- 1 Abstract
- 2 Macro Market Analysis
- 3 Technical Analysis
- 4 Fundamental Analysis
- 5 Trading Recommendations
- If the debt crisis in the United States worsens, leading to a liquidity crisis, it has the potential to create a substantial disruption in the cryptocurrency market.
- In response to the debt crisis in the United States, in the absence of significant deterioration in market liquidity, investors may seek refuge in assets such as gold and cryptocurrencies.
- Our recommendation is to await a retracement in Bitcoin (BTC) to approximately
- $24,000 and Ethereum (ETH) to around $1,600 before considering spot buying opportunities.
- Bitcoin’s volatility has reached a new historic low, and we believe that such sustained low volatility is not sustainable, indicating an imminent period of significant volatility.
Macro Market Analysis
US Debt Issue Looming
The US debt ceiling issue is causing significant apprehension in the financial markets. Prior to attending the G7 summit in Japan, President Biden made efforts to assuage market concerns by expressing confidence in reaching a debt agreement and ensuring that the US will not default. He further committed to maintaining close communication with House Speaker McCarthy during his overseas trip to facilitate ongoing negotiations until a resolution is achieved. Speaker McCarthy, in turn, has affirmed his commitment to reaching a debt ceiling agreement, asserting that a resolution by the end of this week is viable.
However, unexpectedly, the negotiations between the White House and the House stopped on Friday evening. Republican negotiator Graves criticized the White House negotiators for being unyielding, resulting in the current impasse.
While in Japan, President Biden has been updated on the latest developments in the debt ceiling negotiations. Despite the circumstances, he maintains an optimistic outlook that a solution will be found to avert a federal debt default. With just one week remaining until the potential default date, President Biden and House Speaker McCarthy are scheduled to hold face-to-face discussions at the White House on Monday to resume negotiations regarding the debt ceiling.
In the interim, it is crucial to note that the US Treasury’s cash balance currently stands at a mere $57 billion, underscoring the pressing need to raise the debt ceiling in the coming week.
Currently, all eyes are on the upcoming “X-day” for the US debt ceiling negotiations, which could have different impacts on the market:
- If a compromise agreement is reached and passes before the deadline, the US Treasury will issue around $1 trillion in Treasury securities to replenish cash reserves. This may cause a 5-10% pullback in the S&P 500 due to reduced liquidity but could have positive implications for DeFi and cryptocurrencies if liquidity remains stable.
- If a compromise fails in either the House or Senate, the stock market could decline by 10-20% as the default deadline nears, pressuring both parties to reach an agreement. The impact on cryptocurrencies would be the same as in short-term digital assets, still embedding qualities of a risk asset.
- If no agreement is reached and Democrats unilaterally raise the debt ceiling, it could trigger a constitutional crisis and severe consequences like a civil war. The stock market could experience a drop of over 30%, and the cryptocurrency market dropping by more than 50%. However, this scenario is highly unlikely.
The Market Does Not Lack Significant Positive Factors
If the US fails to raise the debt ceiling and defaults, investors may turn to gold and Bitcoin as safe haven to protect their wealth. The survey above shows that Bitcoin is a top choice for investment among retail and institutional investors if the U.S. defaults.
While gold remains the preferred choice, Bitcoin is popular among retail investors. Bitcoin is often called digital gold and has shown a recent strong correlation with gold. However, as we mentioned above, this could initially cause a decline in Bitcoin prices due to digital assets’ embedded quality of being risk assets.
In a positive development for Bitcoin, Tether (USDT) has decided to allocate 15% of its monthly net profit to purchase BTC, amounting to around $74 million worth of Bitcoin. Additionally, there is a favorable development in the SEC’s lawsuit against Ripple, as a crucial document from 2018 was denied, benefiting Ripple’s company. This case is
expected to conclude this year with a potentially positive outcome, contributing to the upward potential of cryptocurrency prices.
According to the latest information, Bitcoin may face a price retracement into the
$23,000 to $24,000 level due to breaching a key support level and forming a head and shoulders pattern. However, positive developments like a US congressional hearing could trigger an up-move, with a target range of $35,000 to $36,000. Multiple factors influence market trends; the final direction depends on their combined effect.
