Forward-looking trading dominates the market: Large-scale capital inflows drive a strong rebound in Bitcoin

In the March report, we hinted at "the movement of the opposites" and pointed out that "the panic selling has been maximally released," and that "the second quarter will welcome a reversal market." Ultimately, in April, Bitcoin experienced a fierce rebound, rising 14.11% in a single month, recovering all recent losses.

The trade friction that dominates the trends of the global financial market officially escalated in April, causing a violent impact on the market, with panic sentiment soaring and asset prices significantly adjusted downward. However, after the release of this sentiment, along with a softening of policy attitudes and the publication of relatively resilient U.S. economic and employment data, funds rushed into the U.S. stock and crypto markets.

Bitcoin adjusted ahead of the US stock market, and after the US stock market completed its bottoming out, it surged due to a large influx of buying capital. More importantly, after more than two months of adjustment, the chip structure has greatly improved, and the internal state is more stable.

The S&P 500 and the cryptocurrency market have fully recovered all recent declines. In light of the unresolved trade disputes and the uncertainties regarding whether the U.S. economy is in recession, the market performance is very strong, continually pricing in various pieces of the latest information. However, for the market to achieve a reversal, the trade dispute needs to enter the third phase (reaching an agreement) and confirmation of U.S. economic data is required. In the meantime, there will likely be many ups and downs.

Macroeconomics: Trade Dispute Expectation Trading Triggers Market Sharp Revision

In the March report, we mentioned, "The new trading judgment framework was initially established at the end of February, and throughout March, the output from this judgment framework was based on the continuously released various economic, employment, and interest rate data inputs." April continued to evolve on this basis, with the softening of policy attitudes playing a major role. Coupled with relatively strong economic and employment data released in April, traders weakened their concerns about "economic recession," and ultimately, after the monthly revision trend came to an end, forward-looking trades betting that trade disputes would not lead to an economic recession dominated the market trend. Both the Nasdaq and Bitcoin recorded positive monthly returns after falling and then rising.

At the beginning of April, trade disputes escalated, leading to a panic sell-off in the US stock market, with all three major indices falling below their yearly averages. Both long-term and short-term US Treasury bonds saw significant declines, as traders sold stocks to move into the bond market and European stocks. Large-scale protests and marches erupted across the United States.

The market sell-off has entered the second phase, with a massive sell-off of U.S. Treasuries. After the trade dispute officially escalated, the 2-year U.S. Treasury yield rose above 4%, and the 10-year U.S. Treasury yield approached 4.6%. The sell-off has spread to the foreign exchange market, with the U.S. Dollar Index falling to 97.911, surpassing last year's low point during the Carry Trade collapse. The Nasdaq has entered a technical bear market.

This situation has triggered greater panic in the market, with criticism and protests from businesses and the financial sector rising to a fever pitch, undermining the fundamental confidence in the market, forcing the policy to make concessions.

First, suspend tariffs for 90 days on all countries except China to ease tensions with allies and gain more negotiation time. Subsequently, reports emerged that the government might significantly reduce high tariffs on Chinese goods, possibly by more than half, to alleviate tensions with China.

Gold emerged as the only winner, rising from $2970/ounce to a peak of $3499.93 (April 22). However, it still recorded a significant increase of 5.08% for the month.

The US stock market has temporarily rebounded strongly after hitting bottom on April 4. After the policy "softening" on the 23rd, the rebound continued, and by the time this report was completed (May 2), the Nasdaq and S&P 500 had completely recovered the losses caused by the trade dispute.

Looking at the whole month, the Nasdaq rose 0.85% in April, the S&P 500 fell 0.76%, the Dow Jones fell 3.17%, and Bitcoin soared 14.11%.

During this process, although the market once bet that the Federal Reserve would initiate a temporary rate cut and expected the probability of a rate cut in May to exceed 80%, the Federal Reserve has maintained a tough stance, only reiterating that it would intervene in the market if unexpected events occur in the job market, releasing some "dovish" signals at the time of the "triple kill" in stocks, bonds, and currencies.

Economic data released in April showed that inflation has cooled down, and employment data remains strong. This has temporarily eased market concerns about a recession, and combined with the "softening" of policies, despite the trade dispute still being in the second phase ("negotiation") and progressing slowly, funds from retail investors and active funds have initiated forward-looking trades, significantly buying in and driving a strong rebound in U.S. stocks.

We tend to view the adjustments from February to April as a sharp correction in the US stock market, which has been overvalued for two consecutive years due to trade disputes. This is a technical test of the bear market, but there is not yet sufficient data to indicate that the US economy will enter a recession. Currently, US stock valuations have seen some decline, but they are not cheap either; the market pricing is relatively adequate. If prices continue to rise, more supporting conditions are needed, such as further easing of trade disputes and a decline in CPI. The outlook for interest rate cuts is not optimistic, with market expectations for rate cuts being pushed back to July. After a significant rebound, we tend to make a neutral judgment and need to closely monitor developments in trade disputes and economic data. If signs of economic deterioration emerge, further downward adjustments may occur.

Crypto Assets: Solid Chip Structure + Long-Term Holding

At the beginning of the month, there was a crash-like decline, but by the end of the month, there was a significant rebound. The Bitcoin trend in April is a model of "reverse trading," where one buys in times of fear and waits for the situation to stabilize, leading to a rapid rebound in asset prices.

In April, Bitcoin opened at $82,534.31, dipped to a low of $74,420.69, and closed at $94,182.54, marking a 14.11% increase of $11,648.22 for the month, with a monthly volatility of up to 26.12%.

