Weekly Markets 1.18
17 December 2021: After a stressful, prolonged downtrend in the cryptocurrency market, it appears that the total market cap has found some relative support right at the 200 day moving average - a level the total cap also held back in September 2021. The past week focused heavily on the Federal Reserve meeting that occurred Wednesday, December 15. This week we will discuss the impact of the FEDs comments on both cryptocurrencies & stocks as we approach 2021.
The main news stories of the week are available below:
Crypto-Economy
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Only 10% of Bitcoin supply left to mine (CoinTelegraph)
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Fed's Powell says cryptocurrencies are not a ‘financial stability concern’ (MarketWatch)
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Michael Jordan to launch NFTs on Solana (Market Insider)
- AccuWeather launches Chainlink node (Crypto Briefing)
World Economy
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Judge overturns Purdue Pharma's opioid settlement (New York Times)
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Federal Reserve sets stage for earlier, faster interest rate hikes as inflation soars (USA Today)
- Top European central banks cannot agree on appropriate track for tackling inflation (Wall Street Journal)
Crypto-Economy & Markets
When it comes to cryptocurrencies right now, we are looking for any potential reason to remain optimistic. Many, especially on crypto social media channels, have pointed out the similarity in sentiment between the May 2021 correction and now. This is also being presented as the Fear & Greed index is still reporting a period of 'extreme fear'.
Despite many in the community calling this a major shakeout or simply another consolidation period prior to a rally, the facts are that Bitcoin has routinely made lower highs since the beginning of November. The Total Crypto Market Cap also has, at least, another 6% down to go before it reaches major support at the 200 day moving average.
With Bitcoin at the 200 DMA right now, we again would like to urge caution and wait for confirmation of a bottom prior to jumping into this dip.
Total Market
The total cryptocurrency market has fallen another 4% over the past week. It has continued in a downtrend - a trend that has been intact since the beginning of November when it reached the top of the long term price channel. The Total Crypto Market Cap had been in this price channel since July until it fell through bottom support on December 4.
Once again, a potential bottom is at the 200 DMA sitting at approximately $2 trillion, nearly another 6% down.
Bitcoin
Over the past week, Bitcoin has continued to inch lower, down 1.5%. This comes after a steep decline of 14% last week. Bitcoin is currently attempting to not only hold price channel support - but also the 200 DMA, a crucial level for the bull run to continue.
Alt Coins
With Bitcoin falling much less this week than the broader market, alt coins like Ethereum took bigger punches. Even worse, Ethereum has also fallen under key long term support and could be expected to decline signficantly - potentially down nearly 15% to the 200 DMA without a reversal on the daily.
Total Crypto Market Analysis
The bullish sentiment - at least within crypto social media channels - is not at all surprising. 2020 through 2021 has been overall very positive for the cryptocurrency market. It would appear on paper (without looking at technicals) that the market is primed for a reversal. Market sentiment overall is still extremely fearful, the market is down quite a bit from highs, and with institutions now involved, everyone is beginning to see the value in crypto.
There are two problems here however:
- Despite the market not violently correcting, crypto continues to print lower highs each week
- While market sentiment is fearful, institutions are moving to a 'risk off' strategy
The second of those two points is the most important. Institutional investors are not going to be expanding any risk tolerance at this point in the bull run and especially not with the current ailments in the global economy. Remember - the market can remain in an extreme greed sentiment for weeks to months before a correction. It is no different with fear.
Look to see if Bitcoin can hold the $47,000 / 200 DMA level. It is fundamentally crucial if we want to see a new all time high again anytime soon. If it does hold, a bounce up to $59/60k again could be in play.
Ethereum looks uglier by the minute. If the daily candle that is currently hanging well below support today can reverse and close above support - it can hold on and maybe even help reverse the market. If it closes below it appears as though Ethereum could test the lows or even mint lower lows. The bottom is at $3400.
World Economy & Markets
The US Federal Reserve dropped a bomb on markets this week with the annoucenment that it will be speeding up its tapering schedule to combat severe inflation in the economy. Last week, we presented the following graph depicting the unprecedented rise in inflation for the past 25 years:
The original plan was to slowly taper quantitatve easing and raise rates by 2023. Now, the Federal Reserve is planning on doing so literally next year - in 2022. This is a major blow to markets, especially growth stocks.
Growth stocks like Facebook, Apple, Amazon, etc. have thrived off substantially low interest rates - allowing them to borrow large sums to expand their own operations fruitfully. If the Federal Reserve raises rates, this becomes impossible. It costs significantly more to borrow, meaning less do. Less borrowing then means less growth and eventually the economic gear starts turning backwards.
This is precisely the reason institutions may be implementing their 'risk off' strategies now. Higher interest rates means more defaults, bankruptcies, and far, far less economic growth. And remember - this is all in response to HOPEFULLY combat the steepest rise in inflation in nearly 40 years.
Summary
If you have been following RekTimes or any other crypto market pieces under Zacharias here on Publish0x for the past year, you will know that in May we held an overwhelmingly bullish sentiment on markets. It was primed for a reversal, accelerating into the late summer months and eventually made for new all time highs.
Here, we are essentially backing the other horse. There are a multitude of factors at play that could see the broader economy slow down significantly, not just cryptocurrencies. Institutions are neck deep into crypto now - you don't get a muli-trillion dollar market cap without both institutional investment and a LOT of liquidity.
There are genuinely solid reasons to belive that both may be dissipating here soon. There is simply no logical reason why institutions are going to add or expand a 'risky' investment class on their balance sheets ahead of the Fed tapering quantitative easing & raising interest rates. The debt is about to get more expensive.
With all that in mind - we hope to be wrong! The possibility is still there for a reversal. It is in our opinion that we have more than likely seen the all time highs for this cycle. Of course, each of you have to formulate your own investment strategies as we move toward the new year and do what you feel is the best move.
Be smart, make your moves based on factual data & evidence, and don't forget to factor in the impact of the global economy & institutions on the cryptocurrency market.
Coming within the next week from RekTimes includes:
- Article on Chainlink (LINK) (Monday)
- Article on Ethereum, Roll Ups, & L2 Development (Wednesday)
- RekTimes Weekly Markets 1.15 (Friday)
Best of luck over the next week!
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