Monday's Market Outlook #4
Last week was a good week for cryptocurrency.
Although Bitcoin wasn't purchased as a reserve asset for some of the companies we were hoping for, it was (for the first time) mentioned in earnings reports by multiple financial institutions like Next Capital Management, Morgan Stanley's AIP, and even BNY Mellon.
This is possibly bigger than having Bitcoin in some tech company's balance sheet because this goes to show that legacy installations are eyeing Bitcoin with fervent intent. For instance, BNY Mellon holds $38 trillion dollars in assets under custody and is one of the oldest and largest banks in the United States. BNY Mellon also admitted that having exposure to a gold mining company, and not having exposure to Bitcoin, hurt the funds performance.
At the same time in the altcoin space, Cardano laid the foundations for the largest blockchain government deal in history. The company behind Cardano, IOHK, announced two massive deals in the heart of Sub-Saharan Africa.
Firstly, Cardano will be working with Ethiopia's Minister of Education, Getahun Mekuria, to onboard nearly 6 million students and teachers alike onto the blockchain using their novel identity solutions platform, Atala PRISM. Apart from this massive leap forward, not only for cryptocurrency but for developing Ethiopia, Cardano also partnered with World Mobile, a telcom solutions company that will front run Cardano's platform on their mobile devices to nearly 100,000 people in Tanzania. Cardano sets out to provide loans to these people using Cardano liquidity in what they call RealFi loans by the end of the year.
And just last night, Ethereum broke through its price target of $3000. This is huge for the project and for the rest of the space. As Ethereum picks off market share from Bitcoin, Bitcoin dominance starts to spill off and money begins to flow into the rest of the markets in what we like to call Altseason.
In last weeks' Market Update, we talked about the macro targets for Bitcoin and how this cycle will be more volatile and lengthy than the previous cycles before it. Today we will break down what Bitcoin is doing on the shorter time frames, and also what Ethereum is going to do as it will be important for the rest of the altcoin space to watch.
This is the Bitcoin 4 hour chart and tells us a pretty interesting story. Let's break it down:
Bitcoin broke out above the chop we established in last week's Market Outlook. This is very good and shows strong buyer interest. With funding rates still low, this shows the reversal is coming from spot demand and not traders taking leveraged long positions as you can see below.
While the funding rate is still low, it's starting to pick back up, and usually doesn't do so slowly. Below is a picture of Binance Long/Short positions currently open, and shows that accounts are beginning to open up more shorts as we start to push higher. This is a good sign for BTC bulls. This means we are still in long territory with more room for upwards movement.
Alright, things sound like they are bullish, but where do we go from here?
Two things stood out to me as I charted Bitcoin this morning. Look at the bottom RSI in the chart above — I marked two short term tops with a curve and a vertical blue line in the middle.
Both of these tops were short moves upwards during their respective bullish reversals. What followed afterwards was a steep 4 hour sell off, which was eaten up in the next 4 hours. After that, Bitcoin ranged for a few days and then made new ATH at $64,000.
For our current price action, I think we sell off from $58,500 to $57,000 to touch our 50-day moving average, and the bottom of the chop zone in which we've already established support and make our climb towards $61,000.
$61,000 is important, see below:
Bitcoin has established a strong line of support over the course of 2021 in which it bounced off of twice to lead us into $64,000. When we support/resistance (S/R) flipped to the downside in mid-April we confirmed the S/R line when we tried to break out to the upside, marked by the first red arrow.
Right now, Bitcoin is on another confirmed ascending trendline with its eyes on $62,600. There is some big resistance at $61,000 though (horizontal dotted line), thanks to our previous ATH and also at our most constricted zone of the ascending wedge.
If we bounce off of our 50-day MA like I said above, which also respects the ascending wedge, and make a steep move to $61,000 area, I think we will get denied.
This is a higher risk call out, and not one I would trade on. The more safe play here would be to expect longer sideways price action and break out of the ascending wedge to form some sort of continuation pattern.
Either way, I don't see Bitcoin breaking its previous ATH this week.
Ethereum had a monumental move over the weekend, setting new ATH's above $3,000 dollars – a huge psychological resistance level. Ethereum also broke out of a massive ascending channel to the upside.
This chart is beautiful in many ways, and congrats to the Ethereum community and holders. The first thing I notice, though, is that massive bearish divergence on the volume (bottom of chart).
As volume decreases and price increases, a bearish divergence is signaled and usually corrects to the downside in substantial ways.
But what makes this story much more interesting is the hidden bullish convergence confirmed with the uptrend on the OBV (on-balance volume, upward yellow line under volume). The OBV shows if the market is flowing into an asset or out.
Lower volume, higher OBV, and higher price means there is a supply shock and Ethereum is getting taken off the market in quick fashion, shooting prices upwards violently.
It's hard to tell what Ethereum does in price discovery but here are a couple scenarios:
- Ethereum shoots up another 10% and then corrects hard
- Ethereum settles back into the channel, establishes support and we continue the run
Both have massively different outcomes for the mid-term. If scenario 1 takes place, Ethereum's correction will signal the final stage of Altseason and altcoins will have one last spectacular liftoff.
If scenario 2 takes place, Altseason will continue dragging on like it has, but with slow accumulated gains and further price discovery.
To better determine what the rest of the week holds for us, let's see what Ethereum does today and tomorrow. Personally, I am hoping for the second scenario so as to prolong the end of Altseason.