Are cryptocurrencies closer to the price abyss?

The end of the week leads to a sell-off in the cryptocurrency market, which is responding with declines in risk aversion ahead of Jerome Powell’s speech at the Jackson Hole conference. Digital assets are again correlating with contracts on US indices, where sentiment is weakening ahead of the session’s opening:

  • Bitcoin recovered from the $21,800 level as buyers failed to push prices above $22,000. Ethereum drops below $1,630, yesterday the token already traded above $1,700;
  • The price of the “king of cryptocurrencies” is still below the 200-session moving average at $22,800. Bitcoin unexpectedly fell below average last week, triggering a cascade sell-off and the liquidation of bullish positions worth more than $500 million. Demand has clearly weakened, buyers are clearly struggling to attack above average again, which has turned from support to resistance;
  • The decline of major cryptocurrencies below the key on-chain levels, i.e. below the so-called realized price, which determines the average purchase price of a cryptocurrency on blockchain, is also a concern. This means that the vast majority of the market is now losing money. While dips below these levels have historically supported demand in the long term, in the short term they have often been associated with weakening sentiment and an impending panic wave;
  • Ethereum identified two major bugs prior to “The Merge” with a reward of up to $1 million from the Ethereum Foundation for identifying them and other major issues in the Ethereum code. There was speculation in the markets that, faced with these bugs, the developers could postpone the merger at the last minute. However, these reports have not been confirmed by ETH developers, so they should only be construed as baseless speculation;
  • The capitulation of Bitcoin miners has historically signaled the late stages of a bull market, which led Charles Edwards, founder of the Capriole fund, to create a “hash ribbons” indicator in 2019 to identify opportunities to buy cryptocurrencies. When the 30-day moving average of hash ribbons (the famous death cross) moves below the 60-day moving average, we generally see miners capitulate. Therefore, Edwards inverted the indicator and suggests looking at a possible crossing of the 30-day average with the 60-day average, ushering in miners’ return to the market and potentially allowing exposure to the “cheap”, but which again is in favor of bitcoin;
  • Some analysts remain optimistic about bitcoin’s long-term valuation due to the capitulation of the observed miners. The hash ribbon indicator is showing weakness. Since May 30, the 30-day average of hash ribbons has risen from 7% to no less than 10%, confirming the decline in bitcoin’s network strength due to the mining suspension;
  • It appears that an improvement in crypto market sentiment in the near term could be driven by Powell’s surprisingly “moderate” speech, although that is not a likely scenario at the moment, as the market is currently assessing. Expectations for an interest rate hike in September have risen to 75 basis points, until recently the market considered 50 basis points more likely.

The average bitcoin blockchain purchase price (realized price) is currently around $21,700, bitcoin has been unable to stay above this level, signaling weakness historically. Worth mentioning is the so-called price delta, which calculates the difference between the realized price and the historical average price of bitcoin. Currently, the price delta is at the $13,700 level, which may prove to be the bottom of the current bull market also due to the strong technical support that is at these levels (including the top of the 2019 bull market). In the past, bull markets have often stopped the declines only after reaching the “delta” in price. Source: Glassnode

Investors in the bitcoin market are poised for net losses despite the cryptocurrency’s massive sell-off this year, illustrating the market’s continued lackluster sentiment towards risky assets and vulnerability to external risk factors. By tracking the 90-day moving average, we can see that cryptocurrency prices tended to settle only when the number of sellers turned out to be low, but the sell-off continues, as confirmed by the sell-off on 21 August. The market is dominated by short-term investors with a lower degree of conviction and sensitivity to market volatility. Source: Glassnode

The Fear and Greed index hints at fear, but extreme levels are still relatively far off, leaving ample room for the weakening sentiment to continue in the event of further declines. Source:

Bitcoin chart, H4 interval. The major cryptocurrency has fallen below a key support level and weakening RSI and Fibonacci levels indicate the potential for downward movement. Source: xStation5

“This material is marketing communication within the meaning of Article 24(3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011 /61/EU (MiFID II) Marketing communication is not an investment recommendation or information that recommends or suggests an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/ 958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to standards, regulatory techniques with regard to the technical modalities of objective presentation of r bel ing recommendations or other information that recommends or suggests an investment strategy and for the disclosure of special interests or indications of conflicts of interest or any other advice, including in the field of investment advice, within the meaning of the Act of 29 July 2005 on trading in financial instruments. (i.e. Journal of Laws 2019, item 875, as amended). All information, analysis and training provided is for informational purposes only and should not be interpreted as advice, a recommendation, an investment solicitation or an invitation to buy or sell financial products. XTB cannot be held responsible for its use and the resulting consequences, as the final investor remains the sole decision-maker with regard to the position taken on his XTB trading account. Any use of the said information, and in this regard any decision taken with regard to a possible purchase or sale of CFDs, is the sole responsibility of the end investor. It is strictly forbidden to reproduce or distribute this information in whole or in part for commercial or private purposes. Past performance is not necessarily indicative of future performance, and anyone acting on the basis of this information does so entirely at their own risk. CFDs are complex instruments and carry a high risk of losing capital quickly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You need to make sure you understand how CFDs work and that you can afford to risk losing your money. With the Limited Risk Account, the risk of loss is limited to the invested capital.

Leave a Comment