Tricky 2022 So Far
For those who joined the crypto-rollercoaster late last year, 2022 has been a far from joyous experience. Any crypto bulls hoping for the same sort of increase as we saw over Q1 2022 have been left heavily disappointed. Leading cryptos such as Bitcoin and Ethereum spent most of January under heavy selling pressure as digital assets extending the sell-off from last year’s highs. However, this selling pressure stalled into the middle of Q1 with both BTC and ETH since rebounding firmly, seeing both coins almost back up to where they started the year. The question now is: are we seeing the start of another move higher, continuing the long term pull trend? Or is this action merely a correction within a fresh downtrend?
US Rates Impact
The move lower in cryptos over late 2021 and across January 2022 was largely a function of the broader market recalibration in the face of heightened Fed tightening expectations. With inflation surging globally and US economic data continuing to improve as omicron risks faded, the prospect of a Fed rate hike cycle became a reality. As we saw with the broader risk complex, particularly the tech sector, this was a difficult time as the Dollar ran rampant.
Cryptos Find Fresh Demand
However, across Q1 and even across March as the first hike took place, risk assets have rebounded firmly with the Dollar failing to find the demand for a fresh push higher. Within this environment, cryptos have been able to rebound. It seems the inflationary environment and outlook, along with risks around the Ukraine conflict, and the Fed’s own tightening, is prompting fears of a downward impact on US growth. Indeed, flattening and inversion within the US yield curve is even pointing to recessionary risks.
Upside Risks
Within this space, cryptos appear to be attracting a lot of demand again as speculators and investors look to move out of more traditional assets and back into an asset which they feel might better shield them from any coming difficulties for the US and even global economies. With order books having been significantly cleared in leading cryptos over late 2021, there is now plenty of room for fresh capital to enter and re-enter the market, suggesting scope for a continuation higher near term.
Key Research Headlines
In terms of order book movements specifically, data from Santiment Research looks encouraging for higher prices near term. One of the group’s most-watched metrics; “mean Dollar invested age” has been flattening out recently, a dynamic which typically precedes a large upward movement in Bitcoin. Additionally, Glassnode Research, an on-chain analytics firm, has reported heavy accumulation recently along with largescale, reported purchases, from groups such as MacroStrategy and the Lunar Guard Foundation. Glassnode has assigned the current market action an accumulation trend score of 0.65 – 0.72 (1 being the highest), meaning the current phase is very bullish indeed. Looking ahead, this suggests the near term outlook for cryptos remain bullish, with the focus on a continuation higher across Q2.
Technical Views
BTC
The rally in Bitcoin off the sub 37030 lows has seen the market trading back above the broken long term bull trend line (blue). However, for now, price remains capped by the local bull channel top. The fear is that the current price action represents a bear flag formation, suggesting an eventual break lower. Bulls will need to see price quickly back above the 52260 level to assuage these fears and put the focus firmly back on higher prices. To the downside, a break of the current 45405 level will bring 41510 into play as the next key support ahead of the channel low.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.