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Market Wrap: Bitcoin Pushes Higher as Traditional Markets Decline

Price Action

Bitcoin and ether start the week trading higher following a downturn over the weekend. Both currencies sank below key psychological levels before reversing course on Monday.

Bitcoin’s (BTC) price rose 1.9% on strong volume, regaining a portion of the 2.52% it lost over the weekend. The uptick in volume on Monday’s push higher is an additional positive sign. Still, BTC continues to trade in a relatively tight range, alternating between up and down days. Currently BTC is trading above the psychologically important $19,000 mark.

Ether (ETH) rose 2.6% and is maintaining a strong 30-day correlation coefficient (0.78) to BTC’s price. Correlations range between 1.0 and -1.0, with the former implying a direct relationship, and the latter implying a completely inverse relationship. Given their strong relationship, it’s unsurprising that ETH moved in tandem with BTC both in direction and in volume over the weekend. ETH reclaimed the psychologically important $1,300 mark. The supply for the second-largest cryptocurrency by market capitalization has now increased by 8,400 ETH since transitioning to a proof-of-stake consensus mechanism. Absent the switch, estimates indicate that ETH supply would have grown by over 140,000 ETH over the same time frame

The CoinDesk Market Index (CMI), a broad-based market index that measures performance across a basket of cryptocurrencies, rose 1.6% on the day.

Economic Calendar: the calendar was relatively quiet for Monday, ahead of traditionally more impactful data for durable goods and home sales to be released on Tuesday.

In fixed income markets, two-year Treasury yields increased to 4.3%, reaching levels last seen in August of 2007. The yield curve between the two-year and 10-year Treasurys remain inverted, as rates for the former are higher than the latter.

An inverted yield curve implies that investors are placing a higher degree of risk on short-term lending than they are longer-term lending.

Historically, inverted yield curves have been precursors to economic recessions that negatively affect all risk assets, cryptocurrencies included.

U.S. equities: Traditional equities dropped, as the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq composite and S&P 500 declined 1.1%, 0.6%, and 1%, respectively.

Commodities: WTI crude oil fell 2.4% and now trades below $80 per barrel. European Brent crude fell 2.3%, declining below $85, while natural gas was 3% higher. Copper, often used as a barometer for economic health, fell 1.3%, while safe-haven asset gold declined 1.3%.

Latest Prices

Bitcoin (BTC): $19,164 +1.3%

Ether (ETH): $1,327 +2.6%

CoinDesk Market Index (CMI): $956 +1.1%

S&P 500 daily close: 3,655.04 −1.0%

Gold: $1,630 per troy ounce −0.9%

Ten-year Treasury yield daily close: 3.88% +0.2

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Technical Take

BTC Trades Higher as Traditional Markets Decline

Despite turmoil in traditional financial markets, bitcoin is holding up relatively well on Monday. Its resilience is interesting given its tendency to trade in concert with the Nasdaq Composite, which is down 0.8% Monday.

Traditional financial markets are trading lower Monday largely because of global recession fears. The British pound has declined to record lows following news that the Bank of England may raise its interest rates aggressively.

The Bank of England would join a growing list of central banks that have adopted hawkish monetary policies, including steep interest rate hikes.

BTC still appears decidedly neutral and is essentially trading where it was in mid to late June. The short-term price peak realized in mid August ($24,000) has been followed by a persistent decline to current levels.

The current price level of $19,000 sits approximately 20% below the August peak, representing an opportunity set of sorts to bullish traders.

Derivatives markets, however, are not signaling much optimism at the moment. As mentioned in Friday’s Market Wrap, options open interest by strike price showed some appetite for risk, but even that appears to have waned as call open interest at the $20,000 strike price has decreased.

A call option represents the right but not the obligation to purchase an asset at a particular (strike) price. Open interest refers to the number of active contracts that would allow investors to do so.

The option open interest put/call ratio has also moved higher, implying an increase in bearish sentiment for BTC in the short term.

Technically, there doesn’t appear to be cause for alarm, but not much in the way of celebration either. BTC’s relative strength index (RSI) indicator is 42 which is a neutral reading.

RSI is a technical indicator that measures an asset’s momentum. Readings above 70 imply that an asset is trading above fair value, while readings 30 and below imply the opposite. As it stands, the market sees BTC as fairly valued.

Bitcoin/U.S. dollar daily chart (Glenn Williams Jr./CoinDesk)
Bitcoin/U.S. dollar daily chart (Glenn Williams Jr./CoinDesk)

Altcoin Roundup

  • Luna Classic, Remnant of Terra Collapse, Jumps 60% as Binance Unveils Burn Scheme: The crypto exchange’s new measure aims to reduce the hyperinflated LUNC token’s supply, but it is unlikely to have the desired effect that traders hope for. Read more here.

  • New Cosmos White Paper Revamps Cosmos Hub, ATOM Token: The paper cites interchain security and a new issuance model for the Cosmos Hub’s native token ATOM as the keys to pulling the first Cosmos blockchain out of its years-long identity crisis. Read more here.

  • Disney’s Latest Job Posting Hints at Big Plans for NFT and Crypto Adoption: The company is seeking legal counsel to help it navigate crypto, non-fungible tokens (NFT) and decentralized finance (DeFi) regulations as it expands its Web3 strategy. Read more here.

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