Could Crypto Assets Be Forming A Bottom? Altcoins Appear Poised For Strength As ETF News Helps Lift Solana While The SEC Faces A SCOTUS Legal Setback
The relative weakness we noted last week among crypto assets has persisted, although the sell-off may be approaching an inflection point, particularly for altcoins. While there are a myriad of reasons one can point to for this recent weakness (such as the mountain of government-confiscated Bitcoin suddenly hitting the market), several catalysts may help break this downtrend over the coming weeks.
Figure 1. Ether has had a prolonged pullback following the sharp move higher after the SEC’s sudden pivot on the Ether ETF applications.
The most obvious catalyst for some optimism is the looming launch of spot Ether ETFs in the United States. Although a definitive date has yet to be set for their release, there are reports that the ETFs may be approved as early as July 4th, as the SEC chairman said the process is going “smoothly” during recent testimony. If this timeline is correct, it could provide crypto assets with the shot in the arm that the market needs to break out of the recent doldrum we have been experiencing.
Figure 2. The price of SOL shot up this morning on the news of a VanEck spot ETF filing with the SEC.
Another ETF development happened just today when VanEck filed an application for a spot Solana ETF. The news caused Solana to jump over 8% as investors reacted to the headline. Despite the jump in price, the road to a Solana ETF may be a bit longer and more complicated than that of an Ether ETF. One of the main reasons for this could be the fact that Ether had a CME-listed derivatives product for several years before the SEC allowed Ether ETF applications to progress. The fact is that Solana trading mostly occurs on crypto exchanges, many of which are outside the United States, which could be a detriment to any rapid approval of a spot Solana ETF.
Most legal observers argue that Solana would require several years of trading history on regulated and well-established exchanges, such as the CME, before the SEC would consider approving such a product. The reasoning behind this is rather straightforward since the SEC may have concerns about the potential of market manipulation of the price of Solana if the asset mostly trades on exchanges that the SEC does not consider to be transparent, regulated or trustworthy. The best hope for a Solana ETF would be a political change in Washington following the US elections in November, which could see a more crypto-friendly Congress and/or administration. In this regard, the timing of this application could be significant, as one of Bloomberg’s “ETF Bros” pointed out today, since the timeline for an approval/denial would most likely occur around March of next year, well into the first term of a potential new administration. During a recent interview, VanEck's head of Digital Asset Research, Mathew Sigel, argued that the lack of a CME-listed futures product might not be necessary for a crypto spot ETF approval. Other industry analysts have echoed this reasoning as well.
Another important development that could help crypto in the United States this week is the decision by the Supreme Court to deny the SEC’s ability to use in-house judges to handle civil securities fraud accusations and levy financial penalties. The SEC had used such internal processes in crypto cases, including a 2018 “ICO Superstore” case. This legal brush-back is just the latest in a series of legal setbacks the regulator has faced over the past few years that could diminish its ability and willingness to pursue their anti-crypto scorched earth policies that have been frustrating US crypto firms for years.
One interesting indicator to highlight this week is the relative size of open interest (OI) in the perps market for bitcoin, Ether, and the total altcoin market. Over the last two years, the OI in the altcoin market has tended to hold a greater share than that of Ether’s perp market.
Figure 3. Relative dominance of total open interest of bitcoin, Ether, and the aggregate altcoin market.
The last two times this dominance flipped were during periods in the market where altcoins were experiencing ‘max pain’ or capitulation and were close to forming a bottom. As levered bulls get stopped or liquidated and interest in altcoins wanes, so does OI. During the September to January 2022 period of greater Ether OI dominance, Ether and bitcoin began to form their bottoms at the tail end of the bear market, while altcoins continued to bleed lower before staging a rally at the beginning of 2023. The second time Ether’s relative OI briefly flipped that of the altcoin market was in the summer of 2023, when the market was consolidating and experiencing lower levels of volatility before entering its strong uptrend that started in October 2023.
Figure 4. When Ether’s relative OI flips the altcoin’s total OI, alts have tended to be close to a market bottom.
We’ve now seen Ether’s OI dominance briefly flip for the third time since the crypto market bottomed in 2022. With the Ether ETF catalyst coming and a renewed narrative of a possible Solana ETF, which could open the floodgates to other altcoin ETFs, we could see a bottom forming on altcoins. It's no secret that altcoins have largely underperformed this cycle and have experienced a strong correction since topping out in April. Still, the prospects of medium—to short-term outperformance is beginning to look more promising.
Latest Crypto Developments
In this section, we highlight the latest developments that may be significant in either the price action or the trajectory of the crypto space overall.
Coinbase Sues SEC and FDIC Over FOIA Requests
Coinbase has filed a lawsuit against the SEC and FDIC, claiming that federal regulators are attempting to exclude the crypto industry by not responding to Freedom of Information Act requests. The exchange seeks transparency on how these agencies are handling crypto regulations. Coinbase’s CIO posted a thread on X (Twitter) explaining their reasoning for the lawsuit.
State Street and Galaxy Digital Launch Active Crypto ETF
State Street and Galaxy Digital have partnered to launch an active crypto ETF. This new financial product aims to provide investors with managed exposure to a variety of crypto assets.
Spot Ethereum ETF Issuers Update Filings
Issuers of spot Ethereum ETFs have posted fee and seed investment disclosures in their latest amended filings. These updates are part of the regulatory requirements and preparations for potential ETF launches.
Trump to Speak at Bitcoin 2024 Convention in Nashville
Former President Trump is in talks to speak at the Bitcoin 2024 convention in Nashville from July 25-27, highlighting his support for the industry, which contrasts with President Biden's stance. This event, run by Bitcoin Magazine, is one of the largest Bitcoin events in the space.
MicroStrategy's Bitcoin Holdings Worth Nearly $15 Billion
MicroStrategy's Bitcoin holdings have reached a value of nearly $15 billion. The company continues to accumulate Bitcoin, solidifying its position as a major corporate holder of the crypto asset.
Market Returns
That's Some Good Content!
Recommended articles, podcasts, and other content from this week:
Good Game podcast - Mid-Year Review & Predictions for the Rest of 2024
On the Brink podcast - Adam Healy (Station 70) on Digital Asset Cybersecurity
Empire podcast - Why Retail Can't Win | Regan & Mike, Lattice Fund
Galaxy Brians podcast - Uncovering Crypto Alpha w/ Chris Rhine
The Scoop podcast - DeFi is making institutional yield more accessible
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