Cryptocurrency markets lost $12 billion in total market value last week. Bitcoin struggles continued, as it tries to build upward momentum post halving. Traditional markets rebounded 3% on the week. This was fueled by positive sentiment surrounding economies reopening and vaccine developments.
Cryptocurrency Markets
Cryptocurrency markets lost $12 billion in total market capitalization last week. This was the second week in a row of losses, as global markets lost another $6 billion the prior week. Bitcoin has struggled to create momentum post halving. From the figure below, Bitcoin was one of the worst performers last week. Altcoins were able to capture market share, with Tezos and Cardano being the top performers. Tezos has surged +76% the last year, being one of the best performing digital assets. As of recent, it appears that Tezos blockchain is becoming one of the most popular spots to build on. In addition, XTZ trading volume has surged in 2020 as well as active addresses. Based on data from CoinMetrics , Tezos active addresses have increased almost +40% since July 2019.
Bitcoin Momentum
Bitcoin momentum has been pretty bearish since the 3rd halving that occurred on May 11th. The sentiment has been mixed across the board. Some investors studying the fundamentals believe that the 3rd halving has caused all sorts of financial hurdles for miners, therefore arguing substantial downside risk for Bitcoin price. On the other hand, investors on the bullish end argue that previous halvings experienced similar downside momentum before the ultimate bull run kicked in. It’s extremely difficult to foreshadow the future, but we continue to focus on the fundamentals behind Bitcoin to draw conclusions. As we’ve mentioned on Twitter, we’ve been following Bitcoins hash rate heavily after the 3rd halving.
Updated Hash Rate
With hash rate and Bitcoins price being positively correlated, we’ve seen both metrics experience downward pressures. Right before Bitcoin’s 3rd halving, BTC was testing the 1 year high hash rate resistance. Visionary Financial mentioned that this resistance level would be crucial. If Bitcoins hash rate had surpassed that yearly high, you would have seen that $10,000+ surge that everybody was expecting. Unfortunately we argued the flip side as well. We believed that if the hash rate rejected that yearly high, you would most likely see a sell off as miners get cold feet due to their new revenue model. Since the halving, hash rate has tumbled which raises some concerns. We now see an environment where hash rate has approached a “triple bottom” , testing lows from December 2019 and March 2020. Next week should give investors a much better idea on price outlook. A triple bottom can be extremely bullish as long as the hash rate starts building some momentum ASAP. In addition, it can also be extremely bearish if hash rate dips below this key support level. As mentioned above, hash rate and Bitcoins price are highly correlated, so this will be a crucial fundamental area to watch in the short-term.
Bitcoin Technical Analysis
In recent Bitcoin analysis, it was mentioned that BTC could very well test $8,000 in the short-term. At the time of the report, Bitcoin experienced a sharp sell-off mid week, losing -5% and dipping below the 25 day moving average.
Since the previous report, not much has changed. The $9,050 region is still very strong support for Bitcoin. If it rejects that level, you could start to see more downward pressure. In addition to this being a strong support zone, it’s also where the 25 day moving average resides. We outline scenarios on the chart where Bitcoin dipped below the 25 day moving average. Every Time this happened over the last year, there’ve been significant sell-offs. This is why the chart will be on high watch going into next week.
Traditional Markets
Stocks saw a small rally last week due to positive developments around economies reopening and vaccine progress. Mid week, more volatility surfaced regarding geopolitical tensions. There was a U.S Senate bill being introduced that could potentially push Chinese companies out of U.S Exchanges, ultimately making them delist their companies. Despite the political risks, the S&P 500, Dow Jones, and NASDAQ all finished positive on the week. The market is now up +28% since late March. This marks the strongest “bear rally” in 70+ years. The stock market continues to disregard the present, and is placing a “premium” on what the future potentially holds.
There’s Still Volatility Ahead
The stock market has held up very well given the circumstances. With the economy on pace for 20% unemployment, investors are forward thinking into 2021. With analyst prediction / earnings predictions shot for 2020 due to uncertainties, investors believe the economy will recover much stronger than expected going into 2021. U.S weekly job claims came in at 2.4 million last week which was the 7th week in a row of declining unemployment claims. Despite the decline in weekly claims, the total now sits at 39 million people. This is more than the 37 million that filed for unemployment insurance during the great depression which extended for 1.5 years.
Investors are focusing on the weekly decline opposed to the total Americans out of work. The narrative right now is that the financial stimulus by the Federal Government is going to get everyone back to work in an efficient manner. The problem here is that studies show otherwise. According to a report by CNBC, one-third of small businesses won’t be able to reopen. In addition, 55% won’t rehire the same workers. The stock market and investor sentiment seems to be far ahead of reality. Based on market fundamentals right now, you’re most likely going to see elevated volatility in the markets.
There’s still too many unknown facts to believe the market bottom is in. If investors compare similar scenarios in history, it appears that we are way ahead of ourselves. If we study previous bear markets such as 1980, 1987, 2000, and 2007, these bear markets took 40+ months for markets to recapture highs. With all the unknowns still surfacing around COVID-19 and market health, it’s extremely difficult to justify the market rebound since March. Stocks are still extremely overvalued when assessing cyclically adjusted P/E ratios. Given the circumstances, we believe that traditional markets have a good chance of retesting the lows.
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