July 19, 2022
Cryptocurrencies: Weekly Update
The last few weeks have given us quite the countertrend in the cryptocurrency market, and plenty of trading opportunities to go with it.
Interestingly, the more speculative Layer 2 coins were some of the first ones to break out, with Polygon (MATIC) leading the charge after a clean break above the 50-day moving average on July 7th.
In the same move, MATIC also closed above its long-term downtrend that had been intact since the coin’s all-time high on December 27th, a major inflection point that will now serve as likely support for the short-term.
Our CryptoPulse Quant entered MATIC on 7/11 and is currently up +63% after having taken profits at 40%.
Another Layer 2 that has been leading the rally in the past month has been Uniswap (UNI), one of the most popular decentralized exchanges there is that operates on top of the Ethereum blockchain.
Uniswap took over the 50-day moving average before essentially any other large-cap cryptocurrencies with a clean breakout on 6/23, and after about a week of consolidation, the coin managed to take out its 2-3 month range high.
What may be the most significant thing on Uniswap’s chart is price having now taken out the long-term downtrend from UNI’s all-time high back in May 2021. This very well could be our signal that UNI is back and has the potential to dominate the decentralized exchange industry once again.
The Uniswap exchange shows about a +22% increase in daily volumes from the beginning of the year, which is almost certainly attributed to the drastically cheaper network fees on Ethereum thanks to the chain’s transition to proof-of-stake.
I have personally used Uniswap’s exchange in the past to buy new coins that weren’t yet available on centralized exchanges like Coinbase but chose to stop using the service because of astronomical transaction fees that made it impossible to justify using the exchange.
If ETH gas fees stay low for the foreseeable future, you can expect UNI users to come back and for the coin to get more love.
Our CryptoPulse Quant strategy also entered a trade in UNI on 7/11 and is currently up +35% on that position and looking to take profits very soon!
Although the current price action in the crypto market was first recognized in breakouts amongst layer 2’s, we were able to clearly recognize increased demand for speculative assets by observing a handful of macro-level charts.
The first indication that we were going to see cryptocurrencies run was actually when the Nasdaq (QQQ) first overtook its long-term downtrend on 7/6, while the S&P500 (SPY) didn’t break above its own downtrend until today!
The relationship between SPY and QQQ is highly correlated, but the slight outperformance in QQQ is what gave us the signal that demand for speculative assets had reentered equity markets. When Growth (QQQ) outperforms Value (SPY) in stocks, we can anticipate a similar trend to take place in cryptocurrencies, and that is exactly what we saw when observing individual dominance of the top 4 cryptocurrencies by market cap.
We observed a confirmed downtrend in the dominance of the top two stablecoins (USDC & USDT) when they started setting lower lows at the end of June. At the same time we noticed a clear uptrend building in Ethereum’s dominance that was not be mimicked by Bitcoin. This told us that stablecoins/cash was being spent, and that altcoins were the main recipient of those spent stablecoins.
For even further confirmation of the outperformance we saw in Ethereum’s market cap dominance, we looked to the ETH/BTC trading pair.
The ETH/BTC pair began rallying in late June, an indication that Ethereum was beginning to outperform Bitcoin on a relative basis.
Today, ETH/BTC tested and failed the 200-day moving average, telling us that this run may be a bit overbought in altcoins, and it might be time for Bitcoin to catch up.
Ethereum is currently looking at further upside, but is likely to hit major resistance at around $1,720, the previous consolidation range low.
Meanwhile, BTC is currently sitting right above its 50-day moving average for the first time since early April and looks primed to run up to as high as $28,600, which is Bitcoin’s own previous trading range low.
The way things are currently set up, we expect BTC to likely breakout and outperform altcoins over the near future.
From here, we’re going to be looking for stocks to continue their rally in order for crypto to continue its own. Beyond that, If Growth continues to outperform Value in stocks, we expect the same in crypto. However, right now it looks like Value is overdue to catch up with the move that growth has recently made, in which case we expect a powerful move in Bitcoin in the coming days.
Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!