Bitcoin is higher for the session the week as well as the month and holding well above the 60,000 level this morning around 64,000.
Now there is a perfect storm of macro and corporate headwinds.
The digital asset market is flashing some highly conflicting signals about Bitcoin ETFs have been bleeding capital while strategy liquidating a low triple million figure.
Of its own Bitcoin stash.
Now traditional headwinds are mounting.
Markets are bracing for a potential interest rate hike as new thatcher Kevin War settles in at the same time on chain data to show the supply of the coin on exchanges falling to multi-year lows.
So are we staring at a market bottom or the edge of a steep cliff or somewhere in between.
Well joining us to weigh in on this Friday morning is Thomas Perfumo, global economist at Kraken.
Thomas, good morning.
Thank you so much for joining us.
So there's a lot of data that we can look at, but Swap Bitcoin ETFs have just posted 8 consecutive weeks of net outflows.
So what exactly is driving this capital away from crypto funds right now?
And what do you make of where we are as we head into the second half?
Sure, thanks for having me, Remy.
So the story over the past couple of months, in my opinion, has been a rotation of capital out of Bitcoin ETFs into the AI hyperscalar trade, in particular memory stocks, and I'll point you to.
The DAMT, which launched back in April, which contains a lot of memory stocks and has actually outpaced Bitcoin ETFs in terms of the net flows it attracted since inception.
It's tracking about 1.8 times over the relative index period, which is quite interesting to see.
They've recorded over $22 billion of inflows, whereas Bitcoin ETFs over the last two months have shed $7.5 billion of outflows.
And so I think that's really driving the movement.
What's more interesting to see, however, in the last couple of weeks is that Micro strategy and Bitcoin ETFs year to date have been the largest buyers.
Micro strategy has turned into a net seller last week.
The ETFs, of course, have been selling all this time, and price has been holding up.
And so that really speaks to the emergence of a new marginal buyer, in my opinion, long-term investors, high conviction that are seeing line of sight towards a trough in the market, and they want to start allocating in this price range.
Yes, and Thomas, I'm glad that you brought up the AI trade as well as the rotation that we have been seeing in the market here because as you mentioned, that DRAM ETF has been performing very well this year, seeing a triple digit advance year to date.
But when we're talking about strategy, a lot of people have been very closely monitoring what Sailor has been doing.
So what do you think is the thinking here, especially when it comes to some of the sales by the massive whale?
Sure, so the narrative around micro strategy is a bit conflicting, and we saw this in the last cycle too where it kind of comes, it brings into like a lose-lose situation where any action that micro strategy takes will be viewed negatively, and that's really a price reflexive kind of condition.
Where market sentiment is so negative right now, it cures itself when price moves up, of course, with micro strategy specifically, there's two things to consider.
One, they recently raised a whole lot of capital via the common equity sale, so they now have a big USD reserve fund, over 2.5 billion, that stretches their runway with respect to dividend payments for at least a year, about a year and a half really.
And their next payments, possible potential payments that are due on convertible debt, aren't going to take place until September 2027 at the earliest, so we still have plenty of time in terms of runway for the company, and it's not going to be a forced sale situation anytime soon.
So for people who are negative on micro strategy, the bet really in my opinion is you're short Bitcoin from here for the next year, and it's a tough trade to place.
Now with respect to the ETFs, that's the question is whether anything and as it flows flows as well, whether.
People are selling on that news.
In my opinion, it really comes down to the AI rotation because at the end of the day, micro strategy selling $200 million of Bitcoin represents 0.5% of their overall holdings.
It's really not a meaningful amount in the crypto market and so I think it's kind of a red herring at this point.
I think perspective is key because strategy does have quite the stash here.
So Thomas, you are an economist, so I do want to get your macro take.
So the macro picture is indeed getting tougher and this week we did get some volatility when it comes to energy given the situation with the conflict in the Middle East.
But we know that for The time being we'll be monitoring inflation as well as the CPI and PPI figures coming out next week, but markets are actively pricing in another potential interest rate hike and with new Peter Kevin Warsh locked in until at least 2030.
What do you make of the new regime change and what does that actually mean for crypto in particular Bitcoin?
Sure, so for Bitcoin, I personally believe that Bitcoin is the most sensitive asset class to liquidity conditions in capital markets as well as monetary outlook, and what's been very challenging to date, as you pointed out, is that we've shifted dramatically in terms of the monetary projection.
So for example, entering this year.
We're pricing around 2 rate cuts by the end of 2026.
Now we flipped that into pricing in on the median side, at least one rate hike by the end of 2026.
