Encryption Market May Report: Policy Factors Intensify Impact, Buying Power Gathers to Find Breakthrough Point

In May, BTC opened at $60,621.20 and closed at $67,472.41, a monthly increase of $6,850.31 or 11.3%, with a volatility of 25.54%. It failed to recover as strongly as the Nasdaq's decline in April, and BTC's performance in May was relatively weak. After a large-scale volatility, the trading volume did not increase significantly, leaving long upper and lower shadows in the trend. The biggest achievement was the effective recovery after falling out of the top box at the beginning of the month, returning to the range of $58,500 to $69,500 for volatility.
Although the on-chain fundamentals continue to deteriorate, the price has effectively rebounded. In addition, the support from macro finance, industry, and funds has temporarily shelved concerns about the end of the bull market.
In this cycle, the upward momentum of BTC has gone through three stages: replenishing inventory, speculation on the approval of BTC ETF, and the influx of funds after the operation of BTC ETF. As of the end of May, except for the ETF channel, the inflow of on-chain funds has significantly slowed down. EMC Labs believes that in May, the rebound in BTC prices was mainly driven by the linkage effect brought about by the strong rise of ETH.
There are signs of on-exchange industrial capital flowing from BTC to ETH, as evidenced by the amplified volume of the ETH/BTC trading pair after May 15.
The reverse flow of industrial capital indicates that the future price discovery of BTC will mainly depend on the inflow of funds from BTC ETF channels and whether on-exchange funds are being sold. During the bull market, long-term holders will gradually sell their BTC holdings in batches, while short-term traders who aim to outperform the market in the short term continue to increase their positions.
Since December, the "long-to-short" trend has been continuing until a reversal occurred in May. This month, the overall long position group shifted from selling to accumulating, increasing by 93,400 BTC, while the short position group started to reduce position and sold 38,200 BTC.
In the first month after the halving, the mining community saw a decline in block rewards and transaction revenue, with a significant reduction in income to $963 million (according to The Block). EMC Labs found that under the pressure of sharp income decline, miners were forced to take two actions this month. One is to sell the accumulated 6,000 BTC in inventory to the market, and the other is to reduce computing power supply.
With the price decline, the Bitcoin network has lost up to 28% of its computing power since reaching its peak on April 23. Currently, the miner community holds 1.8 million BTC and has not conducted large-scale selling since the bull market began. If the market starts to decline, the miner community may sell to maintain mining farm operations, potentially pushing the market further into a weak downward trend.
Since this cycle, stablecoins have achieved a net inflow since October 2023, driving the market upwards. The inflow scale in March and April this year set a new high, marking the highest level in this cycle. It has become an important force to absorb the liquidity shock caused by the realization of large-scale BTC profits (another force is fiat funds through the BTC ETF channel).
By May, with massive chip exchanges and violent market fluctuations, coupled with the delay in interest rate cuts, the inflow of funds into the stablecoin channel has dropped significantly. According to EMC Labs, the inflow of stablecoin funds in May was only $341 million, far below the $8.9 billion and $7 billion in March and April.
Compared to the two major stablecoins, USDT saw an inflow of 1.394 billion this month, while USDC recorded its first outflow of 973 million in 5 months, indicating a more sensitive trend in the fund flow of stablecoins in the US region compared to the Asian region.
In the April report, we judged that the market has entered a Bull Market Relay state, and the first wave of large-scale chip exchange (March~April) has already occurred. In the whole month of May, both long and short lot trading fell sharply, the market supply resumed "from short to long", and the stock of BTC on the exchanges returned to the outflow state, marking that the BTC market has entered a weak equilibrium state after the catharsis of passion.
We maintain our judgment that there is a trend of capital migration from BTC to ETH in the market, and the "Ethereum time" will continue. The future trend of BTC depends on US macroeconomic data and the Fed's market voice.
BTC, which is in a weak balance state, does not actually require a lot of funds to push upwards. Possible buying power comes from the spillover effect of the approval of ETH ETF, as well as fiat funds from the BTC ETF channel. With the continuous growth of its scale and the rhythm synchronized with the Nasdaq, the fiat funds in the BTC ETF channel may become an independent force that affects the price of BTC.
(Data Source: EMCLabs)