Crypto Value Plays Continue to Outperform

December 24, 2022

Cryptocurrencies: Weekly Update

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The cryptocurrency market is still reeling from the fallout that came with FTX’s collapse as well as negative rumors regarding some other major cryptocurrency exchanges, so it is only logical that crypto traders and investors would seek safety and value plays as we weather the storm.

Outside of cashing out completely or holding funds in stablecoins, the only real ‘value’ plays within the cryptocurrency universe would be Bitcoin or Ethereum. This isn’t the same type of safety play as going into Gold or Silver when equities are tanking, but rather just an option for those that wish to keep exposure in the cryptocurrency markets without overexposing themselves to highly speculative altcoins. Although they are significantly more volatile assets than Gold and Silver, Bitcoin and Ethereum still have a clear similarity to how Gold and Silver are used for safety in extended bearish environments.

Typically, altcoins are defined as any coin that isn’t Bitcoin, but we will often consider Ethereum as being on its own separate pedestal thanks to its market cap being nearly 4x that of the next largest altcoin (BNB) and more than 8x the next closest altcoin after that (XRP).

Exiting speculative altcoins in favor of BTC and ETH has been a major trend over the past 30 days, which becomes abundantly clear when looking at the price performance of the top 15 coins by market cap:

With the exception of Tron (TRX) which isn’t available on most American crypto exchanges anyways, the only 2 coins with a positive performance over the past month have been Bitcoin and Ethereum. This becomes even clearer in the chart below that shows the change in market cap for BTC and ETH compared to the rest of the crypto market (TOTAL3) over the past 30 days:

There is no doubt that crypto traders are favoring the top 2 coins right now. This is a trend that we could expect to continue for the foreseeable future, especially with the ambiguity of potential regulatory action in the US that has the potential to effectively neuter access to a large range of smaller altcoins.

What may be the most important thing to note about this trend is that it isn’t the first time we’ve seen Bitcoin outperform the rest of the crypto market (including ETH) on a relative basis after an extended bear market. 

2017 saw the first major cryptocurrency bull market that caught the attention of traders all around the world and was really the first instance of major adoption and awareness of the alternative asset class. Unfortunately, the beginning of 2018 followed with the cryptocurrencies crash just as quickly as they had rallied in the prior year. 

This crash was followed by a nearly 2-year period of sideways-ranging price action for Bitcoin, in which it reclaimed a large portion of the market cap dominance that it had given up to altcoins in the 2017 bull run. Just look…

When the cryptocurrency market goes into an extended consolidation range as it did in the wake of the 2018 crash, the biggest beneficiary is inevitably going to be Bitcoin as it is the purest value play that there is. We expect a similar trend to occur throughout the beginning of 2023 at the very least, in which Bitcoin will likely outperform the remainder of the crypto market on a relative basis regardless of which direction the overall market is moving on a shorter-term timeframe.

With all of that being said, Bitcoin happens to be sitting in an interesting spot at the current moment that has the potential to lead to a breakout in the near future.

Bitcoin is in a bearish pennant but looks to have the potential to test its 50-dma in the coming week, in which case there would be an opportunity to run up to the top of its current range of around $18,500. However, it is imperative that you don’t bid at the first glimpse of a wick above the 50-dma and that you wait for confirmation, which would be 2 consecutive daily closes above the moving average. You can see that just about 10 days ago there was a false breakout above the 50-dma that failed to close above that level for even a single day, so don’t be too trigger-happy in the event of another test.

Our Real Motion indicator (in the chart above) is showing that underlying momentum is bullish and leading the underlying price chart which is still in a bear phase. Currently, they are both starting to trend upwards within their ranges that were established at the beginning of November during the FTX market crash. 

Another positive note for Bitcoin has been that it has continually outperformed the S&P 500 on a relative basis since the beginning of December according to our Triple Play indicator, a sign that there is still interest in BTC even as the wider crypto market has been hurting.

Ethereum is in a very similar position to Bitcoin with its 50-DMA as the major resistance level to beat. However, from a technical standpoint, ETH may be even more enticing than BTC to some, as it has not put in a new lower-low since bottoming in June even with all of the FTX chaos.

Whether you choose to take a bid on BTC, ETH, or both, just be extremely cautious with placing bets on altcoins throughout the rest of this year. Stick with value and safety for the time being.

Happy Holidays and best of luck trading in the new year!