The monthly trend showed a decline followed by a rise, with the lowest point occurring on April 7, "Black Monday". Following the official escalation of the trade dispute, it rebounded from the bottom and gradually rose. Calculating by daily fluctuations, the number of rising days in the 30 trading days was far higher than that of falling days.

Technically, Bitcoin confirmed its long-term trend by rebounding three times on the annual line amid the plunge linked to the US stock market, and on April 22, it surged 6.82%, strongly breaking through the 200-day line, returning to the "Trump Bottom" (the box structure formed after Trump's victory) and approaching the "first upward trend line" of this bull market.

Compared to the US stock market, Bitcoin's performance is very strong, thanks to the price correction that began in March, the accumulation by long-term holders and large investors, as well as favorable support at the policy and use case levels.

Since President Trump signed the executive order in March to establish a "strategic Bitcoin reserve," multiple states in the U.S. have continued to advance their own "Bitcoin reserve bills." On April 30, the House of a certain state passed two Bitcoin reserve bills, which are currently awaiting the governor's signature. If the bills take effect, this state will become the first in the U.S. to allow state finances to hold Bitcoin. Once the state bill is officially enacted, it is believed that the pace of advancement in other states will also accelerate.

The expansion of Bitcoin's use cases and the rise in its price are in a continuous feedback loop of mutual reinforcement. In March-April, the turmoil in the global financial markets caused by trade disputes and subsequent revisions temporarily interrupted this process. However, the internal holding structure and market movements within the cryptocurrency market remain intact and stable. Once the panic subsides, Bitcoin will regain its upward momentum. In the future, with potential turmoil from trade disputes and macro-financial issues, Bitcoin's price will still face fluctuations. Breaking through previous highs will depend on the resolution of trade disputes and whether the U.S. economy avoids falling into recession.

Chip Structure: Long Hands, Sharks Increasing Holdings, Long-term Buyers Sweeping Up

On October 4, 2024, accompanied by a strong influx of funds into the market, the long-hand group initiated the second wave of selling in this cycle. The vigorous capital inflow, after absorbing the selling pressure, continued to push the price close to $110,000.

After entering March, with the loss of liquidity, the price of Bitcoin plummeted significantly. Subsequently, the long-hand group once again played the role of a "stabilizer," shifting from selling to increasing holdings.

In addition, one of the large holder groups whose holdings range between 100-1000 coins—sharks—has continued to increase their positions during the decline and accelerated their purchases in late April, accumulating more than 80,000 coins throughout the month, becoming the backbone force in reversing the trend. It is noteworthy that this group is also the main buyer that will drive the price of Bitcoin from $70,000 to $100,000 between October and December 2024. Based on the characteristic of this group, whose buying scale far exceeds the selling scale in this cycle, it can be judged that their behavior aligns with long-term investor characteristics, and their recognition of this price range contributes to price stability.

After buyers from all sides swept up the goods, the exchange's Bitcoin stock decreased by about 60,000 coins in April.

In late February, the price began to decline, and by the end of April, the price returned to the level of late February. Accompanied by market fluctuations and sufficient chip exchanges, comparing the chip distribution from January 31 to April 30, it can be seen that the chip focus in the range of 74,000 to 100,000 USD has significantly shifted downward, with some chips priced above 100,000 USD moving down to the 74,000 to 94,000 range.

The market fluctuations over the past two months, viewed from the perspective of chip distribution, indicate that the FOMO new entrants were forced to sell their chips during the sharp decline, while the chip shortage in the range of 7.4-9.4 has been refilled. According to certain data, the current short positions have already moved out of the unrealized losses, and the proportion of Bitcoin in unrealized losses across the entire chain has also dropped to 14%. The market pressure caused by panic and losses has significantly improved.

Funds: A desperate effort to turn the tide, over 10 billion funds are rushing in.

Divided by mid-month, under the pressure of trade disputes and macro financial panic, funds overall showed an outflow trend in the first half of the month. However, since April, stablecoin funds have continued to flow in, and by mid-month, with the "softening" of policies and the stabilization and rebound of the US stock market, funds for Bitcoin Spot ETF channels also began to rush in, rapidly pushing the price of Bitcoin above 94,000 USD.

From a monthly perspective, the ETF channel funds controlling short-term pricing power showed an outflow trend in February and March, pushing Bitcoin prices down, while the overall fund inflow in April reached 8.4 billion USD, making it the sixth largest inflow month of this cycle.

The above statistics do not include the accumulation data of a certain company. According to its announcement, the company made three accumulations through fundraising in April, purchasing a total of 25,370 Bitcoins and investing over 2.2 billion dollars. Thus, the total inflow of funds in the entire market in April exceeded 10 billion dollars.

The price trend of Bitcoin is reflected in the inflow and outflow of funds in the market. Currently, the inflow of funds can be categorized into three types: one is the funds from the Bitcoin Spot ETF channel, which often follows the fluctuations of the US stock market; another is the fundraising from a certain company, which has a good continuity of inflow; and the last is the stablecoin channel funds, also known as on-site funds, which have seen only one month of net outflow since their inflow began in October 2023, with all other months showing positive inflow (not all stablecoin funds flow into the crypto market).

Although from February to April, the crypto market experienced severe fluctuations and technically fell into a bear market, based on an analysis of overall funding and the trend of long-term holders, we believe the market cycle is still in an upward phase, namely a bull market. We believe that after the adjustment, the chips will return to long-term holders and large investors. This downward adjustment will help strengthen the chip structure. Once the impact of trade disputes gradually fades and market trading enthusiasm rekindles, the price of Bitcoin will likely break upward again.

Conclusion

In the March report, we pointed out that "after experiencing a stormy first quarter, the outlook for the second quarter remains unclear, but the most painful moments may have passed. Once policies and the Federal Reserve return to a rational game state, the market should be able to.