Crypto Long & Short: With MSTR concerns assuaged, look to traditional signals around BTC

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

Welcome to our institutional newsletter, Crypto Long & Short. This week:

With MSTR concerns assuaged, look to traditional signals around BTC

By Martin Gaspar, senior crypto market strategist, FalconX

In bitcoin BTC$62,804.46’s 4-year cycles, there has always been a distinct driver of selling pressure. In 2018, we saw the promise of crypto running ahead of its skis; the market drove up valuations of crypto projects far beyond their nascent stages of development that led to selling once participants understood the reality. In 2022, leveraged blow ups brought several forced sellers, such as Celsius and FTX, which pressured crypto prices. The most recent overhang on the market has been Strategy (MSTR), whose evolving capital structure drove concerns of potential BTC sales to meet dividend obligations. The good news is that MSTR took concrete steps to placate said concerns, shoring up its USD reserve and updating its capital allocation strategy, buying time for BTC to recover. The market can now look past this and evaluate BTC on its own merits.

BTC’s role as sound money resonates as the money supply continues to increase, surpassing $23 trillion for the first time in May. What’s notable is that the month-over-month jump was over 1% and the highest since 2021, a marked acceleration from prior months. Bitcoin remains a solution to rapid expansion of the money supply. While attention has drifted away from this to the Iran conflict and AI, BTC is poised to swing back to this dynamic.

Unlike its peer store of value asset, gold, BTC was designed to be easily divisible and portable. And its fixed supply of 21 million BTC still holds. There is value in this kind of neutral asset and allocators should continue to take note.

With sentiment around MSTR turning from hysteria to calm, investors can return to monitoring classic market signals around bitcoin. One such signal is the BTC ETFs, which experienced $5.4 billion of outflows YTD through June 30. The nuance here is that this was a recent phenomenon, with $8.2 billion of outflows since May 12, likely reflecting MSTR concerns and a freeing of capital around the SpaceX (SPCX) IPO. With both of these partially in the rearview mirror, sustained ETF inflows will signal stabilization of market confidence. Supporting this, BTC’s Coinbase premium has improved considerably since the end of the quarter, signaling investor appetite may be coming back.

There are also signs of seller exhaustion and believer accumulation. As seen in prior market bottoms, BTC can find a floor when few sellers remain and when accumulation from holders with conviction picks up. This is playing out with around 45% of long-term holder supply sitting at a loss, per data from Checkonchain, with levels associated with prior market bottoms. It suggests many of the sellers are already out, leaving only convicted holders, who are not only able to withstand the volatility but who may also be adding to their positions. This is showing up in the data, with BTC supply held by long term holders climbing to a record high in recent weeks. Meanwhile, on-chain movements of longer-held BTC have abated from last year, alleviating earlier pressures.

BTC has been in a down market since October, fighting a rotating set of headwinds largely unrelated to bitcoin’s underlying attributes. The question now is what happens when those headwinds change to tailwinds. With growth in money supply accelerating, sentiment and momentum could soon turn around.There are also signs of seller exhaustion and believer accumulation. As seen in prior market bottoms, BTC can find a floor when few sellers remain and when accumulation from holders with conviction picks up. This is playing out with around 45% of long-term holder supply sitting at a loss, per data from Checkonchain, with levels associated with prior market bottoms. It suggests many of the sellers are already out, leaving only convicted holders, who are not only able to withstand the volatility but who may also be adding to their positions. This is showing up in the data, with BTC supply held by long-term holders climbing to a record high in recent weeks. Meanwhile, on-chain movements of longer-held BTC have abated from last year, alleviating earlier pressures.

This week’s headlines show Strategy (MSTR) has become an active capital manager rather than a passive bitcoin holder, while Circle and Tether are facing new competition from a giant stablecoin-focused initiative. Meanwhile, U.S. President Donald Trump has faced significant backlash over his family’s crypto earnings.

Ether.Fi Continues to Lead the Neobank Meta