Digital assets continue to remain an isolated entity.
Week over week performance:
- BTCUSD: 23,385, -6.56%
- ETHUSD: 1,628, -4.54%
- US02Y: 4.807%, +10 pcts
- DXY: 104.85, +0.93%
- GOLD (USD/OZ): 1,812, -1.28%
- NDX: 12,058, -2.27%
- VIX: 20.96, -8.15%
- VVIX: 83.45, -10.65%
Despite a slight retracement in the prices of bitcoin (BTC) and other altcoins, the trend remains consistent with the previous week: most traditional assets are influenced by macroeconomic factors, but digital assets are not. This means that the market is still experiencing nothing out of the ordinary and remains below a 1 standard deviation event.
Last week’s US January PCE data showed that the macro environment remains hot and non-accommodative, with a YoY increase of 5.3% vs. an expected 5%, and a core YoY increase of 4.7% vs. 4.3%. The Euro Area Money Supply (M1) YoY change also turned negative for the first time ever, which is a situation mirrored in other countries. M1 is the total amount of currency in circulation and overnight deposits, and the shortage of money supply is likely to have an impact on the cryptocurrency market as well.
Chart 1: Euro Area Money Supply M1 and YoY ROC
The most macro-sensitive assets, including cash markets, precious metals, and foreign exchange, are beginning to react to the market expectations of the Fed’s plans for three additional interest rate hikes in 2023. The target rate is expected to reach 525-550 basis points by the end of the year, up from the current range of 450-475 basis points. However, cryptocurrency prices have not shown a similar response to these developments.
Then again, US corporate index spreads have decreased compared to levels seen in September 2022, indicating that the likelihood of a widespread economic crisis is diminishing.
Chart 2: US Corporate Index Option-Adjusted Spread
Looking at the US dollar: the DXY is currently at 104.85, which is a critical level that requires attention. As we have previously noted, the dollar tends to be a crowd trade, and it could either experience a fifth wave rally towards 120 or a retracement towards 100. Based on the current figures and the expectation of higher rates for a longer period of time, I am expecting to see a strong dollar.
As always, it is important to remember that when the dollar goes up, risk assets tend to go down, and vice versa.
My bias on BTC keeps being that this low-volatility environment with “zero” impact from macro figures will not last long.
Looking at the charts:
The BTC spot price is currently experiencing a strong consolidation phase, with prices fluctuating between $22.5k and $25.2k, which serve as key support and resistance levels. A break of either of these levels is likely to have a significant impact on both volatility and momentum in the entire crypto space.
In my opinion, it is only a matter of time before we see a break of these levels, whether due to crypto-specific news or macroeconomic developments. A break above $25k could easily push prices towards $30k, while a break below $22.5k could find support at $20k (with similar movements for most altcoins, think in terms of beta here).
The ETH narrative remains consistent, with a support level at $1.5k and a resistance level at $1.7k. If the support level is broken, we can expect the spot price in USD to fall within the range of $1,750-$2,000. Conversely, if the support level at $1,500 is broken, we can expect the spot price to drop below the $1,350 USD area.
ETH/BTC has repeatedly tested and held strong support/entry levels at 0.067. A break above this level, towards 0.07, would indicate a break of the head and shoulders pattern, and could potentially push prices towards 0.072 and 0.075. Then again, a stop loss can be set at 0.066.
I believe that the narrative surrounding the upcoming Ethereum upgrade will not cause a risk-off event, unlike what we saw with the Merge. This could finally lead to a break in the current range-bound trend.
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