Dear subscribers,
Consistent with the dynamics we saw in Uncharted 31, bitcoin remains at the extreme of the bullish quadrant, even given the recent retrace towards the $21k support level. The year-to-date rally remains in play and the disinflation narrative has crystallized as a key factor to consider when trying to estimate the impact macroeconomic indicators can currently have on the crypto market.
The likelihood of an aggressive drop is low, however, macroeconomic data and regulatory risks continue to impact sentiment. While the fear and greed index is back at 58 (greed levels) and altcoins are expected to continue to outperform once the market settles, we will explore in this Uncharted why it makes sense to time our capital deployments into altcoins based on indicators that bitcoin’s moves provide us.
Let’s dig in!
When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. - Ray Dalio
At a glance
State of the System
Bitcoin is currently experiencing a retrace toward the $21k support level, but the risk of a pronounced drop remains low.
As long as bitcoin holds above $21k there is room for some explosive altcoins like the one in figure 13.
The crypto market is functioning on a catalyst basis and is waiting for the next macroeconomic update to emerge. Liquidity remains low, and the recent retrace did not show significant volume to indicate a clear trend reversal.
The macro environment
Despite the recent retrace, bitcoin and ethereum continue to outperform year-to-date as the disinflationary narrative picks up.
Expectations of a less hawkish Fed are priced in, yet the tighter-than-expected labor market could pressure risk-on assets.
Bitcoin has performed better in a disinflationary environment compared to an inflationary one.
Crypto’s course
Bitcoin must avoid the weekly death cross between the 50SMA and 200SMA to maintain a bullish trend.
It is likely that bitcoin holds above the $21k support level. The flat SBT Momentum Index suggests that significant volume is missing for bearish momentum to materialize.
Relative beta suggests that altcoins are exposed to greater drawdowns while bitcoin defines the boundaries of the next trading channel.
Outlook
Investors may want to consider reducing their positions or look for low-beta altcoins, like the one mentioned in figure 13, while waiting for bitcoin to indicate its next move.
State of the System
The year-to-date rally remains in play despite the retrace toward the $21k support level. Bitcoin remains at the extreme of the bullish quadrant. The bullish momentum faded, and the risk of a pronounced drop remains low. However, the question remains, will the $21k support level hold? Unlike Uncharted 31, liquidity is drying up, and there is no clear direction as investors are unwilling to push to break significant support or resistance levels. There is an implicit consensus of bitcoin's price to support altcoins.
Since Uncharted 31, the price of bitcoin had remained within the $22.5-$23.7k range, pausing its impressive January performance; yet late this week, an uptick in selling pressure shattered the previous support level and drove bitcoin toward $21k (figure 2). Bitcoin likely stabilizes around more liquid levels, where we expect buy-side demand to kick in - potentially around $21-$21.5k. On the contrary, $20k is the final test for the extension of the 2023 rally.
How likely is that $21k holds? The SBT Bitcoin Risk Signal (figure 3) at 0 suggests that the likelihood of an aggressive drop is low, and liquidity should begin to improve, as seen in figure 2. However, that is not to say that incoming macroeconomic data continues to drive the sentiment, and idiosyncratic risks from the regulatory front endure.
Nevertheless, the fear and greed index is back at 58 (greed levels), and unrealized profits exceed losses hinting at renewed hope in the system (figure 4). The optimism explains last week's outperformance of altcoins as investors divested into riskier assets, leading to the recent cool-off across the board.
Altcoins likely continue to outperform once the dust settles and bitcoin defines the boundaries of the upcoming range above $20k. That is if the SBT Bitcoin Risk Signal does not cross over to the high-risk zone. The last time the SBT Altcoin Cycle Signal was in altcoin territory as the risk eased, bitcoin ranged, and some altcoins logged explosive moves (figure 5). However, we remain wary as the signal can stagnate if investors continue to shave risk off their portfolios - that is selling altcoins.
The crypto market is functioning on a catalyst basis, with macroeconomic updates driving its movements. As such, the market is waiting for the next catalyst to emerge to set the tone. Liquidity remains low, and the recent retrace did not log significant volume to suggest a clear trend reversal.
Enjoying the Uncharted so far?
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The macro environment
Taking a step back, we turn our attention to the big picture to put the recent retrace in the scheme of the holistic environment. Bitcoin and Ethereum continue to outperform (figure 6), yet the market has lost some steam since the Feb FOMC meeting and hawkish remarks. Notice how BTC, ETH, and SP500 turned downward while the US10Y slightly increased.
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