September 21, 2022
Cryptocurrencies: Weekly Update
Last Wednesday we were all graced with a rapid selloff in the wake of the Ethereum Merge being completed, with the whole crypto market tanking about 10% before continuing to trickle down as the week went on. This week we all knew that the big event would be today’s FOMC in which it was a gamble between a 75 or even 100 bps rate hike.
Most experts anticipated that 100 bps would have been devastating to markets, whereas 75 bps could be manageable if not even slightly positive for the short-term health of risk assets.
Depending on how you choose to interpret things with both stocks and the crypto market closing down about 2% on the day, you may think that analysts were right about 75 bps being not nearly as bad for the markets as it could have been. However, when you look at the charts you’ll see that Bitcoin and the S&P 500 are both holding on to their very last lines of support.
At the time of writing, Bitcoin is trading below $18,500 and is likely to put in its second consecutive daily close below the $19k threshold. This is now Bitcoin’s lowest daily close since December 2020.
Bitcoin is flailing and looks to be heading for another test of the 2022 low of $17,622. Price, as well as both short and long-term momentum, are all still above their lower Bollinger bands, indicating that Bitcoin is not yet oversold and likely has room to run until at least $17.6k if not even a break lower to the $14,000 area with not much pause in between.
We say $14,000 because there really isn’t much historical action between current prices and $14k in recent history, but this theoretical support level did serve as a crucial psychological threshold in 2019 as it marked the high for that year and all the way up until late 2020.
Seeing Bitcoin continuing to make consecutively lower daily closes is a troubling sign and momentum doesn’t exactly make the picture any prettier. $17,600 looks to be the last line of defense unless we get a miracle short-term rally after the smoke clears a bit later in this week. If that dam breaks then crypto markets could go into freefall for another 20% drop.
With more rate hikes to come this year and even more reasons for investors to let go of their positions in highly speculative risk assets like cryptocurrencies, there is likely still more pain yet to come.
Although Ethereum has sold off pretty much non-stop since the Merge, a short-term bounce may be in order.
Unlike Bitcoin, ETH has a few different support levels working in its favor including the uptrend starting on June 18th as well as the 2022 low close from the same day at $995. It kinda goes without saying that $1,000 is the most important psychological support level that there is for ETH, but before we worry about it getting that low it also has technical support right below current prices at $1,242.
On the opposite end, a short-term rally to fill the gap back up to $1,424 wouldn’t be all that surprising given that Ethereum has reached oversold conditions on both price and momentum, indicating that it may be time for some mean reversion higher.
Despite Ethereum looking a bit better than Bitcoin, the overall trend strength of the cryptocurrency market has clearly degraded since last week, as we’ve dropped from 4 to now only 1 symbol in our list that currently has a positive Fast TSI value.
Our CryptoPulse Quant entered MATIC and LINK positions last week but has now, unfortunately, rotated back out of both and back into cash after only 5-day trades in each. However, Chainlink is still maintaining a positive trend strength according to the Fast TSI.
One interesting take on why LINK is the lone wolf at the moment may be because of how it is different from every other coin on our list. Chainlink operates data oracles that enable the connections between blockchain-based smart contracts with external data sources. Chainlink offers technologies that are significant for all of the major Layer-1 blockchain networks such as decentralized data feeds and verifiable sources of randomness (VRF).
Thanks to the perceived value in the technology behind Chainlink, it appears to be holding up stronger than other large altcoins as many traders still consider the coin to be on discount at its current price range.
Stuck between $5.93 and $9.33, LINK looks likely to continue trading sideways and within this range even if there is a sharper selloff in Bitcoin. One thing to watch here is the long-term momentum according to the RealMotion indicator, which has tested its 50-day moving average as support multiple times without actually breaking down. If RealMotion stays below its 50-day moving average and breaks lower towards the 200-dma, it will likely be a sign of a break back to range lows on price.
Another reason for the recent underperformance in altcoins can be chalked up to recent comments from SEC Chair Gary Gensler in which he claimed that Ethereum and other Proof-of-Stake tokens are likely to be considered securities according to the Howey test.
The prospect of harsher regulations on the crypto market is almost certain as many still throw around the phrase “Wild West” in regards to digital assets, and even more likely in the next few months as we get closer and closer to Midterms in November which will almost certainly see every politician in the media start taking a stance on cryptocurrencies. From Central Bank Digital Currencies (CBDCs) to the classifications of individual digital tokens, the politics around the industry is complex and still very uncertain.
Between the Ethereum Merge last Wednesday and now the FOMC meeting this Wednesday both impacting crypto markets, it has become apparent that the news has a hold on the volatility of cryptocurrencies once again. We expect this to stay a major theme through the rest of the year, so be careful how you choose to trade around future news events.
Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!