The Crypto Comms #20
In this issue, we discuss Bitcoin’s technical setup following its sell-off to $19,500, Ethereum’s technical picture as well as narratives and mass psychology.
Let’s dig in.
In this issue:
- Bitcoin analysis
- Ethereum analysis
- Mass psychology
- Latest happenings
- Listening material
Bitcoin rolled back eight weeks of upward grind in two weeks. Much has been attributed to Jerome Powell’s hawkish stance on risk assets on Friday, where he said the Fed would continue to “use tools forcefully” in battling inflation, while warning of “some pain” ahead.
Risk markets did not like this rhetoric and tanked significantly. The SPX dropped 4.2% on the day. Bitcoin lost 8%. The DXY strengthened and posted another 2-decade high (109.6).
But despite the Fed’s rhetoric, risk assets are still holding on, and potentially calling the Fed out on its guidance. Bitcoin has developed a technical pattern which suggests that it’s not the time to become overly bearish in the immediate short term.
BTC/USD is up 1% on the day, gyrating within a falling wedge technical structure, the breakout target of which is $25,200. H4 RSI momentum indicates waning conviction in the aggressive and inefficient flush to $19,500.
These inefficiencies tend to get filled. And BTC/USD has printed swift low-volume drawdowns from $22,200 all the way to $35,000 (CME gaps).
Locally, fresh lows become likely if the point of control (POC) for the volume-profile composite doesn’t provide support (circa $20,000). Until then, a run to $23,000 is on the cards, after which consolidation becomes more likely (MTF double bottom perhaps).
If $25,200 gets tagged, $27,000 is fair game.
Ethereum is leading the crypto market, and has been strengthening against Bitcoin since the initial breakout on July 16. The merge hype is arguably in full swing, and ETH/USD (along with LTC/USD) is currently acting as a leading indicator for Bitcoin/Dollar.
This has happened before, and if Ethereans can pull it off — they’ll drag Bitcoin higher kicking and screaming. This relationship might seem odd, but it’s not the first time Ethereum and Bitcoin have swapped market-leading roles.
But when Ethereum leads, it pays to be more sceptical of crypto rallies — at least until the Fed is forced to pivot (assuming Europe is to remain a US ally, that is).
ETH/USD is up 2.3% on the day, with price printing a bullish divergence on the Relative Strength Index (H4). Locally, $1,500 is a key area for support. If lost, another test of LWL is possible, opening the door to a ‘three-dives’ scenario, potentially printing a triple bullish divergence.
Upside liquidity areas for ETH/USD are $1,720, followed by $1,900.
“It’s not what you say, but how you say it.”
Certainly something your partner might say, but there is some truth to the matter (against my own inclinations).
Besides the merge hype, it’s worth considering that markets are experiencing bearish exhaustion. And can you really blame them? Doom and gloom narratives have dominated financial markets for months on end, and ebbs and flows are only a natural part of both individual and mass psychology.
Unlike Bitcoin, Ethereum has a relatively optimistic narrative — a welcomed change given the dreadful financial and political climate we find ourselves in. As Anthony Pompliano often points out, optimists outperform pessimists, and this view scales across populations and markets.
Human temperaments differ. Some are motivated by negative consequences of inaction (i.e. if you don’t work out, you’ll be unhealthy), others more so by positive outcomes and the prospect of future glory (if you work out, you’ll be at your best mentally and physically). The trick is getting both sides of the equation correct in a given context. It’s no different with pitching ideas, raising money, or promoting an asset.
Currently, Ethereum is winning. One way to gauge this is by looking at meme culture. Eth has better memes.
Bitcoin culture takes itself too seriously sometimes. And while toxicity exists on both sides, it is currently more pervasive within the Bitcoin community. This attitude is not good, and stems from an idea of ‘certainty’ that Bitcoin will keep going up forever.
While BTC technology is a marvellous feat of human ingenuity, that’s no excuse to become complacent, hubristic and toxic. Nobody anticipated BTC/USD would fall below its 2017 all time highs because it never did that before. Certainty is an illusion — and even if it isn’t — it’s wise to treat it as if it is.
In any case, last I checked, the only certainty in life is death. It’s time Bitcoiners learned a thing or two from their competitors i.e. memes from Ethereum, and humility from Litecoin.
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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