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ETF inflows put a break on gold price decline
ETF inflows put a break on gold price decline. Energy: Brent would appear to have stabilised at $105 a barrel, and is embarking upon a moderate recovering. The same is true of WTI, which has risen to $98.5 a barrel this morning. When compared with last week’s major losses, though, today’s upturn is modest. For some days, the market focused entirely on ample physical supplies, but they now seem to be paying more attention to the supply-side risks again. The situation in Iraq remains unclear. It is alleged that Kurdish fighters, supported by the Iraqi airforce, have retaken some areas held by the Sunni extremists Islamic State. At the weekend, this faction captured two smaller oilfield and the biggest Iraqi dam. In the light of this news, it is hardly surprising that oil exports from northern Iraq are still at a halt. According to the Iraqi oil ministry, exports from the south of the country amounted to 2.44 million barrels a day in July, slightly more than in June. However, according to shipment details, oil exports still amounted to an average of 2.52 million barrels a day up to 23 July, which points to a sharp dip in the final week of the month. In mid-July, Iraq was still assuming that exports were reaching 2.6 million barrels a day. Libya’s oil output currently amounts to 450,000 barrels a day, compared with 500,000 barrels a day a week ago. With hostilities there continuing, Libyan oil supplies can be expected to shrink even further, even though the oilfields are safe according to the state oil company NOC.
Precious metals: Gold is still trading below the $1,300 mark, apparently supported latterly by ETF inflows: In July, the ETFs tracked by Bloomberg on a monthly basis recorded a net inflow again for the first time since March. The 15.7 tons registered constituted the largest monthly quantity since November 2012, but one swallow doesn’t make a summer. Over the year so far on balance, there has still been an outflow of some 30 tons of gold from ETFs. In view of the headwinds presented by additional demand components, the ETF inflows will probably merely have slowed down the price decline in recent weeks. While the present negative factors remain – a strong US dollar, weak physical demand in Asia, and weak coin sales in the west – we do not envisage any serious price gains. In addition to modest coin sales in the US, Australian coin sales too, for example, dipped sharply month on month in July to 25,100 ounces.
Demand from the automobile industry for platinum and palladium remains robust. There were 16.4 million vehicle sales in the US in July, measured on a seasonally adjusted annual basis. While this was down slightly on June, when the highest figure for almost eight years was recorded, it was nevertheless up 4.5% on a year ago.
CHART OF THE DAY: Diverging development of corn prices in the US and China
Base metals: Indonesia’s trade deficit rose again in June to some $305 million, owing mainly to a drop in commodity exports. The first-half deficit amounted to $1.15 billion on account of the country’s new mineral resources policy introduced in mid-January. This is no doubt one reason for the government’s announcement yesterday that the export tax on ore concentrates would be cut to 0-7.5%. The original tax was on a progressive scale starting at 20%, but the reduced rate applies to mining companies who have made a commitment to build smelting plants in Indonesia, and is linked to construction progress. According to a government authority, the mineral ore export ban and the export tax together have resulted in at least 50 projects for the construction of smelters in Indonesia being launched, with a total value of over $31 billion. They are to be realized in the coming years. Consequently, we could soon see more supply from Indonesia on the global market again, with the situation on the nickel, bauxite and copper markets easing. Copper producer Freeport-McMoRan, which reached an agreement with the Indonesian government just over a week ago, will according to its own information be exporting copper concentrates again as of tomorrow. Since the rise in nickel prices this year in particular was due to the Indonesian export ban, we see scope for correction here in the event of higher exports.
Agriculturals: While corn is trading at a four-year low in Chicago, prices in China are soaring. Corn has risen 10% so far this year on the Dalian spot market to hit a new high. On the futures market, contracts maturing in September are trading at a multi-year high. Some of the country’s major cultivation areas, amounting to 4 million hectares, are suffering a drought. This brings a threat of a lower yield, especially in the central Chinese provinces Henan, Shaanxi and Hubei.
However, forecasts are still predicting a record corn harvest in China. The USDA, for example, raised its forecast in July by 2 million tons to 222 million, which it expects to match consumption. The International Grains Council has not amended its estimate of 220 million tons. Chinese official forecasts too give a figure of 223 million tons, as higher output is expected in the northwest of the country. Even in the event of a lower crop, therefore, China would probably only have to import a little more corn, especially since it has been building up inventories on a generous scale in recent years, and is highly restrictive with imports of genetically modified varieties. While imports have been high by past standards in recent years, in absolute terms they have been low at a maximum 5.2 million tons in 2011/12, as the country is still adhering to a policy of being as self-sufficient as possible. The USDA envisages imports of 3 million tons in 2014/15.