The current chart (left) resembles the Bitcoin chart from 2019 (right), showcasing a strong correlation highlighting the market’s bull runs, bear markets, and recoveries cycles. In the current market environment, it is prudent to exercise patience and await a pullback to identify potential demand or support zones.
Analyzing the charts, we can observe similar consolidation patterns resembling the situation in 2019. During that time, we experienced a consolidation phase, followed by the first wave, a second wave correction, a third impulse wave up, and another correction or wave 4 down.
In summary, history tends to repeat itself, and right now, Bitcoin is following its rise from the 2019 bottom pretty closely. We are waiting to see if there will be a 4th wave pullback followed by a 5th impulse wave up to our $34,000 – $36,000 target. However, it is essential to note that multiple factors influence market trends, and the overall trend relies on these factors’ combined effects.
The Ethereum price trend has displayed a pattern resembling that of Bitcoin. The $1,600 region holds significance as it represents the 50% Fibonacci retracement level. This level is considered noteworthy, as a 50% retracement from the peak to the trough is common during a bull market, aligning with the support level of around $1,600. If the price indeed drops to this level, it would be worth considering as a potential buying opportunity.
Comprehensive Bull Market Still Needs Time
1. An overall decline in the market capitalization of major stablecoins:
The market capitalization of major stablecoins is witnessing an overall decline. While the market capitalization of USDT is still showing gradual growth, albeit at a decelerating pace, stablecoins such as USDC and BUSD, representing US funds, are experiencing a contraction in market capitalization. This trend indicates an accelerated withdrawal of US funds. Meanwhile, TUSD has been subject to minor fluctuations in its market capitalization.
The collective market capitalization of these four prominent stablecoins has steadily declined since the bear market in 2022. This trend suggests an increasing risk aversion among investors towards stablecoins, leading to a progressively deteriorating liquidity environment.
2. Exchange reserves are not optimistic:
The exchange reserves of USDT have shown a consistent decline throughout the year, indicating a decrease in available supply. Similarly, while the reserves of USDC initially experienced a surge during the decoupling event, they have since retraced all gains and continue to diminish. This overall trend in exchange reserves for both stablecoins is not conducive to fostering a robust bull market, as it hampers liquidity and potential buying power.
Massive Volatility Is Imminent
Bitcoin’s volatility has reached a new low, with the 60-day annualized volatility dropping below 40% for the 8th time in 5 years. This indicates the potential for significant upcoming volatility. On average, when volatility remains below this level for around 5 weeks, a 46% price increase follows. However, on the flip side, there have been 3 instances of a 50% decline under similar conditions.
Increased Selling Pressure from Miners
Blockchain data analyst, IT Tech, has recently discovered significant on-chain data indicating an outflow of miner holdings. The evidence strongly suggests a substantial volume of Bitcoin transfers to Binance. The diminishing reserves miners hold indicate that miners’ selling pressure is rising. This also could be seen as miners having a negative view of Bitcoin price in the near future.
Based on previous discussions, the current mining cost for one Bitcoin is around
$24,000, indicating limited downside potential. Technical analysis suggests a pullback target range of approximately $24,000 based on the head and shoulders pattern. We believe that Bitcoin can reach our mid-term target of $35,000 to $36,000 this year, with an 11% pullback and a potential 33% return. This presents an attractive trade with a favorable risk-reward ratio of 3:1.
- It is recommended to consider buying Bitcoin in the price range of $24,000 to $25,000, with an investment option at $25,000 for the 4-day BTC Buy-the-Dip, offering a 15% return. Our traders will employ a bottom-fishing strategy at the support level of $25,000 and monitor price fluctuations. If the price continues to decline, we will consider purchasing at the target price of $24,000 to average down the cost. The strategy will be executed within the next 7 days, with the flexibility to adapt to market conditions.
- Regarding ETH, as mentioned earlier, the price level of $1,600 is a highly recommended entry point. However, considering the current price and the lower return, we suggest purchasing the 3-day ETH Buy-The-Dip at $1,700. We will execute this trading plan over the next 7 days and reassess our strategy if the price falls lower.