August 4, 2021

July Market Update

A monthly deep-dive into Bitcoin, Ethereum and DeFi's movements in July; with On-Chain Analysis and insight into recent regulatory pushes.
8 min


July saw the continued efforts from China to ban Bitcoin Mining creating a negative sentiment in the market and the overall Bitcoin Network. The Bitcoin Hash Rate (currently at 112.47m TH/s) has fallen to levels not seen since May 2020 (84.79m TH/s) when the pandemic was having an overwhelming effect on the wider market. However, this tightening on mining in China has spurred other international mining businesses to begin raising capital to expand their operations. One such business is Blockware mining who were able to raise $25 million in capital to purchase 14,000 new bitcoin mining rigs, adding stability to the network.

In other news, American banking giant JP Morgan, although skeptical on the cryptocurrency space, has given its wealth management clients access to Bitcoin and other cryptocurrency funds such as Greyscale Investments and Osprey Funds. Further, JP Morgan has expressed its interest in the power of staking as it is a more efficient way of creating and distributing cryptocurrencies. In their recent report on cryptocurrency that stated that staking makes the "crypto ecosystem more attractive as an asset class". Staking provides benefits to both retail and institutional investors as it provides a passive income stream that is depending on the size of the individuals stake.

Price Action

The month of July begun with a downtrend in the price of Bitcoin, as we saw Bitcoin close below $30k USD on July 20th for the first time since January this year when the initial run up in price had just begun. This was short lived however as the 'B word' conference (July 21st) hosted by Jack Dorsey, Elon Musk and Cathie Wood was able to prop the market back up after Elon discussed that SpaceX, Tesla and himself personally own Bitcoin causing a 10% rise in the price of Bitcoin.

This clear change in trend was further spurred on dramatically due to a large series of Bitcoin perpetual future liquidations that took place over a number of exchanges. Approximately $1 Billion USD in short Futures positions were liquidated over a 10 minute time-frame causing the futures price of Bitcoin on the cryptocurrency exchange Binance to reach over $48k USD.

Of the $1 Billion in short liquidations, Bitcoin contributed to over $720 million, causing the price of Bitcoin to jump 10% to over $40k USD in a very short period of time. The short liquidations were some of the largest not seen since back in May when Bitcoin's volatility was highly erratic. Looking across exchanges, Bybit exceeded $330 Million in BTC short liquidations, followed by Huobi with $183 Million. Speculation around the large liquidations and their initial cause could be due to Amazon posting a job advertisement related to the cryptocurrency industry.

Bitcoin Dominance

The Bitcoin Dominance index has grown throughout the month of July to once again test the 48%-50% range that it has failed to break out of. The Bitcoin Dominance value ending July is 48.35 which is up 5.8% from 45.7 at the beginning of the month. These failed breakouts could actually be a positive sentiment sign as Bitcoin is overall up 17.92% for the month of July but the Bitcoin Dominance level failing to break out could mean that money is still flowing into the wider Alt-coin market.


On July 30, 2015, the first iteration of Ethereum, then known by the name "Frontier," was released. In the six years since, it has weathered a near-catastrophic early attack, undergone a contentious hard fork, and established a market cap of $280 billion - second only to Bitcoin. However, this sixth anniversary will likely be the last for Ethereum 1.0, with Ethereum 2.0 set to replace it in early 2022, equipped with a faster and more energy-efficient model. Before that, the latest upcoming update to the network is the London Hard Fork which aims to restructure the network's fee market. The protocol update will include five Ethereum Improvement Proposals (EIPs), most notably EIP-1599. EIP-1599 introduces a new transaction pricing mechanism that includes a fixed-per-block network fee that is burned and dynamically expands/contracts block sizes to deal with transient congestion. Simply, it is a new fee structure to make Ethereum fees more predictable as well as Ethereum less inflationary.

For more information regarding the London Hard Fork, we recently sent out a newsletter regarding the technicalities and historical price impact of hard forks. To join our mailing list, click 'Subscribe Now' at the bottom of the page.

The protocol update is expected to  solve the network congestions and high transactions fees caused by the explosion of DeFi applications over the past year. Over $60 billion in assets are now tied up in Ethereum-based DeFi protocols; that number was lower than $4 billion at this time last year. That number refers to the amount of cash running through DeFi projects such as Aave, the leading lending protocol with $12.45 billion locked-in and the leading decentralised exchange (DEX), Uniswap which has $5.58 billion locked-in and $295 million in 24-hour volume. In addition to the Dapps explosion, NFTs have also taken off, hitting volumes of $2.5 billion during the first half of 2021, according to DappRadar, with a majority of the volume going through Ethereum. Most notably, the leading NFT game and the most profitable protocol on the market over the last 30 days, Axie Infinity has become a phenomenon and the driving factor for the NFT surge. For more on Axie Infinity and Play-to-earn games, click 'HERE'.

In fact, in terms of trading volume and growth, Ethereum has outperformed all cryptocurrencies, including Bitcoin over the past half year. Alongside the increasing usage of DeFi protocols built, another big factor is the surge in interest in DeFi among the institutional client base such as traditional hedge funds and global investment banks. Total exchange volume has shot up 1461% in the first half of 2021 to $1.4 trillion, from a mere $92 billion during the same period in 2020. In comparison, the trading volume of Bitcoin only increased by 489%. Just last week, multinational investment bank Goldman Sachs submitted an application for a decentralised finance (DeFi) ETF registration with the SEC. The ETF will focus on DeFi and blockchain equity, according to the filing documents.

Price Action

Similar to Bitcoin, the month of July saw Ethereum retrace down to the lowest price of $1710 on July 20th. Ethereum also joined in Bitcoin's success after the 'B-word' conference, rising 16% in 24 hours.