• Bitcoin reverses sharply from oversold levels following the dovish FOMC meeting last week
• Our in-house “Cryptoasset Sentiment Indicator” has rebounded sharply from very bearish levels and currently signals neutral sentiment again
• Crypto hedge fund’s beta implies that crypto hedge funds have significantly increased their market exposure to Bitcoin from underweight to neutral levels over the past week
Chart of the Week
Performance
Last week, cryptoassets rebounded from very oversold levels as macro sentiment and risk appetite improved following the latest FOMC meeting.
More specifically, the Fed has started tapering its Quantitative Tightening by announcing that the limit of US Treasury bond redemptions will be reduced from 60 bn USD per month to 25 bn USD per month starting in June. The market interpreted this announcement as a signal that the Fed is inching closer towards an eventual monetary policy easing cycle.
The reversal in overall risk appetite was further supported by weak US labour market data that were released last Friday. Non-farm payroll growth came in well below consensus expectations and the US unemployment rate remained at cycle highs.
This increased the probability of looser monetary policy by the Fed which is bullish for cryptoassets.
As a result, Bitcoin rebounded sharply from very oversold levels in crypto sentiment.
We had already indicated that further downside was limited due to the very bearish levels in the Cryptoasset Sentiment Index .
Since then, we saw a very sharp reversal in crypto hedge fund’s beta that implies crypto hedge funds have on aggregate significantly increased their market exposure from underweight to neutral levels over the past week (Chart-of-the-Week).
Besides, there was also a sharp increase in whale BTC balances over the past week as well.
All in all, this implies that institutional investors seem to have bought the recent dip in cryptoassets.
Meanwhile, overall ETP fund flows into cryptoassets still remained relatively weak over the past week. A bright spot were the new Hong Kong spot Bitcoin and Ethereum ETFs that had a combined net inflow of around +224.1 mn USD last week. However, this was not enough to offset negative ETP flows in other jurisdictions, predominantly in the US.
In general, among the top 10 crypto assets, Avalanche, Toncoin, and Dogecoin were the relative outperformers.
However, overall altcoin outperformance vis-à-vis Bitcoin remained relatively low, with only around 45% of our tracked altcoins managing to outperform Bitcoin on a weekly basis.
Sentiment
Our in-house “Cryptoasset Sentiment Index” has rebounded sharply from very oversold levels. The index is currently signalling neutral sentiment again.
At the moment, 8 out of 15 indicators are above their short-term trend.
Last week, there were significant reversals to the upside crypto hedge fund’s beta to Bitcoin and global crypto ETP fund flows.
The Crypto Fear & Greed Index signals ”Greed” again as of this morning. It had shortly dropped to “Fear” levels last week.
Performance dispersion among cryptoassets has continued to decline amid the recent reversal in cryptoassets. Overall performance dispersion among cryptoassets remains relatively low.
Altcoin outperformance vis-à-vis Bitcoin was only moderate, with around 45% of our tracked altcoins that have outperformed Bitcoin on a weekly basis. At the same time, there was a slight underperformance of Ethereum vis-à-vis Bitcoin last week.
In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets.
Meanwhile, sentiment in traditional financial markets has not yet rebounded, judging by our own measure of Cross Asset Risk Appetite (CARA).
Fund Flows
Last week, we saw continued net outflows from global crypto ETPs with around -372.4 mn USD (week ending Friday) based on Bloomberg data.
A bright spot were the new Hong Kong spot Bitcoin and Ethereum ETFs that had a combined net inflow of around +224.1 mn USD last week according to data provided by Bloomberg. However, this was not enough to offset negative ETP flows in other jurisdictions, predominantly in the US.
Global Bitcoin ETPs continued to see net outflows of -409.1 mn USD of which -433.0 mn (net) were related to US spot Bitcoin ETFs alone. The newly issued Hong Kong spot Bitcoin ETFs were able to attract +156.2 mn USD in net inflows last week according to data provided by Bloomberg.
The ETC Group Physical Bitcoin ETP (BTCE) also saw net outflows equivalent to -15.2 mn USD last week.
The Grayscale Bitcoin Trust (GBTC) continued to experience net outflows of approximately -277.2 mn USD last week. That being said, last week Friday saw the very first daily net inflow into GBTC since its conversion to an ETF in January of around +63.0 mn USD which is a positive sign.
