Crypto Market Analysis
Hello everybody! This analysis is the continuation and update on my previous analyses around the traditional and crypto markets. As you have probably already noticed, over the last two years the crypto market has gotten a lot more correlated with the stock market than ever before. Therefore, in my opinion, it is good to have a look at traditional markets as well, to try and see where crypto fits in each different macro environment. That's why reading the previous pieces will definitely give you a better idea of where we are and how you should act.
Enough with the intro... Let's get straight into Bitcoin! At the moment, BTCUSD seems to be in a short-term uptrend, a medium-term downtrend, and on neutral/bullish long-term trend. It's currently sitting at an area on which it hasn't spent much time on, an area that is right between two Volume Profile High Volume Nodes. It is also sitting right at the 50 DMA & horizontal support at 42k, as well as between the monthly R1 + 45-46k resistance and the monthly P. It has broken above its major diagonal trendline, yet it is still below the Yearly P, as well as below the 100-200-300-400 DMAs, with the 100-200 & 300-400 having formed bearish crosses.
Based on my technical analysis, a lot of different scenarios could play out here. First, we need to be aware that the price is sitting right in the middle of nowhere, and it is pretty much a coin toss as to where it might go next. However, this doesn't mean that there aren't several decent setups around this area. In terms of longs, buying here at 42k or 38k, with the goal for getting out at 47k or 42k, with stops below 37k seems like a decent strategy. In terms of shorts, the entire area from 45-50k has a ton of resistance that seems unlikely to break in one go. The market could potentially get up to 54-56k before reversing to the downside, but I don't think this is a likely scenario. During my previous analysis when BTCUSD was at 38k, I was short term bullish but this has already played out. Now I am not sure whether we've transitioned into the medium-term outlook which still remains bearish. That is definitely possible as 46k was a really major target I had and the last weekly candle seems pretty bearish.
Won't really get much into it right now as I've done it in the previous analyses, so I'll give a short overview of my bearish case. My belief is that the market has to get into the 20-28k region at some point over the next 12 months, regardless of what it does in the meantime. That's because we are below several major moving averages, there are several gaps lower, the quadruple bottom at 29k is a major area the market wants to break. The same way the market swept its ATHs, the same way I expect the market to sweep its lows. I don't know what the trigger will be, i.e rate hikes or a war, but this is a situation very similar to Q3-Q4 2018 and Q3 2019 - Q1 2020. The market is in limbo, it is relatively well balanced, but there is still a lot of longs that need to be shaken out before the next leg up, while the macro environment is fairly unstable. The thing is that in such a scenario a squeeze up is also possible before the reversion to the downside, to first shakeout the shorts and then get the longs. However, that squeeze needs to happen pretty soon, as closing below 38k would be an indication that has shifted to the downside again and it is very hard for me to imagine a major pump occurring below 38k.
Now let's get into Ethereum before we get into how the overall market looks in USD or BTC terms. ETHUSD has found support at 2830, a major support level as that's where the 400 DMA is + horizontal resistance. It has been flirting with the broken diagonal resistance for quite some time now, and it is unclear on whether this has flipped into support now. Reclaiming the 400 DMA & the horizontal support is definitely positive, but what hasn't been positive is the rejection at the 3270 resistance with an SFP, closing below the yearly P and now just chopping around the monthly P. In USD terms the path for Bitcoin and Ethereum are pretty similar, although in the current environment as we are going to see later on, Bitcoin has some advantages over Ethereum, even though in the long-term ETH will most likely outperform BTC. Therefore, it is possible that both have bottomed on major horizontal support and moving averages, and that they could see significant upside, with ETHUSD getting up to 3500-3700 which is a major target and a potential place for the market to put in the final top before it reverses. That area is a great resistance combo, with the horizontal resistance, 200 DMA & Monthly R1, while that's where the big drop began but the market never retested that level. Once that target is hit, the same way I expect BTCUSD to get down to 20-28k, I expect ETHUSD to get down to 1300-1700. Again, this doesn't mean that I am long term bearish, just that this is the way I see this sideways movement to end and for the bull market to resume.
When it comes to looking at how the entire crypto market or the entire crypto market without Bitcoin, we don't get a much clearer picture. TOTAL is sitting at support right above the monthly P, while it below all major MAs and right below the 400 DMA. TOTAL2 looks slightly cleaner and more bullish, as it is sitting right at major support and above the 400 DMA, yet it is below all pivots P and is about to get a 50-300 DMA cross. However, one thing that looks bullish, even though it doesn’t have to do with any indicator or price action specifically, is that in January the market spend a significant amount of time in the 850B-1T area. That's because it hadn’t spent much time there before, hence this could be a sign that a strong base has been formed, with bulls slowly gaining control. Essentially we are at a point where anything can happen, but it doesn't look like a huge move to the upside would come any time soon. Going up isn't the path of least resistance from here, therefore it is better to go long only at major support and get out when the market hits major resistance, until both TOTAL & TOTAL2 close above their 200 DMAs.
