Signs of Relief | On Chain Report
Inflation, who cares? Interest wanes in the hot topic as Altcoin markets appear to prime setups for potential relief... Read the free article
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Part 1 | Midweek Update
A lacklustre session for equities so far, with leading US stock markets flatlining around major resistance levels.
Dominating the headlines currently:
Optimistic sales forecast reports from the retail sector.
Talks about the FTX drama.
Gold prices flatten ahead of the FED minutes.
At the same time, the NASDAQ Composite reacted positively to its support on 22nd Nov, and the Dow Jones Industrial Average made a new local high since October.
The deafening silence of a consolidation phase can be welcomed, especially when speculators are well-acquainted with pessimism. Human psychology of the mass market is not impervious to negativity-fatigue and becomes susceptible to degradation under the pretenses of mainstream media spewing forth a constant barrage of gloomy expectations.
Exhibit A. Let’s take a look at social interest in the hot topic of “inflation” by assessing internet search volumes for the keyword.
Hint: General interest in global inflation appears to be rounding off and beginning a reversal..
And what about the crypto market?
Last week's decorrelation event could be considered abnormal—Fear, Uncertainty, and Doubt (FUD)—enabled for more volatility and irrational pricing behaviour, as we’ve discussed at depth in the previous report.
One explanation could be that risk-on assets typically tend to correlate with one another, i.e., inversely correlated with the “value” of money.
Note, modern economics suggests that the value of money is extremely correlated with the rate of interest (or, in other words, the “risk-free” rate).
Logic dictates that as investor yields on dollars increase, the less likely you are to risk that money elsewhere. With a host of sovereign currencies still reeling from the havoc wreaked by surging dollar strength, the market has been taught a hard lesson on just how destructive the US dollar can be in an environment characterised by tightening monetary policy underpinned by aggressive hikes on interest rates.
Therefore, we surmised that Supply on Exchange (SoE) did not imply market sentiment, but it was, in fact, a cautious and responsible reaction from longer-term and larger-scale holders with the recent FTX fallout.
With all these events, on-chain data, specifically Supply on Exchange (SoE)*, remains a relevant measure for analysis, as it indicates short-term volatility and long-term sentiment.
BTC/USD price volatility increases as SoE decreases - in this example*
Part 2 | Short-term perspective
Green: BTC price
Purple: BTC SoE (as % of total supply)
Bitcoin's SoE remains flat after touching 7.066% with the EMA(30,50) behaving in a bearish manner.
It should be noted that as SoE flatlines and smooths, it also suggests that the EMA(30) and EMA(50) is closing in on the SoE metric.
As the gap tightens, volatility is never far behind…
Therefore, if SoE does not fluctuate soon, it is just a matter of time before we start to review the potential for a short-term trend reversal [BTC: SoE ^ 7.101%].
In this sense, SoE will remain bearish if it respects the EMA(50) resistance currently located at the 8.19% mark.
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Red: ETH price
Purple: ETH SoE (as % of total supply)
Similar to Bitcoin's SoE, Ethereum Supply on Exchange has begun pivoting back towards its key moving averages (EMA 30,50).
Generally, one should do their best not to speculate on future outcomes of any event (unless they have prophetic powers vis-à-vis foresight gleamed from a crystal ball).
However, in this instance, the divergence between its SoE metric and moving averages signal (with reasonable probability) that SoE will start reducing the distance to the EMA(30,50) zone—currently sitting around 11%
This gap will only be reduced further if SoE loses its current momentum and moves higher [ETH: SoE 12.332].
The relationship with historical divergences from the previous trends only reinforces this idea further.
As a result of this analysis, our view is that Ethereum's SoE still flirting with a downtrend.
This condition will, however, be contested when the metric breaks above the EMA(50) area, which is currently located at 13.9%.
Part 3 | Long-term perspective
Given Bitcoin SoE's long-term trend, it continues holding the bearish pressure it established last week.
Further gauging Bitcoin’s bearish SoE, the delta∆, has seen a reduction in momentum as price (referrenced in previous reports) fell to 2.374%.
Delta∆ is down -6% from the last report.
This decrease in delta suggests a slowing in the withdrawals of Bitcoin off exchange; which may indicate that the previous market conditions (that cause people to withdraw crypto) are no longer effective.
We continue to hold our current SoE expectations as bearish until it crosses above its EMA(50) at 9.92%.
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Ethereum SoE has remained within bearish conditions since our last report.
Our expectations based on unchanged fundamental conditions is for Ethereum SoE to remain within bearish conditions covered in our last On Chain Report.
If nothing is new from a fundamental standpoint then we expect this metric to gain further momentum to the downside.
If SoE fails to hold below the EMA(30) area, located at 13.90%, it may instead spark a bullish reversal.
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Part 4 | The “Alts” Market
Market index OTHERS gains momentum. Altcoins poised to grab at opportunistic gains.
The top altcoins market cap experienced short-term bullish momentum as it broke up above short-term bearish resistances (5m-1H) at US$83B MC (Market Capitalisation).
We can see that the local structure of altcoins has managed to climb higher and is now flirting with a test of the notorious 4H resistance.
As can be seen from historical data, the 4H resistance is quite reliable in the crypto market because it captures the market directions quite well while providing a reasonable margin of error (i.e., it does not produce significant loss when resistance fails).
If the crypto market can beat this resistance, the upside for crypto will be extended for another 10% to the 98B MC mark, which may result in exponential growth for many altcoins. [CRYPTOCAP:OTHERS 85.74].
However, with the weekly market cap reading at US$183B and monthly resistance at US$156B MC, the crypto market still appears burdened by a bearish market structure in the long term.
Limit for the Bulls (Support): 83B (3.14% from here – 5 minutes)
Limit for the Bears (Resistance): 88B (2.39% from here – 4 Hours) ~ 106B (24% from here – Daily)
See you again for the next update.
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