So we're talking about a 70 to 90 basis point shift in terms of the interest rate outlook for this year in the last 6 months alone.
Which is just a crazy statistic for Bitcoin in particular, what's also interesting is that when I look at the projection of the interest rate curve by the Fed funds' futures, what it's suggesting is that we're going to peak in terms of the interest rate outlook around March or April of 2027.
And if you think that the market is pricing in maybe 6 months ahead, what that kind of means is the tightest expectation is going to take place sometime in the fall of this year.
So probably around October, November when people start thinking about line of sight back towards accommodation, at least given the current conditions, to your point, the biggest binary event that's happening right now is what's going on with the US and Iran, and very plainly whether we achieve some kind of meaningful progress on the diplomatic front or reach another form of escalation.
Oil prices are going to be the ones that dictate the short-term outlook for interest rates, in my opinion.
Yeah Yes, and Thomas, you mentioned the conflict in the Middle East, and it does seem as though usually during the summer months things do slow down.
But given the fact that we have to monitor what's happening on social media and the conflict in the Middle East, we're paying attention to these headlines over the weekend and as we head into next week, earnings season does kick off and we will be hearing from Kevin Warrish.
He will be testifying before the Senate Banking Committee.
So that is something that I'm sure all of us will be monitoring.
But when we take Look at on chain data.
I understand that the supply of Bitcoin on exchanges has actually plummeted to a 9-year low.
So what is happening here and what are you paying attention to?
Sure, so that statistic usually people refer to it because when you have a lot of crypto native investors, what they might do is they might buy crypto assets on exchanges and then withdraw them to a personal wallet, for example, a cold wallet where they self custody of those coins, and so a lot of people track those flows as An indication that you have crypto native or long-term crypto investors who have been buying and accumulating those assets and what I said earlier, again, in a market where the two most public, prolific, and largest buyers year to date have either flipped to net sellers or just staying put where they are, with price action being positive, it suggests that there is a new marginal buyer.
And again, in my conversations with certain long-term investors, what's been clear to me is that people are looking for a line of sight on.
We might see a market trough in prior cycles.
Bear markets usually last between 360 to 400 days.
That will put us around October, November of this year.
And in terms of drawdown, we're already down over 50% since the all-time high, which kind of puts us in play as to when we see a trough in prior historical periods.
One more fact I'll put out there is that we're trading just above the 200 week moving average, which historically has been a level that performs really well when people allocate right below it.
I believe on a 1 year holding period historically when you buy below it, it's a 100% hit rate in terms of positive P&L with a 1 year holding period.
And finally, Thomas, before I let you guys, we head into the second half of this year, we'll continue to monitor the regulatory landscape here in the US in terms of legislation and what's happening in the nation's capital.
So you mentioned the technical side when it comes to Bitcoin, but what else are you paying attention to when it comes to regulation and of course give us your take on the historical four year cycle.
Sure, so on fundamentals, the things that I care about the most this year are going to be Clarity Act, and that achieves full regulatory clarity in the US.
Fortunately for us, we have a big window this next 3 weeks because the US Congress is coming back next week.
They're going to be there until the beginning of August.
When they go on recess, so this is a pretty critical moment to see if we can negotiate some final terms before it goes to a Senate floor vote later this month, and that's going to be a big deal, a big news event.
I think it's going to drive a lot of volatility right now.
The market seems 50/50 on whether it's going to happen.
This year, so we'll have to see how that plays out.
The other fundamental catalyst that I really care about would be asset tokenization, so the growth in stablecoins, which has been pretty muted year to date, but tokenized equities, which is a small market but growing substantially over 100% year to date.
And so those are the things that I care about most.
And like I mentioned with respect to the cycle, a lot of investors do care about that 4 year cycle and Things that people look at or reference would be from a timing perspective, usually October or November, that would be one year post the all-time high, is when we trough, at least historically, and likewise from a drawdown perspective, we've already dropped down 50% or more since the all-time high.
Historical troughs usually took place between 70 to 80% below the all-time high, but I think this time might be different given that we have.
Such a big bid support coming from the Bitcoin ETFs and from micro strategy when you see prices fall below where we are today.
So on a net net basis, I think I'm starting to already see at least long-term investors starting to accumulate into that belief that we're going to hit some kind of trough into the second half of this year and hopefully that coincides with an outlook around monetary policy starting to resume an an accommodative pace.
Well, Thomas, a lot of moving parts as we head into the second half of 2026.
I appreciate your time as well as your perspective.
Thank you so much for joining us and have a great weekend, Thomas.
Thank you.
You too.
