The Crypto Comms #2
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 or financial advice. While I cannot promise perfection I do my best to be honest and transparent.
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In this issue:
- Altcoin optics
- Ethereum analysis
- Litecoin analysis
- Latest happenings
- Listening material
With Bitcoin’s predatory ranging activity taking centre stage, it’s worth further exploring the right optics with which to view altcoins, at least until this environment changes.
So we’ll briefly expand on last week’s thoughts about Bitcoin Dominance and altcoin cycles.
It’s common for late-stage market participants like those in Q4 2021 to develop animosity towards Bitcoin (and Ethereum) because the two blue chip cryptos almost invariably dictate what happens to the rest of the market.
Altcoins and their ecosystems relatively outperform Bitcoin and Ethereum when money flows into the space. But the opposite is true when monetary conditions are tight.
It’s also worth noting that Bitcoin was the original driver for mass adoption (followed by Litecoin and Ethereum to varying degrees of success). Users first came into contact with cryptocurrencies through Bitcoin, which provided a foundational layer for emerging products like bitcoin-settled futures contracts.
More importantly, this meant that you had to have exposure to BTC in order to gain access to Altcoin/Bitcoin pairs. Since Altcoins were far more volatile in dollar terms, the goal was to acquire more bitcoin using the latest flavour of the year crypto. Barring a few projects, most 2017 altcoins have been replaced by shinier (but no less risk) projects.
Bitcoin was both the primary denominator and collateral for a time. But as stablecoins became more important and USDT passed consecutive stress tests, the dynamics changed.
Nowadays, users are onboarded directly through fiat or stablecoins, and crypto futures contracts can be collateralised using dollars. This is safer than coin-margined contracts which suffer fluctuations due to asset price-volatility.
So imagine an environment where altcoins are essentially replicating the early Bitcoin days, with lower liquidity and massive relative upside and downside potential.
At $500 billion, it takes far more capital to move the bitcoin market than it does to move a $200 million coin. Newer projects will therefore suffer astronomically when conditions are not perfect. Under such a regime, the main drivers for crypto (BTC & ETH) essentially dictate risk-on/off policy.
In risk-off conditions, capital retreats into majors — Bitcoin being the obvious choice, and Ethereum taking runners up position. Notably, the ‘flippening’ narrative hasn’t really materialised yet, and it’s no surprise given the yearly delays of Ethereum switching from PoW to PoS. As a side note, I believe this would make Eth a technically inferior asset to Btc and Ltc (since proof-of-work is the innovation, not proof-of-stake).
Long story short, altcoin optics change depending on the behaviour of the foundational assets, regardless of how many financial products exist. If anything, leverage makes altcoin volatility even worse than before.
Bitcoin is the time-tested multi-cycle benchmark for generational crypto wealth. Ethereum is an aspiring benchmark.
Ethereum/Dollar is flat on the week as it attempts to mount a valiant stand that has the potential to snowball into a mean reversion. Such a scenario is unlikely to happen in a vacuum and would probably follow a rally in Bitcoin/Dollar.
ETH/USD exchanges hands at $1,809 at the time of writing. Like many altcoins, the pair is mirroring BTC/USD behaviour and is less interesting than BTC given the altcoin optics I just explained.
As such, last week’s levels still apply (tldr: reclaim $2,000 opens the door to mean reversion; break below $1,700 means $1,350 is on the table).
Notably, ETH/BTC is inching closer to the 200-weekly EMA, which has acted as a pivot twice so far.
Bear in mind, BTC/USD does not need to head South in order for the ETH/BTC to sink to fresh lows. Under such conditions, rallies in BTC/USD tend to outperform ALT/USD pairs, at least until some confidence and risk-on appetite returns to the market.
Litecoin/Dollar exchanges hands at$62, down -2% on the week.
The coin is arguably in dire straights price-wise, which is typically when long-term bottom signals emerge, historically.
As noted last week, the 50-daily EMA ($78) tends to dictate the trend. Until it’s reclaimed, Litecoin will follow BTC/USD with more relative volatility.
But there is light at the end of the tunnel. The LTC/BTC pair has formed a falling-wedge reversal structure, which has historically resulted in an impulsive thrust higher.
All in all, altcoins are in a bad way. Bitcoin and crypto are displaying signs of a bottoming formation, and for what it’s worth, long-term on-chain data has also been signalling that prices are significantly undervalued.
Buying the fear is never easy. But I’ll tell you a secret: nothing worth doing is.
- CoinShares Report: Bitcoin-Based Funds See Inflows Returning
- Privacy, Fungibility, Network Diversity: The Case For Litecoin.
- Bitcoin Dominance Reaches 7-month High as Altcoins Bleed.
This is my opinion. It is not financial advice.
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