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Crypto Ecosystem Update #26 (August 10, 2022)

Every week, CEX.IO takes a deep dive into the crypto ecosystem. In the 26th edition of the Crypto Ecosystem Update, we explore the price action and on-chain activity for Bitcoin and Ether. Additionally, we take a look at how current events are driving market conditions, and how it could unfold in the weeks ahead.

Read along for insight on the latest DeFi developments, explore in-depth price analyses, and enjoy reviews for correlated markets to help you make the most informed decisions along your crypto journey. 

A potential correlation: Bitcoin and the Federal Reserve

The price of Bitcoin has been rejected at the resistance line of its current rising channel four times in a row since June 2022. The strong green candle recorded on August 8 may finally push Bitcoin out of this channel towards the 2021 bull market resistance at $29,000.

In the meantime, July payrolls in the U.S. increased much more than expected, as 528,000 new jobs were added to the market. This figure is more than double what analysts predicted, hinting at continued strength in the U.S. labor market. U.S. payrolls are a key metric observed by the U.S. Federal Reserve when determining interest rates.

The strong jobs market in the U.S. may encourage the Fed to pursue more aggressive rate hikes in the upcoming months. The U.S. bond yields are a key factor for evaluating possible rate hikes in the future. If the 10-year bond yield continues its downtrend from the 3.5% top in June 2022 down to the 2.0% support, it may foreshadow less aggressive rate hikes. This could pave the way for a late-summer rally in risk assets like stocks and cryptocurrencies. 

Bitcoin price analysis

Can bitcoin break out of the channel?

The price of Bitcoin has been following a parallel rising channel since the $17,600 bottom on June 18. Consistent rejections at the resistance line have resulted in fears that this channel will end up as another bear flag. 

However, the candle recorded on August 8 with the large body could bring Bitcoin the momentum it requires to break out of the channel. If Bitcoin can repeat such candles in the next couple of days, the lagging price movement could finally end with an explosive move towards the major $29,000 resistance.

daily_price_chart_btc

Bitcoin/U.S. Dollar price chart with daily candles. Source: Tradingview

Weekly MACD bullish cross

Bitcoin’s weekly moving average convergence divergence (MACD) indicator is making a positive cross on the week of August 8. The last three times the weekly MACD made this cross, the price of Bitcoin respectively increased from $3,700 (February 2019) to $14,000 (June 2019), from $8,000 (April 2020) to $65,000 (May 2021), and from $47,000 (August 2021) to $69,000 (November 2021).

Considering the past moves, weekly MACD crosses can be a very powerful indicator of shifting Bitcoin trends. 

weekly_macd_chart_btc

Weekly MACD chart for Bitcoin/U.S. Dollar

What we do not want to see from here is an explosive move to very high price levels like $40,000, $50,000, or even $60,000. In the past, such sudden price moves without forming a strong base have resulted in a destructive “C” wave (according to the Elliott Wave Theory) and took away almost the entire price advance from that rally. 

Long-term support line

On a very large time scale, Bitcoin is following the below rising channel. The bottom yellow line has acted as support since the August 2015 cycle bottom. During the June 2022 crash, the same line worked as support again, where $17,600 fell exactly on the line. 

weekly_price_chart_btc

Weekly Bitcoin chart with the long-term rising channel

Going forward, this support line could be monitored closely to evaluate whether Bitcoin has yet made its cycle bottom. If Bitcoin makes a weekly or even monthly close below the support line, it could indicate another major leg down (a potential C wave) that could extend well below the $17,600 bottom. 

Alternatively, breaking below the line could just end as a fakeout and result in a more pronounced low compared to June’s bottom.

$4,300 resistance next for the S&P 500 index 

The S&P 500 stock index, the asset class that Bitcoin has been most closely correlated with, is already at the gates of the $4,170 resistance. If the index breaks above $4,170 on a daily close, the next major resistance is at $4,300, which could provide Bitcoin the runway to break out of its rising channel. 

daily_price_chart_btc

S&P 500 price chart with daily candles and the double resistance

10-year U.S. bond yields

After dropping back below the 40-year-old resistance line (the yellow line in the chart below), the 10-year U.S. bond yield has not yet reversed its recent downtrend. 

us_bond_price_chart

10-year U.S. bond yield chart on the daily time frame

A drop in bond yields means there is an increasing demand for those bonds. Usually, the Fed and other major financial institutions purchase bonds to drive down the yield. 

