7 Februrary 2022: Happy Monday! After an eventful, busy weekend, the market has put together a string of positive momentum that is allowing both the stock market (particulary the tech sector) and cryptocurrencies to flourish. With each passing week, it is becoming increasingly evident that the fiat & crypto economies are notoriously intertwined.
Between the correlations in growth stocks & cryptocurrencies to the potential regulation of stablecoins requiring banks to hold the reserves, it seems the lines are blending more and more. As the market rebounds, there are multiple factors lying ahead to consider before allocating a large amount of capital into the markets.
In a rush? Here are this week's key takeaways:
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Key reports coming out this week, including January's inflation numbers & on the Tether, NY State case
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Market rebounds 15% over the past week as it now sits just below major resistance levels
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Tensions rising in Eastern Europe between Russia and NATO / US
Top Headlines
The biggest headline recently was the news of an absolutelty devastating hack of the Solana / Wormhole bridge that saw 120,000 ETH get drained. This essentially meant that all the ETH on Solana was backed by absolutely nothing.
Evidently, this 120,000 ETH was already replaced in an "act of good faith" though the details are foggy. Despite demonstrating an inability to function, Solana bounced nearly 30% over the past seven days.
Additionally, the IRS announced that earnings from staking are not subject to taxation unless the assets are sold, citing a big win for Proof-of-Stake. Keeping with government, the US Federal Reserve is reportedly gearing up to raise interest rates in March 2022, leading to volatile trading in both fiat & crypto markets.
From a geopolitical perspective, the moves happening in Eastern Europe should also be watched closely as Russia has readied a massive military force on the Ukrainian border while NATO and the US mount troops in the area. The war drums appear to be heating up, though it is unclear the scope, likelihood, or timeline for such a conflict to occur.
Further Reading - In the Know
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NY Supreme Court to rule on releasing Tether (USDT) reserves details today, February 7 (Twitter)
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Jump Crypto replaces stolen $320 million from wormhole hack (Reuters)
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Correlations between tech stocks & crypto strengthen (Forbes)
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Inflation numbers will be released Thursday, Februrary 10 for January (CNBC)
- US reportedly warns Ukraine invasion could happen "any day now" (Wall Street Journal)
Crypto-Economy & Markets
The cryptocurrency market finally got a good bounce over the past week, seeing a 15% gain. This gain, despite the major cryptocurrency hack, has been mostly made up of rallies in Bitcoin & Ethereum's price. The Fear & Greed index has gained a massive 25 points as it rises to a level of "fear".
Total Market
The total cryptocurrency market gained 15% in the past week to rise just below its declining 50 day moving average. The total market cap remains over 9% below its 200 DMA. The market stands at $1.9 trillion USD.
From a longer time perspective, the argument can be made that the market has currently bounced off long term support, though this is more speculative.
Bitcoin
Bitcoin rallied to a 14% gain over the past week, a similar price increase to what it saw in late November and December.
At over $43,000, Bitcoin is now sitting below major long term resistance. A confirmed break above $44,400 would be increasingly bullish, though there are many internal and external factors that must be considered.
Alt Coins
The altcoin market (total crypto market cap minus Bitcoin) has been led heavily by a reversal in Ethereum. Though performing slightly worse that the total market cap (including Bitcoin), the 19% rally in ETH has fueled a general rise in market prices.
Ethereum sits below major resistance on the daily at $3,100, but above its 50 DMA on the weekly. When viewing long term charts, Ethereum notably has support at the $2,400 and $1,000 USD price levels as well as a ceiling potential of ~$4,800.
The total market cap, minus Bitcoin, is shown below:
The weekly Ethereum chart is shown below:
Total Crypto Market Analysis
Currently in the market, there are long term bearish macro indicators clashing with more short term bullish indicators that is leading to a extremely volatile environment. Growth in either market is dependent on long term purchasing power and borrowing abilities, both of which are at risk due to singificant increases in inflation.
This rally in both tech stocks and the cryptocurrency market has set up a lot of coins in an interesting position. For instance, a higher rise on Ethereum could fuel a rally to the top of the weekly price channel at $4,800. A reversal could take Ethereum to the $1,000 mark. Bitcoin is in a similar circumstance.
Of course, all of this is ignoring the implications of the following factors:
- The growing destructive force of inflation on every day purchasing power of which the retail market is being hit extremely hard
- The premise of the FED raising rates, creating a deflationary shock and causing institutional investors to abandon risk-on assets like crypto
- A potential negative catalyst with the release of information on Tether's reserves
- The introduction of state regulation of stablecoins which dominate volume in the entire crypto market
- The possibility of a Russia - Ukrainian conflict that pulls western powers into war
Any one of these factors can utilized by media outlets as the reason why a market breakdown happens or vice versa. In reality, all of these factors are happening simutaneously and the impact of them is never known without hindsight in a long term outlook.
At the moment, there is a buying opportunity if breaks in resistance on major coins are confirmed. This does not mean dump all your stablecoins and cash into the market in hopes of a major rally. Make sound decisisions that benefit your own position and leave emotions at the door.
Summary
Is this recent rise in price action a reversal in market conditions or simply a trap & bear market rally? No one can tell you for sure. For RekTimes and myself, we are sightly biased towards the bear market hypothesis when considering the short term upside / downside of potential gains versus the macro environment.
Long term, it is obvious that Ethereum and DeFi-based protocols and applications are notoriously undervalued. In fact, the entire cryptocurrency market is undervalued by trillions. When considering bearish sentiment - even with a catastrophic collapse in something like Tether - the short term downside on Ethereum is nothing compared to the future it has.
In summary, RekTimes is still expecting the market to decline overall through March as these macro economic factors continue to play out. Of course, we are not perfect and do not have a crystal ball. The analysis hear is to help you make decisions by utilizing a different perspective which hopefully leads to increased accumulation of different assets at lower price points. Far too often do people emotionally trade by selling at market bottoms and buying towards the top of rallies - the definition of getting absolutely rekt.
As always, continue to dollar cost average your holdings down if you had bought anytime during 2021. Long term accumulation into sound projects should always be the goal.
Coming up over the next week from RekTimes includes:
- Article on DeFi and long term applications
- Article on macro economic trends
- RekTimes Weekly Markets 1.25
Best of luck over the next week!
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