Bitcoin struggles to hold key support but rebound still intact, says Grayscale’s Head of Research

Bitcoin was facing anything but a celebration this Fourth of July after shedding more than 10% on the week, but according to Grayscale’s Head of Research, a rebound could still be intact.

Grayscale’s Zach Pandl joined Coinage to discuss the tradeoffs of Germany’s continued dumping and two bullish catalysts in the potentially dovish shift from Fed Chair Jerome Powell and a looming debut for Ethereum’s ETFs.

“We’re at a point in this market which is common in lots of markets where you have the fundamentals going one way and technicals going another way. I think the fundamentals for Bitcoin still look quite positive,” Pandl said in a Monday interview.

Bitcoin skidded from about $63,000 a week ago to a low of just under $54,000 on Friday, triggering investors to plow more than $140 million into Bitcoin ETFs in an apparent move to buy the dip. Despite that, Germany’s moves to offload the more than $3 billion of bitcoin it seized from an online pirated movie site continues to dampen expectations. The remaining $2 billion in Germany’s stash would represent about 9% of recent daily volumes. Should that sell pressure continue, it could lead to even more pronounced moves to the downside, far below the $56,000-$58,000 average entry range of newer Bitcoin buyers.

“Technical patterns are an important part of risk management and investing, and if that were the only thing that I was looking at, I probably would be more cautious as well,” Pandl said as he weighed risks against a potentially softening dollar in the back half of 2024 as the Fed readies for rate cuts. “We need to look at the whole picture and to me that’s a much more positive outlook.

Despite just about a 7% chance of the Fed cutting interest rates at the July meeting, Pandl predicted Fed Chair Powell is likely to start ramping up signaling for a September rate cut this week during his testimony in front of Congress or at the end of the month. The latest jobs report showed a softening of the labor market, and inflation data seems to be improving as well.

“If they’re lowering [interest rates] that will be positive for Bitcoin and we’ve seen exactly this pattern play out over the last couple of years,” Pandl said. “The Fed cut aggressively during the pandemic and Bitcoin’s price took off. The Fed realized there was too much inflation and raised rates aggressively; Bitcoin’s price declined. So this relationship between Fed rate cuts and the price of Bitcoin is not just theoretical, it’s exactly the pattern that we see play out in the data.”

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Outside of Bitcoin, crypto in general could see another shot in the arm come via the debut of Ethereum exchange traded products. According to analysts, ETH ETFs could attract as much as $5 billion in inflows over their first five months of trading. Pandl agreed that the debut could reinvigorate an investor base that has demonstrated an appetite for easier access to the asset class and likely lead to another rally, similar to what sparked Bitcoin’s post-ETF 50% run in the spring.

“What we saw is that those inflows had a quite dramatic effect on Bitcoin’s price in the first half of this year and so I think it would be mistaken to be overly concerned about Ethereum right in front of an event like this,” he said. “I’m very excited about … [a] relatively attractive entry point for medium-term allocations.”

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