (candle closes), would I feel the need to reassess my current thesis.

DXY 

1-Day Timeframe

Nothing much to comment on the DXY chart this week either. Key support (0.618 fibs) continues to hold and the bounce in value so far has rejected at around the 103.66 mark. Chart still needs some weeks (or a hefty news event) to show hints of what it may do. I will not however note that the daily RSI has broken through 50, usually a first sign of further upward in price value as long as it doesn’t drop back under that level.

Weekly Schedule

U.S.

This week will be short in trading hours in the U.S. due to the Fourth of July Holiday. Yet, it’s likely to be eventful with several key economic indicators and reports on the horizon. Among them are the ISM Manufacturing report, the FOMC Minutes, and the Non Farm Payroll report. 

The ISM manufacturing report is anticipated to show signs of stabilization in activity. The FOMC Minutes are likely to highlight concerns about the persistence of core inflation. As for the June U.S. jobs report, it is expected to reveal a slowdown in hiring, dropping from the previous pace of 339,000 jobs to 225,000 - 250,000. On a positive note, the unemployment rate is projected to stay the same at 3.7%, and Average Hourly Earnings (MoM) pressure is also expected to remain at steady pace with a 0.3% increase compared to the previous month.

Additionally, we will be hearing from a couple of Fed speakers this week. Williams will be taking part in a moderated discussion at the 2023 Annual Meeting of the Central Bank Research Association at the New York Fed (Wednesday), while Logan will speak (Thursday) on a panel addressing policy challenges for central banks at the Central Bank Research Association Annual Meeting at Columbia University.

Eurozone

Looking at the Eurozone, the inflation data released on Friday was highly promising with a YoY drop to 5.5% from 6.1%, beating forecasts of 5.6%. Although it may not directly impact the ECB's decision on whether to hike rates in July, as Lagarde has hinted before, if there are further signs of disinflation during the summer, the central bank might consider pausing its plans in September.

This week, there will be no potentially high impact releases, but markets will still keep an eye on the final PMIs on Monday and Wednesday and retail sales (MoM and YoY) on Thursday. Additionally, ECB President Christine Lagarde is set to make another appearance on Friday, which will be of interest to investors and analysts alike.

Written by: Gunter Lackmann