Dear Subscribers,
Bitcoin and other cryptocurrencies edged higher but remain at relatively the same levels into the weekend. Next week will usher in a key catalyst for the stock market that could also trigger some moves.
In this Uncharted:
We analyze how bitcoin has rallied rather hard as it looks like the market is trying to recapture its former momentum from a crucial level in the form of $40k.
We expand the implications of the Dollar index falling as inflation data and economic indicators, including GDP growth, signal a bearish outlook for DXY.
We outline what is next for ethereum, which has initially fallen during the course of the trading week only to turn around and show signs of life. That being the case, the market is likely to continue to see buyers picking up each dip.
Let’s dive in!
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State of the System
We left the last Uncharted with bitcoin celebrating the SEC’s approval for the bitcoin ETF:
“In essence, even in the event of significant success, the impact on bitcoin's adoption as a real currency, and especially its long-term goal of hyperbitcoinization, may be limited. Nevertheless, the pervasive integration of ETFs into the financial mainstream means that individuals may invest in them without a deep understanding. Mutual funds, pensions, and other entities routinely invest in popular ETFs from various sources, giving millions of people indirect exposure to bitcoin. This broad participation could potentially contribute to bitcoin's increasing prominence in both public perception and financial portfolios. Bitcoin is trading around the $45k as we remain in the bullish quadrant for another uncharted.”
After all bitcoin in general is going through a bullish momentum despite having received downward pressure after the ETF announcement, making us stay in the neutral quadrant. Obviously what has happened is that bitcoin had risen almost 90% before the announcement and therefore people sold when the actual announcement came, so now we are waiting for another factor to move it as we don't seem to have any.
In this regard, we will have to keep an eye on the central banks and their monetary policies because if they start to cut interest rates bitcoin would get that factor capable of pushing it up. Remember that bitcoin has been very sensitive to what central banks do with their currencies because the general idea is that bitcoin would solve the problem of the devaluation of the dollar, so now we will have to be very attentive to what they do.
However, with the advent of bitcoin ETFs we will see institutional traders willing to short bitcoin, so the behaviour of bitcoin could change dramatically. In fact, it is likely that bitcoin will end up becoming just another financial asset, perhaps with less volatility than it has had so far.
Bitcoin recently experienced a surge, reaching $41.5k, providing liquidity for long positions to capitalize on profits. Notably, there are approximately $659 million in liquidations clustered around the $42k level. The recent increase also sent the derivatives market into $110 million worth of liquidated positions. Some $70 million of that is short sellers. Currently, the price is making a move towards filling the liquidity gap positioned above $42k.
If the current bullish momentum is sustained at its current rate of growth, it could potentially lead to the liquidation of around $1 billion worth of short positions. This dynamic highlights the potential for a cascading effect where short positions are forced to cover, further propelling the upward movement of the market.
Bitcoin exhibited a notable rally, utilizing the $40k level as a springboard. This development is particularly encouraging for bullish players, considering the prior stagnation observed in that price range. However, despite the rally, this might not have altered the overall landscape significantly. The Risk Signal remains in the high risk area although, with the recent pump in price, it has decreased to 30.
As of now, the market seems to be entrenched in a consolidation phase, with a substantial support barrier identified between the $38k and $40k levels. The recent approval of an ETF (Exchange-Traded Fund) simplifies the process for institutional traders to short bitcoin, introducing a new dynamic to the market. This change could potentially lead to a shift in the market's behavior and volatility profile in the coming year.
Anticipating further changes, it's proposed that bitcoin might start to exhibit trading patterns more akin to an index or a traditional stock. This prospect could potentially create a shift in market dynamics, impacting long-term holders and signaling the increasing influence of Wall Street.
In the past few days, altcoins, known for their characteristic volatility, have displayed a relatively stable trend, with the last 24 hours showing minimal deviations. Several altcoins, including BNB, SOL, XRP, ADA, DOGE, and LINK, have recorded slight gains. Among this group, Avalanche and Tron have experienced the most significant jumps, registering around a 3% increase. However, the lack of strength in the system has brought down the Altcoin Signal.
On the other hand, ETH, DOT, and TON have seen negligible losses within the same timeframe, contributing to the overall subdued market movement. Notable increases have been observed in OP, OKB, and NEAR, with gains ranging between 8% and 9%. Consequently, OP is now trading above $3, OKB has surpassed $50, and NEAR is approaching $2.9.
Despite these individual fluctuations, the total cryptocurrency market cap has remained consistent from the previous day, standing at over $1.550 trillion.
In the current market scenario, the $47.5k level looms as a significant resistance point for bitcoin. A positive development is the successful breach above the 50-day Exponential Moving Average (EMA), signaling a bullish trend. This suggests a potential continuation of the upward movement, with the likelihood of some back-and-forth price action.
However, should there be a breakdown below the $38k level, it could open the door for a descent to the $35k level. This level holds significance not only as a psychological round number but is also where the 200-day EMA is converging, adding to its technical importance.
Considering the prevailing uptrend, it's anticipated that the market may continue on this trajectory, though challenges lie ahead, particularly around the formidable $47.5k resistance level. But it does not matter if we go up or down. Because one thing is sure. This bull run has just started and the price of BTC during a bull run is volatile. But for sure it will end up being a lot higher at the end of the bull run than it was at the beginning.
The Macro Environment
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