06 May 2024

May Outlook: Accumulate in May

My base case is that the market is due to be choppy in the coming months. Bitcoin’s clear seasonal stagnation pattern from May to September makes it hard to be affirmatively bullish in May.
Outlook Cover (3)
Deleveraged and an asset bleed coming to an end?
It’s undeniably a sign of strength that BTC holds $60,000 while perps maintain a consistent discount to spot. In one month, froth turned to fear as derivatives yields plummeted from multi-year highs and down to pre-$30k breakout lows. De-risking and liquidations throughout April have drastically improved the robustness of the crypto derivatives market, favoring a positive outlook ahead. Grayscale flows offer another very productive signal for the time to come. The sell-side pressure behemoth ended its 78-day-long asset bleed last week and has seen two consistent days of inflows. The inflows themselves are not material in size, but an end to the outflows is.From January 10 to May 2, GBTC sold a total of 327,981 BTC. That’s the equivalent of two years of BTC miner rewards that buyers have needed to absorb in the market to support current prices. An end to the constant outflow regime suggests that the selling pressure from GBTC has entered exhaustion, which further favors a positive outlook ahead. Positive waves to the newborn ETFs may emerge from an end to GBTC’s asset bleed. All nine ETFs saw inflows on the day of GBTC’s reversal, May 3, and the trend reigned positive yesterday. Alongside the end of the GBTC bleed, ETF issuers and broker-dealers are still pursuing unrestricted offerings of Bitcoin ETFs from large wealth managers, which, in due time, may reinforce an inflow wave similar to the wave seen in late February.
While the market structure is positive, upcoming narratives pull in the opposite direction
The next months are rigged to see waves of good old crypto FUD. Gemini creditors will be reimbursed with ~27,600 BTC in the coming months. Bitcoin is up 283% since Gemini halted withdrawals in November 2022, a return potent to motivate a portion of creditors to realize profits upon receiving the repayment. Mt. Gox distributions dwarves Gemini, amounting to 141,000 BTC and 142,000 BCH. The 10-year-long bankruptcy process has made progress over the last few months, with creditors already reporting on yen repayments. This is as clear of an indication as you may get that Mt. Gox repayments are actually happening. Whether they happen in May or later this year is impossible to say with certainty, but on-chain movements from Mt. Gox are due to negatively impact the market and represent a solid adverse uncertain overhang for the coming months.Hedging Mt. Gox distributions by shorting Bitcoin Cash once the Mt. Gox wallet distribution starts is an appealing strategy. Among Mt. Gox creditors, we find several OGs and whales who have held onto or built BTC exposure since the exchange collapsed. A majority of these whales opted for BTC over BCH following the 2016-17 fork wars and will, in all likelihood, be more inclined to sell BCH for either cash or BTC rather than BTC. Further, liquidity in BCH is substantially thinner than in BTC. Thus, BCH is rigged to underperform BTC in a redistribution scenario. Once on-chain Mt. Gox wallets re-activate, I will evaluate yields and open interest in Bitcoin Cash and potentially seek to hedge a portion of my BTC exposure by shorting BCH.
Strong structure but weak seasonality and narratives favor spot accumulation
My base case is that the market is due to be choppy in the coming months. New ETF waves may pull us higher, while sudden Mt. Gox distributions are due to pull markets south. Alongside these major factors pulling in opposite directions, Bitcoin’s clear seasonal stagnation pattern from May to September makes it hard to be affirmatively bullish in May. That said, several factors point towards a positive end to the year. Indications of more positive liquidity conditions in global markets, compounding halving effects, and the upcoming U.S. election all motivate a bullish end-of-the-year thesis. All in all, current conditions favor spot market accumulation and a hands-off approach with leverage in BTC.
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