March 26, 2023
Cryptocurrencies: Weekly Update
The last few weeks have been wild with several bank failures and even more news on a near daily basis that has been impacting the cryptocurrency market. Despite the volatility, Bitcoin has been continuing to stretch higher and higher as it looks to be regaining a ton of traction in global markets as a flight-to-safety asset amidst economic uncertainty.
With the exception of a bit of intermittent participation from a handful of other large-cap altcoins that have popped on positive news such as Ripple (XRP), Bitcoin has been moving independently of the remainder of the cryptocurrency market. Bitcoin’s current market cap dominance is sitting above 47%, the highest level of relative strength against the rest of the crypto market since the peak of last Summer’s bear market rally in June 2022.
As it appears that a large portion of Bitcoin’s price action this past week has been directly tied to major news events, it is clearly a difficult time to be trading crypto.
With the exception of Bitcoin, Ethereum, and a select few other altcoins, you would’ve likely gone negative trying to trade any other cryptocurrencies over the last 30 days. What’s interesting is that even despite a lack of participation from the lower-cap altcoin market, the moves in the large-cap cryptocurrencies have been strong enough to propel the Total Cryptocurrency Market Cap back into a bullish phase on both the daily and weekly timeframes for the first time since the Covid-19 bull market.
Bitcoin’s surge appears to have been a direct result of the collapse of several US banks that have shaken confidence in the US Dollar and banking system. For the first time in a long time, BTC is being viewed once again as digital gold or as a safe storage of value in the face of economic uncertainty. For this reason, there has been a high correlation between the price action of BTC and Gold since the collapse of Silicon Valley Bank.
Currently, Bitcoin and Ethereum are both back in bullish phases, and as long as there is apparent weakness in the US banking system, we can expect more capital to flow towards large-cap cryptocurrencies in search of safety.
By now we have all heard about the sudden collapse of three US banks including Silvergate Capital (SI), Silicon Valley Bank (SVB), and Signature Bank (SBNY). What you may not have known is that all of these now-failed banks had previously catered to the digital asset industry, which has left the crypto world extremely concerned about being cut off from traditional finance in the United States.
Silicon Valley Bank wasn’t particularly known as a ‘crypto bank’ like the other two, but it was known for serving a large portion of venture capital-funded startups which included several digital asset firms. Meanwhile, Silvergate Capital and Signature Bank were both considered the main banks in the US for crypto companies. The Silvegate Exchange Network and Signature’s Signet were 24/7 payment platforms that allowed clients to transact and have instant settlement on payments.
The failure of these banks has the additional consequence of expelling a large portion of the US crypto industry from traditional banking, eliminating some of the best on and off-ramps for the crypto markets.
There are growing speculations that regulators may be trying to drive large US crypto companies out of business in a continued push for further control over the growing industry. The SEC doesn’t seem to have missed a beat amidst the banking collapses of the past two weeks, as they’ve continued to squeeze the crypto industry even harder.
This week alone, the SEC has subpoenaed the longstanding decentralized exchange SushiSwap, Charged Justin Sun the founder of Tron (TRX) as well as a litany of other celebrities such as Lindsay Lohan and Soulja Boy for touting the TRX token without acknowledging that they were paid to do so, and most significantly of all the SEC has issued a Wells Notice to Coinbase.
A Wells Notice is typically one of the final steps taken by the SEC before formal charges are issued, indicating that the SEC is not afraid to go against the most established cryptocurrency platform in the US. It is apparent that the SEC is specifically focused on Coinbase’s staking service which the regulator claims is an unregistered security, as well as Coinbase’s process for new token listings.
Brian Armstrong represented a strong sense of confidence that the SEC’s threats are unwarranted and that Coinbase is in good standing with existing securities laws, while also proclaiming that he and Coinbase are more than willing to take whatever means necessary to protect both their customers as well as the US crypto industry.
Paul Grewal’s response was a bit more charged than Armstrong’s, as Grewal has pointed out the clear hypocrisy of the SEC targeting Coinbase for aspects of their business that have already been reviewed by the regulator in previous meetings, all while not providing any further clarity as to how Coinbase may be able to address the SEC’s concerns.
Despite all of the continued enforcement efforts by the SEC, Coinbase and its customers don’t appear to be in any kind of imminent danger. However, this all does go to show how seriously and swiftly US regulators have continued to crack down on the crypto industry throughout 2023.
The combo of the banking chaos cutting off on/off ramps for much of the US crypto industry and the SEC’s targeted enforcement of the largest US crypto companies would typically leave you expecting a major selloff in the crypto market, but that just isn’t how it went. This makes the most recent surge in Bitcoin seem even more significant as a symptom of distrust in legacy financial systems because prices have soared even with everything stacking up against crypto markets.
You should expect that any further developments regarding the banking system will only drive more capital into the cryptocurrency market in search of safer seas.
As mentioned earlier, there has been very little participation in the altcoin market as of late, with most of the action remaining concentrated in Bitcoin and Ethereum. This has been made even more apparent with our Trend Strength Indicator (TSI) showing significant strength in BTC and ETH relative to the rest of the large-cap altcoins on our list:
As things stand, BTC is still consolidating in its new short-term range between $26,900 and $28,700. Bitcoin is in a bullish phase on both price and momentum according to our RealMotion indicator, with higher highs on both metrics.
The most likely scenario from here is that we’ll see Bitcoin go sideways for a short while in this new range until a new piece of major news comes out to force a break one way or the other. In the event of a breakdown from here, we would expect BTC to find support around the $25,000 level, while the clear target from here is to take out the psychological $30,000 level on a daily closing basis.
Ethereum’s chart has a nearly identical pattern to Bitcoin at the moment, and as long as the predominant theme in the crypto market is that it is serving as a flight to safety, we can expect ETH to follow as closely behind BTC as anything else in the market.
There are two altcoins that do happen to have interesting technical setups at the moment, and would likely have more upside potential in the event that BTC takes out $30k resistance or ETH takes out $2k. Both Solana (SOL) and Cardano (ADA) are sitting precariously below their major 50 and 200-day moving averages, and look ready to fly in the event of a marketwide breakout.
Both Solana and Cardano are sitting right at the same level as their major moving averages, but they are also both just beneath their long-term trendlines that date back to May 2022. Momentum according to the RealMotion indicator is already back in a strong bull phase for both SOL and ADA as well as a bullish divergence ahead of price.
It would make sense to see these two altcoins break out next behind BTC and ETH because they are essentially the next 2 largest Layer 1 blockchains by market cap behind Ethereum. Any capital entering or reentering the crypto ecosystem and looking for diversification is likely to consider SOL and ADA.
Be careful with all of the unpredictable news that has the ability to suddenly shift the cryptocurrency market when you’re not watching.