May 12, 2023
Cryptocurrencies: Weekly Update
The cryptocurrency market had a rocky start this week, with significant sell-offs witnessed across the majority of the top coins. Our recent focus has been primarily on Bitcoin. Its price action for the past month and a half has been unpredictable, albeit confined between $27,000 and $30,500.
Given the circumstances, this has been a rather uneventful and challenging period for trading cryptocurrencies, especially considering the top-performing coin in the market is a newcomer meme-coin, PEPE.
Since its launch on April 17, PEPE has experienced an astounding increase of more than 3,000% and remains highly active, with an impressive rise of over 70% in the past week alone. However, this coin is devoid of any technological innovation or proprietary features; it's merely another joke cryptocurrency that has been rapidly embraced by the online community, akin to Dogecoin (DOGE) and Shiba Inu (SHIB).
While PEPE teeters around a $1 billion market cap, its future remains uncertain. This unpredictability indicates that traders, bored with the recent stagnation in the crypto market, are looking for excitement. The likely overall effect of PEPE is a net negative impact on the market as traders divert capital from safer positions to riskier ones like PEPE, hoping for continuous exponential growth.
Those investing in PEPE might soon regret not staying with safer options like BTC or cash. Coins like these typically experience a rapid sell-off following a sharp rise, so potential investors should proceed with caution.
Presently, the notion of a "safe" cryptocurrency is being scrutinized.
Bitcoin's price dropped nearly $2,000 to around $27,600 since last Friday following a new type of network congestion that introduced unforeseen issues for the Bitcoin blockchain. Ordinal NFTs, a new feature in the BTC ecosystem, introduce NFTs without creating smart contracts, which is standard on other blockchains.
While NFTs aren't new to the crypto space, the influx of BTC Ordinals has led to a significant increase in transactions on the BTC blockchain, causing some complications.
Monday witnessed the largest backlog of unconfirmed Bitcoin transactions in the blockchain's history, resulting in a substantial increase in transaction fees. Currently, the average transaction fee hovers around $20-$30, causing difficulties for exchanges like Binance.
In response, Binance temporarily halted BTC withdrawals and increased the withdrawal fee to nearly $28 per transaction. Although this doesn't spell doom, it does cast doubt on one of Bitcoin's key selling points.
Bitcoin has been promoted as a secure, low-cost global transaction method. However, excessive congestion that leads to soaring fees and panic among exchanges undermines this claim. This is particularly significant in regions like El Salvador, where Bitcoin has been adopted as a national currency. Can residents afford a $20 network fee for every purchase?
This situation doesn't signal the end of Bitcoin but serves as a stark reminder of why there is a plethora of cryptocurrencies and blockchains. If Bitcoin transactions become too costly, traders and adopters may naturally migrate to alternative coins and networks.
Other networks also suffer from congestion issues, with Ethereum being a notable example due to its astronomical transaction fees during peak on-chain activity. However, many blockchains, like Solana (SOL), are known for their low fees and fast execution times. The tradeoff is that Solana is prone to temporary network outages during sudden, random transaction activity spikes.
This discussion about recent network issues plaguing Bitcoin users highlights the importance of acknowledging the innovative technology and value present in other projects within the crypto universe.
Bitcoin’s market dominance (BTC.D) has hovered around 48% since mid-March, showcasing its consistent outperformance compared to the rest of the crypto market. Since the close of 2022, Bitcoin has steadily regained dominance, maintaining an ascending range.
During the 2020/2021 crypto bull market, Bitcoin attempted but failed to surpass a 49% market dominance twice, and we could be on the brink of a third attempt.
If Bitcoin's dominance starts to decline and its price remains stable, this could set the stage for an altcoin rally. Stable or increasing BTC prices coupled with falling dominance imply positive market sentiment and a willingness to take on increased risk.
Currently, BTC's future direction appears uncertain, oscillating between a potential breakdown to retest the $25,000 support level, and an uptick towards the $30,000 resistance level.
The 50-day moving average presents a crucial inflection point for BTC in the short term. If Bitcoin can retake the 50-day MA on a closing basis, it could indicate a bullish shift towards $30k. However, if BTC falls below the $26,900 support level, a drop to $25k seems plausible.
Our RealMotion indicator may suggest that Bitcoin has reached its nadir, hinting at a possible explosive upward trajectory. The RealMotion indicator for BTC has been in a descending pattern since the March rally, mirroring the pattern observed in the first three months of the year. BTC hit an oversold level on its RealMotion Bollinger Bands this week, which marked the beginning of the March BTC rally. Unlike in March, however, the 200-day MA is currently far from the present price.
RealMotion has already shown slight recovery from its oversold level, which could be a positive sign for a bounce in the crypto market.
Another factor to consider is the potential formation of a head and shoulders top pattern in BTC.
Despite generally being a bearish pattern, we are now at the completion of the right shoulder of this pattern and experiencing a healthy bounce post the CPI report. A bounce from the neckline here would be extremely bullish for BTC and other cryptocurrencies.
If BTC rallies from this point, monitor Bitcoin Dominance (BTC.D in TradingView) for signs of decline. If BTC.D weakens while BTC price remains stable, it might be time to consider altcoins for higher potential gains.
Ethereum is the prime candidate to lead the market rally if BTC doesn't.
At first glance, Ethereum appears similar to Bitcoin, as it is also hovering just below its 50-day moving average. However, it did not hit an oversold level according to the RealMotion indicator during the recent volatility. ETH has clear support around $1,800 with an additional support layer around $1,700, while upside resistance is evident at $2,000.
Solana remains one of the more promising bets in the crypto market, consistently hovering around its long-term 200-day moving average.
Since the onset of 2023, Solana has remained close to the $20 mark, currently resting just above its 200-day MA. Similar to BTC and ETH, Solana's long-term momentum, according to RealMotion, continues to improve, but its short-term momentum is a bit weak as it sits just below the 50-day MA on RealMotion.
If SOL retakes the 50-day MA on price, it would be reclaiming a bullish phase with clear resistance around $24-$25, the high so far in 2023.
Regardless of the altcoin you choose, consider the possibility that BTC may have peaked and the trend of the crypto market may soon shift back to altcoins.
If you’re not yet subscribed to either our CryptoPulse Quant model or the new CryptoPulse Sprint trading strategy and would like to learn more about our products then you can talk to our Chief Strategy Consultant, Rob Quinn, here.