On-Balance Volumes Indicate Seller Exhaustion Ahead of FOMC Meeting
Crypto miners dodged a bullet this week as the European Parliament rolled back misguided plans to ban proof of work mining.
Meanwhile, Ethereum/Dollar and Litecoin/Dollar sellers are nearing exhaustion, with FED rate hike expectations being largely priced in.
Let’s dig in.
The purpose of this newsletter analysis is to provide context to current events and cryptocurrency markets. It is released every Monday and Wednesday. I am not perfect and this is not a science — nor is this newsletter a signals service. While I cannot promise perfection I do my best to be honest and transparent.
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EU Parliament Walks Back Proof-of-Work Mining Ban
The European Union (EU) has backtracked misguided plans to impose a de-facto ban on Bitcoin Proof-of-Work mining, which would have ultimately limited the bloc’s prospects in participating in the future of finance.
Read the full article here!
Ethereum Sell Volumes Spike
Ethereum/Dollar is down 1.2% week-on-week, trading at $2,680 at the time of writing.
The pair is a risk-on asset more so than bitcoin and the next directional move is seen to be largely dependent on Fed policy (interest rates) and the geo-political situation in Ukraine. Briefly, markets expect a 25 basis point rate hike. This outcome is priced in. If rates are increased by 50 basis points, there will likely be more selling to follow.
Regardless, the weekly technical picture shows that while on-balance sell volumes ( OBV) are on the rise, there has been remarkably strong absorption at the floor price (blue box).
The relative strength index also indicates a weekly price-to-RSI bullish divergence, such that bearish momentum has so far been unable to overcome buying pressure at the $2,400 floor price (+/1 $300). Similarly, the stochastic RSI is within oversold territory and just registered a bullish cross.
The weekly picture is primed for a rally.
On the daily, ETH/USD is ready for a directional move, with both buy and sell volumes converging since Jan. 26 (during the consolidation phase).
The consolidation structure hasn’t produced noteworthy divergences on the OBV, though an impulsive move tends to dictate the start of a trend, especially after months of consolidation.
More broadly, risk-market are primed for a relief rally, which would likely materialise sometime after the Fed policy comes out and initial event-based volatility gives way to a trending market.
Litecoin Sellers Are Exhausted
Meanwhile, Litecoin/Dollar is up 2.3% week-on week, exchanging hands at $108.8 at the time of writing.
The LTC/USD pair has set lower lows ever since it rejected below $138, but sell-side volumes have collapsed during this consolidation. Per the OBV, as prices made new lows, bearish momentum dried up.
This volume-based trend is corroborated by a series of bullish RSI divergences on the daily time-frame.
Since LTC/USD is effectively a form of leveraged BTC/USD (at times), if majors rally the pair would probably see fireworks. If not, have you ever seen upside down fireworks?
My sense is that regardless of what happens during today’s FOMC meeting, risk markets are going through a bottoming process. It’s unfair to throw bitcoin in with that basket but the investment crowd value it that way for now.
A BTC-traditional market decoupling event may arise sooner than we think, however, especially with the advent of Asian-esque markets forming breakaway money markets and trading blocs due to the Ukraine crisis.
Bitcoin, Ethereum and Litecoin will have an ever-growing non-trivial role to play in this bifurcated environment.
Catch you later.
p.s. This is my opinion. It is not financial advice.
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