Crypto Rolls Over in Anticipation of New CPI Print

July 12, 2022

Cryptocurrencies: Weekly Update


We’ve seen an uptick in demand for more speculative cryptocurrencies recently, which is clearly thanks to the short-term countertrend in the Nasdaq 100 index.

The brief break above the downtrend in QQQ starting at the beginning of April showed traders that there was a spike in demand for Growth/Tech related plays, while the S&P500 did not make the same move over its own downtrend.

This showed us that although both SPY and QQQ are in longer-term selloffs, Value plays demanded less interest in the event of a short-term rally. This isn’t all too surprising, as any type of tradable bottom in stocks will likely favor the drastically oversold tech names that are going to be more volatile and thus more tradable during short-term bounces.

Last week saw altcoin’s outpace BTC, mirroring the outperformance of QQQ over SPY.

Now, Bitcoin and the rest of the cryptocurrency market are in a relatively precarious position heading into this Wednesday's Consumer Price Index report. It is anticipated that the CPI could be as high as 9% based on estimates, and with the White House forewarning the release of the CPI, traders are left with the feeling that markets are not going to digest this month’s inflation numbers as well as we’d hope.

BTC is currently back at the bottom of its consolidation range around the $20,000 level after stairstepping down 3 times over the past 90 days.

After such a sharp selloff everyone is still hoping for a technical bottom at the current range, but anyone telling you that the bottom is in before BTC breaks the resistance at the $28,600 level is hopelessly optimistic.

There are several stages for a potential reversal, first of which would require taking out the current downtrend shown above, then the 50-day moving average (blue) would need to be flipped from resistance back to support before finally attempting to flip the previous consolidation range low above $28k back into support. If these don’t happen, then cryptocurrencies haven’t bottomed.

An interesting trend in the cryptocurrency market the past few weeks has been a definitive outperformance of more speculative altcoins over Bitcoin. Unfortunately, it looks as though this recent outperformance may be coming to an end soon, with the ETH/BTC trading pair showing a possible break down from its current wedge pattern.

After a failed attempt to break above the 50-day moving average the ETH/BTC pair is now below its supporting trendline, likely thanks to anticipation for tomorrow’s CPI spooking traders out of speculative plays and back into Bitcoin as a safety play.

Traders exiting positions and accumulating cash is also reinforced when looking at market cap dominance of BTC and ETH compared to the dominance of the USDC and USDT stablecoins over the past 5 days.

It is clear that stablecoins are reclaiming dominance of the overall market cap at a fast pace, while ETH.D -6.2% shows us that traders are dumping their altcoins at a quicker rate than they’re exiting their BTC positions.

With the altcoin trend breaking down, and the whole crypto market breaking down with stocks on Tuesday, we must look back at the past few monthly CPI reports to see how cryptocurrencies reacted and responded in order to try to anticipate what will happen this Wednesday. 

It appears that there is a correlation with the stairstepping pattern of the past 3 months to the dates of each month’s CPI report. Each print has either slightly preceded or directly influenced a further break down from each of the past several consolidation ranges. Each of these past few drops have been -25% to -30% moves, and if we see the same magnitude of a drawdown from current levels that would see BTC potentially find new support above or around $14,000.

We also know from previous CryptoPulse weekly reports that Bitcoin has historically never dropped more than -30% below its 200-week moving average on a closing basis. At current levels, -30% from the 200-wma would see the price of BTC drop to $16,000.

As we prepare for the CPI tomorrow and its potential impact, make sure to have a defensive outlook on any crypto positions you may have.

* * * * * New Trades by our CryptoPulse Quant Model * * * * * *

We’re undoubtedly in a “crypto winter,” and it’s often hard to appreciate the value of “doing nothing,” or “building wealth by losing less,” or as traders say, “sitting on your hands.”

Our CryptoPulse Quant trading system has out-performed even the biggest coins (BTC and ETH) recently by doing all of the above, or… “sitting out.”

Sitting in cash is not fun, but as legendary (self-made billionaire investor) Leon Cooperman told Bloomberg this morning…

“In bear markets, the winner is the one who loses the least.”

This point is a big reason why CryptoPulse Quant system has had such dramatic long-term success. However, it’s hard to appreciate this in bear markets. 

Mr. Cooperman is not completely in cash, but he’s more focused on not losing than hitting a home run right now. We are too.

To that end, the CryptoPulse Quant system identifies strong trends, and sometimes the early, strong trends in bear markets become future leaders that create extraordinary gains, so…

I’d be remiss if I didn’t at least let you know as a reader…

We recently issued two new trades that may be of interest to you.

Because the CryptoPulse Quant system has very specific entry and risk points to protect our followers, and…

I would not want anyone to interpret my posting our “2 new buys in ___  and ___ " as a buy-and-hold recommendation without understanding more. 

If you’d like to learn how we trade big trends with the CryptoPulse Quant system that just identified two new trades…

Talk to us. We’re happy to share these alerts as long as we know you know how to trade them. Use the link below to book a call with our Chief Strategy Officer - Rob Quinn. 

As a side note, if you are a follower of our proprietary “Real Motion” trend indicator, both of these new trades have a bullish divergence. 🙂

If you’re interested in two “green shoots” in the crypto winter, book a call with Rob here, or as you’ll see with this link… you can text him now (please note he’s on ET time)

Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!