The Crypto Comms #3
In this issue:
- Bitcoin analysis
- FOMC: Rate hikes or policy change?
- Navigating the BTC bottom
- Latest happenings
- Listening material
Bitcoin/Dollar printed a fresh low on the back of another crypto insolvency crisis. This time the liquidity crunch is coming from Celsius, a defi lending platform.
The former bottom ($26,000) fell through, with prices marching as low as $23,500 at the time of writing. Bitcoin is currently on approach to the lower-end of the monthly Bollinger Band support area ($19,400), which has never been tested throughout the coin’s existence.
On the weekly time-frame, prices have officially entered into oversold territory, with the Relative Strength Index showing a reading of 28.7. Typically, extreme readings on high time-frames are more consequential than on lower time-frames.
Selling pressure has remained relentless for well over two months, with altcoins like Ethereum and Litecoin witnessing 11-straight weeks of selling as formerly major players (LFG, Celsius) unwind their books.
Bitcoin, Ethereum, Litecoin are down 66%, 75%, 90% from all time highs, respectively.
In order for bulls to achieve a bullish monthly market structure (super-trend), a close above $29,200 is essential.
On a somewhat positive note, previous cycle highs have never been tested in bitcoin cycles. While this is nothing to take to the bank, and history is certainly no guarantee, I believe a volatile melt-up scenario is still in the cards for June. The CME gaps are primary initial targets for bulls.
A change in Fed monetary policy may provide the relief rally the market is hoping for.
FOMC: rate hikes or policy change?
Still, Bitcoin could always trend lower, as noted in telegram when BTC failed to hold $28,000. More solvency issues could emerge, and players that do not have robust balance sheets would add to selling pressure in that case.
But for now, the BTC-SPX correlation remains high, and the S&P trades within a bullish descending broadening wedge structure. The structure hasn’t been invalidated yet.
The next FOMC decision due Wednesday could be pivotal for asset prices moving forward too. Currently, the market is pricing in a 50bps hike with a 74.8% probability. If forward guidance from the Federal Reserve rules out a 75bps hike, a near-term rally in stocks is probable. If the FED halts or reverses policy, that would be a good indication of a long-term bottom in the US stock market and Bitcoin. This would result in a melt-up.
Conversely, more hawkishness suggests an SPX move below the 200-weekly EMA to $3,500, where structural support would offer some relief.
Navigating the Bitcoin Bottom
When attempting to find a bottoming area, analysts tend to look for data points that offer historical confluence. By doing so, we can build a reasonable case for a market bottom, and at the very least a high-time-frame mean reversion.
Hash ribbon indicates miner capitulation
The hash ribbon is based on simple moving-averages. When it comes to market lows, the hash-ribbon inversion is a key historical indicator that tends to coincide with market lows.
The mining industry goes through booms and busts, just like the market. Their revenue is denominated in Bitcoin, but ultimately ROI is denominated in fiat. When markets transition into an extended sell-off (bear market), that’s when some miners need to turn off their rigs due to increased financial stress.
This results in a ‘miner capitulation’. Consequently, ‘weaker’ miners flush out their treasuries to cover costs. This on-chain model consists of two moving averages, the long-term 60-day and short-term 30-day. When the 60d crosses over the 30d, that’s historically when miners capitulate. This stage of the market cycle tends to be a generational buying opportunity.
Entity-Adjusted Dormancy Flow reaches lower bound
Another historically significant metric is Bitcoin’s entity-adjusted dormancy flow model by David Puell.
Entity-adjusted Dormancy Flow is the ratio of the current market capitalisation and the annualised dormancy value (measured in Dollars). Entity-adjusted Dormancy Flow can be used to time market lows and assess whether the bull market remains in relatively normal conditions. The indicator helps to confirm whether Bitcoin is in a bullish or bearish primary trend. It is currently sitting at an extreme pivotal point.
S2F analyst draws attention to BTC monthly RSI
For what it’s worth, PlanB, the analyst behind the increasingly contentious S2F model, shared an interesting monthly RSI chart for Bitcoin.
The chart showed the lowest monthly RSI reading ever recorded in Bitcoin’s history.
All in all, Bitcoin is in a strong downtrend on all time-frames. But vertical momentum in either direction is never sustainable. In fact, vertical drawdowns tend to be followed by vertical upswings (mean reversions). The further the over-extension, the more aggressive the mean reversion.
That said, the odds that we are witnessing a live blow-out before a relief rally are high in my view.
- Intelligence Report: Global Bitcoin Adoption to hit 10% by 2030
- Celsius Suspends Crypto Withdrawal Due to Volatile Market Conditions.
- Litecoin Fundamental Data and Price Witness Largest Divergence Ever.
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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Originally published on Revue 13/06/2022. Subscribe here.