So while the Fed raises the federal fund rates, it may also be purchasing bonds. This could suggest future rate hikes may not be as aggressive. However, even if we do see aggressive hikes from the Fed, the impacts on capital markets may not be as adverse as what some fear. 

Stock markets are a derivative of the bond markets so if someone is buying up the bonds, it is likely a positive development for the stock market, and thus for cryptocurrencies.  

If the 10-year U.S. bond yield keeps plunging, 2.0% will be very critical support. At that level, there is also the 600-week simple moving average (SMA) line, which continuously worked as resistance during the last 30 years (until it broke out of it in March 2022).   

weekly_chart_us_bond

Weekly 10-year U.S. bond yield chart with the 600-week SMA

Finally, there is a candle gap from March 14 at exactly 2.0% (see the chart below). A gap happens when the price, or yield, in this case, opens at a higher level than the closing of the previous candle. Gaps often close sooner or later, but not always. 

Closing the March 14 gap would also mean touching down the 2.0% major support (and the 600-weekly SMA) which could be more likely in this case. 

daily_1-year_price_chart_us_bond

Daily 10-year U.S. bond yield chart with the 2.0% gap on March 14

Bitcoin on-chain analysis

On-chain activity is the use of Bitcoin block space by network participants who make transactions and settle value on the network. With on-chain analysis, you can monitor the holdings and transactions of individual Bitcoin wallets in real-time. 

Raw on-chain data is compiled to certain metrics which provide insight into the collective behaviors of Bitcoin holders, miners, and speculators, and can help evaluate the overall market sentiment for Bitcoin.   

Spent Output Profit Ratio (SOPR)

SOPR is an indicator that calculates the ratio of realized profit or loss for all bitcoins moved on-chain. 

During bull markets, the SOPR typically hovers above 1.0 since larger profits are being realized. 

SOPR values less than one may indicate bear markets where larger losses are being realized and investors are selling their coins below their average cost basis. 

As you can observe in the chart below, whenever the Bitcoin SOPR hovered above 1.0 for an extended period, a massive uptrend followed – the historical 2016/17 bull run (from $300 to $20,000), the giant 2019 bear market rally (from $3,000 to $14,000), and the last bull run in 2021 (from $10,000 to $60,000).     

Spent Output Profit Ratio (SOPR) & Bitcoin price chart. Source: Glassnode

The SOPR is once again about to break 1.0 (circled in green on the right end of the chart). Breaking above it could bring a new Bitcoin rally, at least to the $29,000 resistance.

It is also important to observe that during the 2022 bear market, the SOPR has not plunged to its 2018-20 bear market lows. In December 2018, the ratio dropped to as low as 0.85 while it dropped to less than 0.90 during the Covid-19 crash in March 2020. This suggests that the absolute market bottom may not be in for Bitcoin yet regarding the current cycle.  

Ethereum price analysis

Following the June dip, Ethereum recorded a new high on August 8 at $1,818. It still has room until the major $2,100 resistance (the 2021 bull market support) if Bitcoin can concurrently break out of the rising channel resistance. 

ethereum_price_chart_3days

Ethereum/U.S. Dollar price chart with 3-day candles

The 3-day 50 simple moving average is also at $2,100 now (the red line in the chart below), which has worked as significant resistance in the past.

ethereum_3days_price_chart

3-day Ethereum/U.S. Dollar chart with the 50 SMA

Ethereum on-chain analysis

All-time low gas price 

As you can see in the chart below, the Ethereum gas price is almost at its historical lows (circled in green). Gas is the fee you need to pay to make a transaction on the Ethereum network. Higher gas prices mean higher traffic and demand on the network while low gas prices mean low demand and activity.

In that sense, historically low gas prices suggest historically low network activity. What is concerning this time is that price spikes have been making lower highs since September 2020, forming a textbook descending triangle (the descending orange line). 

If the descending triangle breaks down as it typically does in a downtrend, the Ethereum gas price could record a new all-time low. This could in return bring about a new all-time low for network activity and put pressure on the Ethereum price.

ethereum_gas_price

Ethereum gas price chart. Source: Glassnode

Tune in next week, and every week, for the latest CEX.IO crypto ecosystem update. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

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