How Much Lower Will Crypto Go?

Another day in crypto, another leg down! Tokens bled out on Monday, with the total crypto market cap (TOTAL) declining by 3.1% on the day. When will crypto prices find support?

Sell pressure from Grayscale’s Bitcoin Trust (GBTC) redemptions has contributed to the crypto markets’ downward trajectory. The investment manager deposited an additional $623M BTC to Coinbase this morning when US markets opened, bringing their total deposits to $2.7B.

Today marks one of Grayscale’s largest outflows, but there's hope that it may be their last major deposit for a while.

Bankrupt crypto exchange FTX held 22M shares of GBTC ($1B) that it needed to offload, but with the instrument now liquidated from its balance sheet, the FTX supply overhang has been worked through, and a major seller has capitulated!

While the completion of FTX’s GBTC redemptions may mark the peak in Grayscale outflows, there is no guarantee that crypto prices have bottomed out.

For one, we don't even know if FTX’s GBTC redemptions have been a major source of Bitcoin sell pressure. Creditors may be receiving the BTC through in-kind distributions, requiring the estate to repurchase the Bitcoins after they receive cash, and positions may have already been hedged.

Second, crypto market sentiment remains extremely bullish. Bitcoin open interest has swelled practically uninterrupted by $3B since mid-August, and traders remain positioned for bullish spot BTC ETF impacts.

Global macro conditions have become increasingly unfavorable for risk assets in 2024, and it seems likely that momentum will shift to the bears in the near future.

Arthur Hayes, for example, has tweeted that he is eyeing a further decline for the end of the month that will result from liquidity being drawn out of the financial system by the US Treasury’s long bond auction. He sees crypto’s downtrend in January as an indicator of both liquidity conditions and trouble to come for broader markets.