As looking at things in USD terms isn't offering us a clear view, it's time to look at things in BTC terms and see what kind of information we can get out of that. First we are going to start with ETHBTC, which yesterday closed below its 300 DMA, but is now trying to break back above it. It's below all of its major MAs other than its 400 DMA and is about to have a 50-200 bearish cross. It's also right at the Volume Profile Point of Control, and right in the middle of the monthly and yearly P. Although someone could say that this is just another correction, just like all previous corrections since May, there are a few differences this time around. The fact that the market swept the May 2021 high, as well as its May 2018 high, and then formed a short term bearish trend, while closing for so long below its 200 and 300 DMAs, is not bullish. Until ETHBTC gets above all its key MAs or even its May 2018, it is better to stay cautious.
What we see in ETHBTC is pretty much in agreement with what we see in BTC.D or BTCDOM, which are two ways to have a look at Bitcoin's dominance. When looking at BTC.D we are seeing that Bitcoin has been getting stronger relative to alts, and in the future this could be because BTC is outperforming the rest either because it's rallying harder or it's falling slower. Hence it isn't clear whether the market is going up or down based on Bitcoin dominance alone, but what is clear is that it is probably better to be in Bitcoin over the next few months, rather than being in altcoins. BTC.D has broken above 42.6% which is now support, as well as above the 200 DMA. By looking at BTCDOM we can see that the rally of Bitcoin dominance is probably not over, because there are no signs of weakness at resistance, while the trend is clear and the momentum strong.
In conclusion, a rally to the upside is definitely possible, with the market going up by 10-20% before reversing to the downside. At the moment the risk of a war between Russia and Ukraine seems small, but it is definitely a real possibility. Regardless of the situation with the war, the signs we are getting from all other markets is that a major downside scenario is possible. The global economy is in a very bad place and at any point we could see a situation somewhat similar to Q4 2018 or Q1 2020. At the moment the crypto market is very well balanced and one could say pretty fairly valued or even cheap. There are lots of positive developments in the entire space and the situation is much better than 2017-2018. I don't see a bear market in stocks, I don't see a bear market in crypto and I do see Central Banks and Governments resuming spending and cutting rates at some point in 2022 or 2023. Until then however, anything is possible.
Finally, up until now Bitcoin has been mostly correlated with stocks, yet with gold finally starting to break out and show signs of life, it is totally possible that at some point we will see Bitcoin show strong signs of correlation with gold.
Enough with the intro... Let's get straight into Bitcoin! At the moment, BTCUSD seems to be in a short-term uptrend, a medium-term downtrend, and on neutral/bullish long-term trend. It's currently sitting at an area on which it hasn't spent much time on, an area that is right between two Volume Profile High Volume Nodes. It is also sitting right at the 50 DMA & horizontal support at 42k, as well as between the monthly R1 + 45-46k resistance and the monthly P. It has broken above its major diagonal trendline, yet it is still below the Yearly P, as well as below the 100-200-300-400 DMAs, with the 100-200 & 300-400 having formed bearish crosses.
Based on my technical analysis, a lot of different scenarios could play out here. First, we need to be aware that the price is sitting right in the middle of nowhere, and it is pretty much a coin toss as to where it might go next. However, this doesn't mean that there aren't several decent setups around this area. In terms of longs, buying here at 42k or 38k, with the goal for getting out at 47k or 42k, with stops below 37k seems like a decent strategy. In terms of shorts, the entire area from 45-50k has a ton of resistance that seems unlikely to break in one go. The market could potentially get up to 54-56k before reversing to the downside, but I don't think this is a likely scenario. During my previous analysis when BTCUSD was at 38k, I was short term bullish but this has already played out. Now I am not sure whether we've transitioned into the medium-term outlook which still remains bearish. That is definitely possible as 46k was a really major target I had and the last weekly candle seems pretty bearish.
Won't really get much into it right now as I've done it in the previous analyses, so I'll give a short overview of my bearish case. My belief is that the market has to get into the 20-28k region at some point over the next 12 months, regardless of what it does in the meantime. That's because we are below several major moving averages, there are several gaps lower, the quadruple bottom at 29k is a major area the market wants to break. The same way the market swept its ATHs, the same way I expect the market to sweep its lows. I don't know what the trigger will be, i.e rate hikes or a war, but this is a situation very similar to Q3-Q4 2018 and Q3 2019 - Q1 2020. The market is in limbo, it is relatively well balanced, but there is still a lot of longs that need to be shaken out before the next leg up, while the macro environment is fairly unstable. The thing is that in such a scenario a squeeze up is also possible before the reversion to the downside, to first shakeout the shorts and then get the longs. However, that squeeze needs to happen pretty soon, as closing below 38k would be an indication that has shifted to the downside again and it is very hard for me to imagine a major pump occurring below 38k.