In contrast to Bitcoin ETPs, Global Ethereum ETPs saw a reversal in ETP flows last week, with net inflows of around +25.2 mn USD. This was mostly due to significant inflows into the newly issued Hong Kong spot Ethereum ETFs that were able to attract +67.9 mn USD last week, according to data provided by Bloomberg.
Meanwhile, the ETC Group Physical Ethereum ETP (ZETH) saw small net outflows (-0.9 mn USD). The ETC Group Ethereum Staking ETP (ET32) had neither share creations nor redemptions (+/- 0 mn USD) last week.
Besides, Altcoin ETPs ex Ethereum AuM’s were mostly stable last week with only minor net inflows of around +0.9 mn USD.
Besides, Thematic & basket crypto ETPs also experienced some net inflows of +10.6 mn USD, based on our calculations. The ETC Group MSCI Digital Assets Select 20 ETP (DA20) did experience neither in- nor outflows last week (+/- 0 mn USD).
Besides, the beta of global crypto hedge funds to Bitcoin over the last 20 trading rebounded sharply to around 0.97. This implies that global crypto hedge funds have significantly increased their market exposure and have currently a neutral exposure to Bitcoin.
On-Chain Data
Bitcoin’s on-chain data have continued to improve over the past week.
Short-term holders of bitcoin generally took losses as we declined below their costs basis at round 58k USD. So, there was a capitulation by short-term investors as the short-term holder spent output profit ratio (STH SOPR) reached the lowest level since March 2023. This tends to be a reliable signal for a short-term tactical bottom and also coincided with a generally very bearish sentiment.
Moreover, the increase in accumulation activity in Bitcoin that we had already observed the week prior has continued last week as well which put a floor below prices. What is more is that accumulation activity has even broadened to include larger wallet cohorts. Both very small and very large wallet cohorts currently seem to increase their wallet balances again judging by our own “average accumulation score”.
The average accumulation score aggregates individual accumulation scores across different wallet cohorts and shows the average balance growth across these different wallet cohorts.
The fact that larger wallet cohorts have started increasing their accumulation activity is also supported by the fact that wallets in excess of 100 BTC have significantly increased their purchases in the short term.
This is also corroborated by the fact that BTC whale net exchange flows have turned negative again over the past week with more outbound than inbound whale transfers from/to exchanges.
That being said, active addresses remain relatively weak and have declined towards year-to-date lows again. However, our own measure of overall Bitcoin network activity which includes active addresses, transaction count, UTXO count and block size remains near all-time highs.
Besides, Bitcoin’s hash rate still remains near all-time highs as miners still remain relatively unaffected by the recent halving of the block subsidy. BTC miners transfers to exchanges remain very low and overall miner balances are currently still moving sideways implying no significant selling by miners.
Overall, capitulation by short-term holders as well as broadening accumulation activity are a positive signal.
Futures, Options & Perpetuals
Last week, futures open interest continued to move sideways in BTC-terms and perpetual BTC futures only experienced a slight increase in open interest.
Despite the most recent price correction last week there were no significant futures long liquidations either. That being said, the BTC perpetual funding rate turned negative last week on Thursday and Friday which indicates oversold positioning and which tends to be a reliable signal for a short-term tactical bottom as well.
The Bitcoin futures basis mostly went sideways last week. It declined to new cycle lows during the latest price correction before reversing to around 9.3% p.a. again.
Bitcoin options’ open interest increased only slightly last week as BTC option traders seem to have increased their exposure to puts relative to calls. This was also evident in a short-term spike in relative put volumes.
Consistent with this observation, the 25-delta BTC 1-month option skew increased to levels last seen in January during the volatile US spot Bitcoin ETF trading launch.
Despite the dip to new lows in price, BTC option implied volatilities have only increased slightly. Implied volatilities of 1-month ATM Bitcoin options are currently at around 56.4% p.a., up from 54% p.a. the week prior.
Bottom Line
• Bitcoin reverses sharply from oversold levels following the dovish FOMC meeting last week
• Our in-house “Cryptoasset Sentiment Indicator” has rebounded sharply from very bearish levels and currently signals neutral sentiment again
• Crypto hedge fund’s beta implies that crypto hedge funds have significantly increased their market exposure to Bitcoin from underweight to neutral levels over the past week
To read our Crypto Market Compass in full, please click the button below
This is not investment advice. Capital at risk. Read the full disclaimer
Crypto Market Compass 6 May 2024
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