June 2, 2023
Cryptocurrencies: Weekly Update
While US traders enjoyed an extended break over the Memorial Day weekend, cryptocurrencies saw a considerable rebound. Bitcoin, notably, registered its most significant daily gain in nearly 50 days this past Sunday, closing +4.51% for the day. This surge can be attributed to the agreement to raise the US debt ceiling.
The decision to raise the debt ceiling signifies that the government plans to borrow more money, thereby increasing the money supply in the economy. Depending on the unfolding policy landscape, this could inflate the Dollar. In response, many are once again turning to Bitcoin as an inflation hedge due to its independence from any country's currency and its finite supply.
By raising the debt ceiling, the US government aims to buttress its economy and forestall any immediate risk of default or credit downgrade. This has bolstered short-term sentiment across nearly all risk assets, with expectations of increased liquidity in the economy possibly diverting funds toward speculative investments like stocks and cryptocurrencies.
However, the debt ceiling agreement is just one among several factors influencing the positive sentiment within the cryptocurrency industry. Despite uncertainties surrounding the US roadmap for regulating the crypto industry, the rest of the world appears keen to establish regulatory precedents.
On Friday, the European Central Bank (ECB) publicized a report exploring the implementation of a future Digital Euro. This initiative aims to identify potential applications for a European Central Bank Digital Currency (CBDC). A decision on the official launch of a digital euro is expected from the ECB later this year.
Representatives from the Hong Kong and United Arab Emirates (UAE) central banks also recently convened in Abu Dhabi to discuss ongoing cryptocurrency initiatives. Both regions are positioning themselves as pro-crypto, hoping to lure foreign investment in their burgeoning crypto/blockchain industries. The dialogue touched upon future cross-border trade using digital assets, reflecting a concerted effort to integrate novel financial technologies into traditional financial systems.
Starting June 1, licensed cryptocurrency firms in Hong Kong can offer their services to local traders. Many perceive this as a significant stride towards broader adoption of blockchain and cryptocurrencies in the Asian region, with Hong Kong potentially serving as a proxy for Chinese investors to engage in cryptocurrency trading.
Last week, China Central Television covered cryptocurrencies for the first time since the country's widespread crypto ban in 2021. This development is widely regarded as a positive indicator for the overall crypto market, fueling speculation that China may resume its engagement with cryptocurrencies, thereby allowing Chinese capital to re-enter the crypto market.
Indeed, from every corner of the globe, there appears to be a renewed interest in exploring, regulating, and adopting cryptocurrencies. This trend is likely to boost the global crypto sentiment as we approach the second half of 2023. Despite Bitcoin closing in the red for the first time in 2023 this past month, long-term accumulation in the crypto market appears poised to continue, potentially gaining momentum as we approach 2024 and the subsequent Bitcoin halving.
In our earlier dispatch, we noted how May marked 2023's first month with Bitcoin in the red. Despite the global equity market's resounding chatter surrounding the unparalleled surge of Nvidia (NVDA) and other major tech sectors, spurred by the burgeoning Artificial Intelligence industry, Bitcoin's performance was underwhelming.
This is puzzling, as Bitcoin and NVDA have showcased a significant correlation over the past eighteen months. This relation is rooted not just in their shared status as tech investment opportunities, but in the constant expansion of the cryptocurrency mining industry. NVDA, a manufacturer of Graphics Processing Units (GPUs), is critical for cryptocurrency miners, which accounts for its correlation with cryptocurrencies up to now.
However, a shift seems imminent with NVDA distancing itself from its deep-rooted alliance with the crypto sector, as it diversifies into Artificial Intelligence. As these parallel industries – AI and cryptocurrencies/blockchain – evolve, it's intriguing to observe whether the NVDA / BTC correlation resurfaces post-Nvidia's substantial +36% leap in May.
As the saying goes, "Sell in May and go away," and it seems this adage is holding firm for the cryptocurrency market this year. After the crypto market digested some early gains in May, marking the third consecutive year of May losses for BTC, it's plausible we'll see further profit-taking in June.
A historical pattern of June sell-offs followed by July rallies has been observed in the Bitcoin/cryptocurrency market over the past three years. Should this pattern persist, expect further consolidation in the cryptocurrency market over the next few weeks.
Bitcoin currently teeters at the $26,900 support level, and its continued fluctuation within its descending parallel channel suggests this level might not hold for long. The RealMotion indicator, a measure of momentum, continues to decline since BTC's April peak. However, there are indications of momentum finding technical support at the 200-day moving average (green).
Failure to maintain above $26,900 might result in further short-term drops, with the next significant support level around $25,000, the range high for Q1 2023.
Ethereum, on the other hand, exhibits more vitality than BTC. It briefly reclaimed the 50-day moving average early this week, while BTC repelled its own 50-day ma. Despite Ethereum's RealMotion momentum echoing Bitcoin's, ETH is poised to outpace BTC as per the ETH vs. BTC ratio.
Around a year ago, we noticed the ETH / BTC ratio breaking free from a long-standing downtrend, confirmed by crossing above the ratio's 200-day ma. Fast forward to now, the ratio surmounts its long-term downtrend, hitting the 200-day moving average for the first time in 2023. This breakout could signal another leading indicator ahead of a potential July rally in the crypto market.
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