A lot of different catalysts are coming together at once this week and the crypto market looks to be heating up. Not much has happened in the market for the last couple of months following a major run earlier in the year.
But with a good CPI report last week, a more dovish Jerome Powell, stocks back at all-time highs, and a few other major crypto catalysts, we are beginning to see signs that the market may be in for another run. On-chain data and technicals are also beginning to show signs of strength which is further supporting the market.
Market Catalysts
Before getting into the charts, there are a few key catalysts that could ignite the market over the next few weeks, and they’re all happening this week.
1. Congress Overturns SEC Crypto Accounting Rules
In 2022 the SEC implemented SAB 121, an accounting rule that requires companies that custody crypto assets for their clients to record those assets as liabilities on their balance sheet.
Last week Congress voted to overturn SAB 121 using the Congressional Review Act process. President Biden has stated he will likely veto Congress’ resolution overturning SAB 121, but as of now has not yet done so.
The ball is now in President Biden’s court to either veto or sign the resolution overturning the SEC’s controversial crypto accounting guidance, if he does not veto the bill, it would be a major step in the right direction for companies that custody crypto for their clients.
2. Fit for the 21st Century Act
The FIT21 Act ‘Financial Innovation and Technology for the 21st Century Act’ just passed Congress which is yet another major step forward for the crypto industry in the United States.
The Bill aims to provide a comprehensive regulatory framework for digital assets in the United States. It also seeks to clarify the jurisdictional boundaries between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), with the SEC overseeing digital assets classified as securities and the CFTC regulating digital commodities and derivatives.
The Act introduces robust consumer protection measures, including disclosure requirements for digital asset issuers and guidelines for market participants. It also establishes a process for secondary market trading of digital commodities initially offered as investment contracts.
3. The Ethereum ETF May Be Approved On Thursday
The status of the Ethereum spot ETF approval process has seen a sudden positive development in recent days. The U.S. Securities and Exchange Commission (SEC) has just asked exchanges seeking to list spot Ether ETFs to update their 19b-4 filings on an accelerated basis by May 23rd, suggesting potential progress toward approval.
This move has led ETF analysts to dramatically raise the odds of spot Ether ETF approvals from 25% to 75%. Approval is not yet guaranteed, however, if they are indeed approved, it would be a significant catalyst for Ethereum.
4. NVDA Earnings
Last but not least, NVDA earnings just came in and once again they beat expectations growing Q1 revenue to over 26 billion from 7.2 billion in Q1 of 2023. These numbers equate to a growth of 3.6X in revenue from the same quarter one year ago, all while their costs only went up 2.22X from 2.5 billion to 5.6 billion.
An additional point to note is that NVDA also announced a 10:1 stock split which would take the stock price down to around $100 give or take. This will give some individuals the opportunity to buy the stock without having to allocate a minimum of $1,000 at the current price.
To sum it up, the earnings look pretty good on the surface level, which shows continued strong investment in AI technology. This is a good sign for medium to long term growth of the economy.
Stablecoin Market Velocity
Getting into the charts, a good gauge of on-chain crypto activity and liquidity is stablecoin velocity. In the same way that we calculate money supply velocity in the traditional financial system – which essentially refers to the speed and frequency at which capital is being moved around – we can also calculate stablecoin velocity in crypto to identify how active and liquid the market is.
Higher velocity means more activity and liquidity which shows that the market is heating up. A sustained uptick in velocity coupled with an acceleration in the stablecoin market cap is a good signal that investors are coming back into crypto.
Short-term Holder Realized Price
The second chart to highlight is the short-term holder realized price, which is the aggregated cost-basis for all bitcoins that were bought/sold within the last 155 days. Bitcoin once again used its short-term holder realized price as support and is looking bullish again.
As we’ve said countless times, STH realized price is the most reliable support and resistance level for bull markets and bear markets, because Short-term holders always defend their cost basis in bulls and sell at their cost basis in bears. Because short-term holders have once again defended their cost basis, we know that the overall trend is still very much bullish.
BTC ETF Inflows
Chart three is Bitcoin ETF net flows. After having a rough couple of months in March and April, the Bitcoin ETF net flows have begun to pick up a bit more steam in May. This is another sign that Wall Street is now beginning to sense a bullish shift in momentum and they want back in on the action.
TOTAL3 Altcoin Index
The last chart we’ll look at is the TOTAL3 index, which is the full crypto market excluding Bitcoin and Ethereum. This chart gives us an idea of how the total altcoin market is doing. As you can see, the index has put in 3 higher lows over the past month and a half and is showing significant signs of strength.
Additionally, it just broke above the 50-day moving average and is trending higher. The next key resistance levels are around 690 and 750. Breaking and holding above 690 would be a signal to us that the market has the strength to go higher from here.
Our Current Outlook
The biggest catalyst that we are watching will be the ETH ETF decision on Thursday 5/22. Approval of the ETH ETF could likely be the start of another leg up for the crypto market, potentially sending Bitcoin to 80k and Ethereum to its all-time high. However, if the ETFs aren’t approved we will have to see if the ‘fit21 act’ and other catalysts can outweigh the disappointment of the ETF rejection.
Overall, in the short and medium term, the market is currently looking very strong from both a qualitative and quantitive standpoint. With ETF flows increasing, stablecoin velocity spiking, and a decreasingly hostile regulatory environment, the crypto market seems poised for good growth.
On the horizon, we’re continuing to monitor incoming macro data to identify shifts in the regime so we can stay ahead of the market.