July 6, 2022
Cryptocurrencies: Weekly Update
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While we’re all waiting and hoping for a significant market-wide bounce from oversold levels, Ethereum is working on its own comeback relative to Bitcoin. As markets have gotten beat up since the crypto market’s peak, we have observed capital favoring Bitcoin and stablecoins as safe havens from further downside volatility, while more speculative altcoins like Ethereum have been sold.
The long 4th of July weekend saw the crypto market mount a bit of a rally from lows, with BTC actually being the laggard up only 5% thanks to a strong performance on Monday, while other major coins like ETH climbed more than 8.5% between Friday and Monday’s close.
Market Cap dominance over the past few days has shifted, with a definitive loss of dominance amongst stablecoins (USDT and USDC) while both Bitcoin and Ethereum have been curling upwards and with ETH.D up +4%.
ETH continues to successfully defend the psychological support level at $1,000, while Bitcoin is still teetering in its attempt to reclaim its own $20,000 level.
Is this just a case of short-term volatility in which traders take advantage of range-bound swings on their favorite altcoins? Or, is this an indication of a bottom finally being in for cryptocurrencies that will allow for a Summer rally?
Bitcoin has historically acted like a value-play in the crypto market with Ethereum being a growth-play, so starting the week with Growth outperforming Value is definitely a good sign of a short-term bounce for crypto, especially altcoins.
By now we’re all aware of the high correlation between the cryptocurrency market and traditional equities, so we want to see the stock market rally from potentially oversold levels before we expect any kind of major breakout for cryptocurrencies.
Tuesday saw a breakout in spec sectors and growth plays like the Nasdaq 100 up almost 2% while other major indices like the S&P and Dow Jones were either flat or down. Even ARKK was up more than 9%, as clear of an indication as any that growth stocks are in charge right now.(Click to read Mish’s commentary on ARKK from today!)
Looking at Big View, it is clear that the Vanguard Growth ETF (VUG) sharply outperformed their Value ETF (VTV) on Tuesday.
After putting in a new low and nearly becoming oversold on both price and momentum, VUG is now looking ready for an attempted breakout above the 50-dma on the RealMotion indicator. The TriplePlay indicator on the bottom chart also shows a potential breakdown in the ratio between Value and Growth.
Looking back at the crypto market, there is also a bit of hope re-entering the market thanks to good news regarding the Celsius situation.
Amidst ongoing solvency issues, Celsius repaid $183m to Maker today, releasing around 2,000 BTC that was locked up as collateral and providing a sigh of relief to the lending company that is now estimated to have a liquidation price below $3,000. You can read more about the specifics of the Celsius loan here.
Despite Celsius looking as good as dead only a week ago, sentiment is now turning strongly in the project's favor, with the CEL token currently up 900% from its bottom underneath $0.10 in mid June.
From here, we want to see the growth stock theme continue this week in order to encourage a further rally amongst altcoins and you should expect that the more growth outperforms value, the more likely altcoins are to have outsized gains over Bitcoin.
We’re still not expecting for the long-term downtrend in cryptocurrencies to have bottomed just yet, but current circumstances appear to be setting up nicely for a local bottom and a mid-summer rally.
If you’d like more frequent insights into the crypto space…
Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!
If you’d like to learn more about our Crypto Quant trading model (currently sitting in cash avoiding the market’s plunge, and strategically waiting for the right time and cryptocurrency to trade), click here to schedule a call with our Rob, our Chief Strategy Consultant.