As of the 31st of July, Ethereum is now 49% above the lowest price set on July 20th, pricing in at $2560; the highest price since the middle of June. Ethereum's current rally precedes the London Hard Fork by a couple of days. Launching on August 4, it will certainly have a significant impact on Ethereum's highly utilised blockchain and among the most anticipated and controversial events in the crypto space this year.

On-chain Analysis

Bitcoin's rise in price from the $29k levels to $40,790 has indicated that approximately 18% of holders have an average cost base between the 2 levels, providing a very strong volume profile. This is indicated by the percentage of supply that is sitting in profit rising from approximately 66% at the July bottom to now just under 85%. This is a positive sign as we hopefully move towards all-time high levels where there is only a small percentage of the Bitcoin supply that will be sitting at a loss. The higher amount of supply sitting in profit is a positive signal for holders. As we push to higher levels, those holding at a loss before are now able to watch their investment grow to larger levels.

Bitcoin: Percent Supply in Profit

Despite the bullish volume profile between the $30k to $40k range, it seems that investors are still not sold on buying into the market yet. Stablecoin reserves are still oscillating near all time high levels of $17 Billion (USD held on exchanges), thus there is still a massive amount of capital sitting on the sidelines waiting for a buying opportunity. Investors might be waiting for a clear breakout in the $40k to $50k range to inspire more confidence in deploying more capital into the market. However, this is counterintuitive as many will try to time the market and hence miss out on potential gains during large price increases.

Bitcoin: Stablecoin Reserve Vs. Price

On July 27th, Binance announced that it would be changing its policy towards Non-KYC clients withdrawal limits. Previously, Binance clients who had completed Basic Account verification were able to withdraw 2 BTC (in value) per day. This limit has decreased dramatically with new clients now only able to withdraw 0.06 BTC per day. Binance's reasoning for the change was regulatory pressures that they must take action to prepare for. The news quickly impacted the amount of Bitcoin being held on exchanges, or otherwise known as exchange reserves. Over 110,000 BTC were withdrawn from exchanges between the 27th and the 28th of July, showing that Bitcoin holders are being proactive in the face of impending regulation.

Bitcoin: Exchange Reserves (Bitcoin Held on Exchanges) vs. Price

The bullish sentiment conveyed from on-chain signals is very much in line with the Stock to Flow (S2F) model. The S2F has bounced from the lows and are currently showing signs that we are still in the midst of a bull run. This is shown by the orange colour dots, whereas a bull run top is shown by the yellow dots. In comparison to the S2F Model in our June Market Update, we have recovered quite substantially from the crash.

Bitcoin Stock to Flow Model

Regulatory pushes

With regulatory pressure on the crypto space mounting across the world, many are needing to adapt quickly to the ever-changing regulatory landscape to avoid incurring the wrath of authorities. Each country is tackling Bitcoin and cryptocurrencies as a whole very differently.

In France, the government has raised a proposal that the European Securities and Market Authority, or ESMA, should regulate digital currency activity across the European Union. If enacted, this would establish a single authority over the crypto sector and would create uniform regulations across the EU through ESMA. This would also provide legal certainty for digital currency businesses operating across the EU. With the rise of crypto acceptance in the EU, particularly in countries like France, Italy and Spain, it is vital for regulatory bodies to build a framework for digital currencies.

Travelling to the United States where there are the most crypto businesses and the largest for that matter, the US has very much accepted and developed it and has a vicious body to control it: the SEC. On Monday, 26th of June, top financial regulators met to discuss stablecoins with Treasury Secretary Janet Yellen with an emphasis on ensuring an appropriate regulatory framework is in place for them. The Treasury Department said that topics included “the rapid growth of stablecoins, potential uses of stablecoins as a means of payment and potential risks to end users, the financial system and national security”. With the increasing call for stablecoin regulations, it will be interesting to follow the progress made as many regulators are worrying about stablecoin's ability to have dollars circumvent banks. This is all while the U.S. Department of Justice are investigating Tether's executives on bank fraud during the incipient stages of its cryptocurrency business. The company has responded to the report, saying that "Tether routinely has open dialogue with law enforcement agencies, including the U.S. Department of Justice".

Moving on to crypto businesses, the leading DEX (Decentralised Exchange), Uniswap has announced that a number of tokens will be delisted from its app interface. This is due to the increased regulatory pressure around instruments that may be at risk of being classified as securities by regulators. This includes tokenized stocks, options tokens, insurance-based tokens and synthetic assets from crypto derivatives platforms like Synthetix. This, however, does not change anything with the protocol as it remains immutable. This change is becoming more consistent among actions taken by DeFi interfaces to adapt to the ever-evolving regulatory landscape.

In terms of the leading CEX (Centralised Exchange) by trading volume, Binance said that it is reducing the maximum leverage users can use to trade futures contracts. This was announced a day after derivatives exchange FTX announced the same change. This move may have been designed to help avoid the worst of a coming regulatory storm as it is "in the interest of consumer protection", according to Binance CEO, Changpeng Zhao. The new limit is now 20x leverage, down from 100x.

All in all, regulatory frameworks are essential in helping build a long-lasting industry as it protects consumers, businesses and ensures a minimum standard is set for products and services.

Disclaimer: This assessment does not consider your personal circumstances, and should not be construed as financial, legal or investment advice. These thoughts are ours only and should only be taken as educational by the reader. Under no circumstances do we make recommendation or assurance towards the views expressed in the blog-post. The Company disclaims all duties and liabilities, including liability for negligence, for any loss or damage which is suffered or incurred by any person acting on any information provided.