Crypto Market Outlook Bitcoin: Taking Break on the Rally

By: Joshua Aldio, Business Associate

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The Fed is likely set to raise interest rates again, considering the US regulatory body’s preliminary efforts have yet to stem inflation, according to minutes released Wednesday. The Federal Reserve agreed in a July meeting that rates are due for a 0.5% hike in September, the minutes said. Cryptocurrency traders have been closely monitoring the Fed’s moves this year, amid market turbulence.

Minutes released on 17 Aug put the breaks on the rally we’ve observed across risk assets, with the US central bank anticipating further interest rate increases in the coming months, along with a slower pace of rate hikes once significant impacts are observed on inflation. The Fed raised rates by 75 basis points to the 2.25%-2.5% range and ditched forward guidance in their July meeting, saying the next moves will be data-dependent. Since then, markets have been pricing slower rate hikes and eventual liquidity easing in 2023, tracking the decline in commodity prices. The dovish expectations strengthened in the week starting 08 Aug after the U.S. reported softer-than-expected consumer price inflation for July.

However, markets appear to have run ahead of themselves, as the central bank’s inflation fight is far from over, said several Fed officials following the CPI release on 10 Aug. Policymakers added that interest rate hikes could continue into 2023. “The question is whether the Fed wants to use these minutes as a communication tool to push back against the view of a 2023 easing cycle,” ING analysts noted in a market update published 17 Aug. “Post-meeting rhetoric from the Fed suggests that this is more likely to be the case – especially since the Fed funds futures indicate the policy rate being cut from 3.60% to 3.20% in the second half of next year.”

Additionally, Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange by volume, weighed in on crypto’s outlook during CNN’s weekly ”Markets Now” show.

• “We’re seeing stabilization. I wouldn’t say [the crypto winter] is completely over or not, that’s very hard for me to define,” Zhao said. “Bitcoin’s peak was around $68,000. Today it’s still at $23K so it’s bounced off from the bottom a little bit, but I’m not sure it’s the bottom, bottom.”
• Zhao said the main thing the crypto market needs now is time: “When markets drop sharply, it does take a while to recover,” Zhao said. “Now we’re seeing some really positive news – the BlackRocks [referring to asset managers such as BlackRock] are getting into the industry so institutions are still coming in. We have seen a comeback from the retail side as well … And there’s a lot of new innovation.”
• Zhao believes the cryptocurrency industry is fine and that price fluctuations are to be expected, but he doesn’t “see bitcoin going back to $68K in a hurry.” “Going back up will always take some time, but the industry historically does go through four-year cycles so in a few years, most likely, there’ll be another cycle up,” Zhao said.

Technical Analysis: 

BTC/USD

Struggled to break 100DMA ($24,468) this week and continues to trade within the upward channel formed after the May/June collapse. Price could find some support at the 50DMA ($22,227) as momentum eased with RSI back at 50-levels.

ETH/USD
Took a breather this week moderating from its new daily high of $2,020 on 13 Aug and momentum easing from overbought levels (>70). Price could be supported at its 20DMA ($1,778), and a break below could see prices reach ~$1,500 (100DMA).

On-Chain Analysis: The Coin Maturity Gauntlet
from Glassnode Insight’s: “The Week Onchain Newsletter”

In the recent capitulation event, we’ve observed the migration of BTC from weaker hands to opportunistic buyers at the lows. In this week’s edition, Glassnode analyzes the Maturity Gauntlet – the maturation process of investors’ BTC holdings, with longer hold periods indicative of higher conviction and less cost sensitivity (generally).

Summary & Key Takeaways:

• Expansion in Maturity: we are currently in an Accumulation Cycle, characterized by an increase in the BTC supply that has been dormant for at least 1Y. Additionally, the swelling of supply in the 6M-12M band points to the conviction of buyers in the May-July 2021 correction during the Great Miner Migration. This is further supported by the declining RHODL ratio, which compares the USD wealth of 1-week-old coins to those held by the 1y-2y old cohort (see 1st chart below).

• Constructive Divergence: extreme Short Term Holder (STH) accumulation (<155 days) and peak in BTC-denominated supply for Young Coins (<3M) potentially signaling a final flush out of sellers, followed by months of gradual accumulation and the withdrawal of coins from the actively traded market. The question remains whether these STH that acquired BTC at a lower cost basis have the conviction to hold.

• • Extreme STH accumulation is normally concurrent with bull market topping formations (marked in 🔵) however, a few bear market examples stand out against this trend (marked in 🔴):
    • The twin spikes of 300K+ inflows punctuated the start, and end of the 2015 bear market bottom.
    • The April to July 2019 relief rally out of the bear market lows.
    • The March 2020 capitulation event.
    • The June 2022 sell-off was below the last cycle’s $20k peak, with a spike of 300K+ BTC.
  • STHs are normally adept at buying tops and selling bottoms. However, the distinct footprint of the above-described events can be considered an exception to the trend. Both inflow events were in response to extreme drawdowns in price actions and severe STH outflows following bull market culminations.
  • Such events describe a transfer of coins to new buyers who are initially classed as STHs, but have a low-cost basis, and are in an advantageous financial position to HODL from there on.

Read the full article here.

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