If you weren’t paying attention to the cryptocurrency market over the weekend, you would likely have been happy to see Bitcoin’s price about 2.25% higher when stocks opened on Tuesday relative to where BTC was at the close last Friday.
However, while stocks weren’t trading over the weekend Bitcoin managed to break down and put in a new 2022 low just above $17,500.
At the time of writing, Bitcoin has already rallied over 20% from its new calendar year low but is still very much in a longer-term downtrend.
As happy as we may be to see BTC back above the psychological $20,000 level on Tuesday, the price is still nowhere close to where it needs to be for us to believe that any kind of bottom is actually in.
Bitcoin’s price has been stair-stepping down consistently since the beginning of April, and for that pattern to be broken we will want to see the price reclaim one of the previous steps in its continued selloff…
The key level for a confirmed reversal would be $28,500.
If you’ve been dollar-cost-averaging to accumulate a long-term bitcoin position, don’t put all your eggs in one basket because we absolutely could still see Bitcoin make more new lows without a convincing reversal from here. Unless we see BTC re-establish support above $28,500 (a 35-40% move), the most likely reality is that price will continue to make new lows.
There is one interesting non-price trend change that has happened in the past week or two, which is the complete collapse of Bitcoin’s dominance (BTC.D) of the overall market cap.
BTC.D has fallen from its recent peak of 48.45% to 44% over the past 10 days, which would typically be a clear indication that altcoins have been outperforming on a relative basis in the short term.
The weird thing is that typically when Bitcoin’s dominance decreases, we see a spike in Etherem’s own dominance… but not this time.
So if both Bitcoin and Ethereum are losing their respective shares of the overall cryptocurrency market cap, where is the money going?
Stablecoins.
The two leading stablecoins USDT (light blue) and USDC (yellow) have seen a significant uptick in their respective dominance in the past 2 weeks compared to Bitcoin and other speculative altcoins.
This is very likely evidence of some degree of capitulation within the crypto market, as traders are selling their positions in volatile cryptocurrencies and parking their capital in stablecoins to avoid further downside risk. The problem here is that although stablecoins are seeing an uptick in their relative dominance of market cap, their respective valuations have still been crushed over the past 3 months which indicates significant outflows from the cryptocurrency space across the board.
This should come as no real surprise given that the total cryptocurrency market cap has fallen from an all-time high of around $2.9 trillion to as low as $920 billion today.
There are 2 key takeaways from this week’s CryptoPulse Report:
Thanks to global inflation, supply-chain disasters, and a fairly bleak macroeconomic outlook for the next 1-2 years, it is all too obvious that the cryptocurrency market is not done selling yet.
Fortunately, if you follow our CryptoPulse Quant model then you would have been in cash for several months by this point and avoided having to sit through devastating 60-100% losses in some of the most popular cryptocurrencies Year-to-Date via the classic buy and hold strategy.
There are still plenty of opportunities to make highly profitable trades in the crypto market even with the continued down-trend thanks to extreme volatility having been brought back into the crypto space, but risk management and tight stops/targets are essential if you want to avoid being left in the dust.
We expect further selling and do not believe that the bottom is in for cryptocurrencies yet, and unless $28,500 magically gets flipped from resistance back to support, any positive price action in the meantime will simply be a short-term rally.
Last week’s CryptoPulse Weekly report outlined a -30% drawdown from the 200-week moving average as a potential bottom signal based on historical price action, so in the event of a deeper selloff this week we will be watching to see if BTC gets down to those levels or not.
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