1/ The overall market remained sluggish in September, with several indicators hitting their lowest levels of the year. Data indicate significant losses of Bitcoin and Ethereum, with accumulations being sold off and open interest dropping substantially.
2/ MVC's buying strategy. In mid-September, we allocated 20% of our holdings to purchase ETH at an average price of around $1,600. This decision was primarily based on the following positive signals: after 11 months of fluctuations, potential selling pressure had been partially relieved and market sentiment showed signs of panic.
3/ The primary contradiction in the market remains the lack of inflows, and this issue currently appears unsolvable.
4/ The analogy in the title, “waiting for the fish to die in the market,” reflects our current investment strategy. We will stay patient and wait for genuine buying opportunities to appear.
This report provides an overview and analysis by MVC of the overall performance and market trends in the cryptocurrency market in September.
The title of this monthly report is inspired by a funny story: A middle-aged woman goes to a fish market, stands by a small stall, and keeps staring at the fish. The vendor, puzzled, asks why she hasn't made a purchase yet. The woman replies, “For the same fish, the live ones cost 13 dollars, and the dead ones cost 3 dollars. I'm waiting for them to die.” This analogy reflects the mindset of many secondary investors who hold a significant amount of assets in the current market. They are patiently observing and waiting for the fish to die before diving in to buy at a discount.
Indeed, our mindset is quite similar. The bustling Token2049 conference in September was particularly like a fish market, where some fish had already turned belly up, there were still some seemingly healthy and lively fish. However, in reality, everyone knew they wouldn't last much longer.
In mid-September, we established some positions, primarily allocating approximately 20% of our holdings in ETH at an average price of around $1,600. This decision was made as we observed some marginal changes in the signals we've been monitoring, both in terms of market sentiment and accmulations.
From the accumlation data, we can observe that as the market declined, the Bitcoin accumulations in the $29,000-$30,000 started to shift towards the $25,000-$26,000. This indicates that the positions in paper losses due to the anticipation of a Bitcoin ETF approval and positive expectations from the XRP/DCG lawsuit are now surrendering and selling off their accumulations. Additionally, the on-chain data shows that there is relatively supportive buying pressure from the spot market. ETH also exhibits similar characteristics, with almost 50% of on-chain ETH accumulations realizing losses. This aligns with the characteristics of previous panic bottoms and suggests that the bleeding positions (positions suffering from great losses) in the spot market are being sold off. (Through the observation of on-chain data, we also noticed large-scale whale selling behavior on Arbitrum on September 10-11, with widespread realized losses ranging from 30-40%. This indicates that patience among large holders and whales in the market has finally reached its limit since June.)
From a sentiment perspective, market sentiment has quickly shifted towards pessimism.
From the chart above, it can be observed that after nearly 11 months of market consolidation, more than 97.5% of short-term BTC positions are currently in paper losses. While the drop from $30,000 to $25,000 may not seem like a significant decline, the pain of selling off and realizing losses can be quite intense. The liquidation of positions at this level should, in theory, lead the market to cool off for approximately one month.
From the data of perps, in early September, the BTC open interest in Binance alone dropped from a peak of $4.81 billion to $2.88 billion, representing a decrease of about 40%. In January 2023, during the market's most sluggish period, this number was $2.52 billion, and during the March U.S. banking crisis, it was approximately $2.85 billion. This indicates that the disappointment of several positive expectations in mid-September indeed significantly eroded the confidence of market players and led to a strong liquidation of leverage in the market. Furthermore, throughout September, the OI of perps recovered slowly, with moderate fees, and the market sentiment remained subdued, to the extent that there were few willing to long or short.
Taking a closer look at the hourly BTC price action in the chart, it's evident that the narrow-ranging volatility in the market during September was indeed a hell for perp players. There were frequent liquidation events, with positions getting liquidated both on upswings and downswings. The sequence of rallies followed by sharp drops led to repeated liquidations (a pitiable situation indeed). So, it's quite clear that the sentiment around Bitcoin at the $27,000 level was even more pessimistic than it was at $16,000. The characteristics of a deep bear market were more pronounced, and the entire September and even October seemed to be a phase of oscillation and digestion of trapped traders and selling pressure.
Not only did the sentiment in the on-chain spot and perps markets remain subdued, but even the industry's most speculative players, who typically enjoy participating in on-chain Meme activities, also experienced a significant downturn. As shown in the chart below, the gas base in Ethereum reached a new low for the year, and ETH itself entered a rare state of inflation since the Merge was completed. The market was even colder than the freezing one of December 2022. Based on our monitoring of Mempool transaction data, the activity of tax-free tokens sharply declined.
Furthermore, within September 2023, the DEX trading volume has not exceeded 30B, even lower than the volume in December 2022, which is 40B. This marks a new low for monthly DEX trading volume since 2021. This observation aligns with the market sentiment we intuitively sense, where the market enthusiasm for BTC at $27,000 has surprisingly been even more subdued than it was at $16,000.