Now let's get into Ethereum before we get into how the overall market looks in USD or BTC terms. ETHUSD has found support at 2830, a major support level as that's where the 400 DMA is + horizontal resistance. It has been flirting with the broken diagonal resistance for quite some time now, and it is unclear on whether this has flipped into support now. Reclaiming the 400 DMA & the horizontal support is definitely positive, but what hasn't been positive is the rejection at the 3270 resistance with an SFP, closing below the yearly P and now just chopping around the monthly P. In USD terms the path for Bitcoin and Ethereum are pretty similar, although in the current environment as we are going to see later on, Bitcoin has some advantages over Ethereum, even though in the long-term ETH will most likely outperform BTC. Therefore, it is possible that both have bottomed on major horizontal support and moving averages, and that they could see significant upside, with ETHUSD getting up to 3500-3700 which is a major target and a potential place for the market to put in the final top before it reverses. That area is a great resistance combo, with the horizontal resistance, 200 DMA & Monthly R1, while that's where the big drop began but the market never retested that level. Once that target is hit, the same way I expect BTCUSD to get down to 20-28k, I expect ETHUSD to get down to 1300-1700. Again, this doesn't mean that I am long term bearish, just that this is the way I see this sideways movement to end and for the bull market to resume.
When it comes to looking at how the entire crypto market or the entire crypto market without Bitcoin, we don't get a much clearer picture. TOTAL is sitting at support right above the monthly P, while it below all major MAs and right below the 400 DMA. TOTAL2 looks slightly cleaner and more bullish, as it is sitting right at major support and above the 400 DMA, yet it is below all pivots P and is about to get a 50-300 DMA cross. However, one thing that looks bullish, even though it doesn’t have to do with any indicator or price action specifically, is that in January the market spend a significant amount of time in the 850B-1T area. That's because it hadn’t spent much time there before, hence this could be a sign that a strong base has been formed, with bulls slowly gaining control. Essentially we are at a point where anything can happen, but it doesn't look like a huge move to the upside would come any time soon. Going up isn't the path of least resistance from here, therefore it is better to go long only at major support and get out when the market hits major resistance, until both TOTAL & TOTAL2 close above their 200 DMAs.
As looking at things in USD terms isn't offering us a clear view, it's time to look at things in BTC terms and see what kind of information we can get out of that. First we are going to start with ETHBTC, which yesterday closed below its 300 DMA, but is now trying to break back above it. It's below all of its major MAs other than its 400 DMA and is about to have a 50-200 bearish cross. It's also right at the Volume Profile Point of Control, and right in the middle of the monthly and yearly P. Although someone could say that this is just another correction, just like all previous corrections since May, there are a few differences this time around. The fact that the market swept the May 2021 high, as well as its May 2018 high, and then formed a short term bearish trend, while closing for so long below its 200 and 300 DMAs, is not bullish. Until ETHBTC gets above all its key MAs or even its May 2018, it is better to stay cautious.
What we see in ETHBTC is pretty much in agreement with what we see in BTC.D or BTCDOM, which are two ways to have a look at Bitcoin's dominance. When looking at BTC.D we are seeing that Bitcoin has been getting stronger relative to alts, and in the future this could be because BTC is outperforming the rest either because it's rallying harder or it's falling slower. Hence it isn't clear whether the market is going up or down based on Bitcoin dominance alone, but what is clear is that it is probably better to be in Bitcoin over the next few months, rather than being in altcoins. BTC.D has broken above 42.6% which is now support, as well as above the 200 DMA. By looking at BTCDOM we can see that the rally of Bitcoin dominance is probably not over, because there are no signs of weakness at resistance, while the trend is clear and the momentum strong.
In conclusion, a rally to the upside is definitely possible, with the market going up by 10-20% before reversing to the downside. At the moment the risk of a war between Russia and Ukraine seems small, but it is definitely a real possibility. Regardless of the situation with the war, the signs we are getting from all other markets is that a major downside scenario is possible. The global economy is in a very bad place and at any point we could see a situation somewhat similar to Q4 2018 or Q1 2020. At the moment the crypto market is very well balanced and one could say pretty fairly valued or even cheap. There are lots of positive developments in the entire space and the situation is much better than 2017-2018. I don't see a bear market in stocks, I don't see a bear market in crypto and I do see Central Banks and Governments resuming spending and cutting rates at some point in 2022 or 2023. Until then however, anything is possible.
Finally, up until now Bitcoin has been mostly correlated with stocks, yet with gold finally starting to break out and show signs of life, it is totally possible that at some point we will see Bitcoin show strong signs of correlation with gold.
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