August Outlook: Cumbersome seasonality ahead
Seasonal effects, a momentum setback, emerging correlations, and macro uncertainty point toward August stagnation. With the election coming up, we view this stagnation as an ideal period for aggressive accumulation.Mantra intact
This summer has been intense. While the uninspiring mantra of selling in May and staying away holds true, the news and price cycle have been all but docile. Bitcoin has endured Mt. Gox distributions, government selling, and, most recently, collective mass macro panic stemming from a Japanese rate hike.
Alongside these substantial headwinds, double-edged swords from Trump endorsements and ETH ETF approvals have led to hyperactive markets and are likely to swing the markets in the months to come.
The return of correlations?
Global markets matter to bitcoin again and could very well become this month’s meta. Correlation 1 moments, such as yesterday’s carnage, tend to be somewhat sticky in crypto.This has implications. Traders should prepare for increased market sensitivity to U.S. job data, CPI prints, interest rate expectations, and monetary policy developments. The Jackson Hole symposium from August 22 to August 24 could mark an inflection point, with the market awaiting clues on the Fed’s path onwards.
If this is not your cup of tea, August should be best suited for a passive accumulation approach, as other narratives will gain traction as we exit the summer.
Expecting a slow W-shaped recovery
Crypto markets typically revisit liquidation lows. Monday’s intense price action saw BTC rush to lows of $48,800 amidst massive forced selling, leading notional perp open interest to decline by 12.5%. All past incidents of long squeezes of a similar magnitude have been followed by stagnant markets, typically featuring a W-shaped recovery with prices revisiting range lows.
Seasonality factors favor a W-shaped recovery. August and September have been the weakest-performing months in BTC over the past five years. This seasonal effect, heightened macro uncertainty, and the momentum setback from yesterday’s liquidation cascade point toward more chop throughout August.
An obvious narrative is emerging
We are 90 days away from the U.S. election. Debates, polls, and the upcoming election are likely sources to overtake the narrative relay pin from U.S. recession fears once the election nears, as crypto has graduated to become a topic discussed by the Presidential candidates of the World’s leading superpower.
Trump’s courting of crypto has been a double-edged sword, with prices tagging along with his election odds. For now, Trump has emerged as the pro-crypto candidate, but it’s far from unlikely that Harris will form a similar (albeit less vocal) stance to secure young voters. Regardless, the election is due to reignite attention to crypto markets and is well positioned as a narrative to disrupt the current correlation regime and generate positive momentum.Grayscale effect 2.0: It’s due to fade
The launch of ETH ETFs has mirrored the launch of BTC ETFs closely. Massive Grayscale outflows, alongside disharmonic markets, have been a net negative for ETH. This has steepened ETH underperformance vs. BTC, pushing ETHBTC below 0.045.
We expect the wave of ETHE outflows to moderate in August, and ETH flows to mirror those seen in BTC in late February. This bias still favors aggressive ETH exposure throughout August.
