Are cryptocurrencies approaching a price abyss?
The end of the week leads to a sell-off in the cryptocurrency market, which reacts by reducing risk aversion ahead of Jerome Powell’s speech at the Jackson Hole conference. Digital assets again show a correlation with contracts on American indices, where a weakening of sentiment is visible before the opening of the session:
- Bitcoin recovered from the $21,800 level as buyers failed to pull prices above $22,000. Ethereum fell below $1,630, yesterday the token was already trading above $1,700;
- The price of the “King of Cryptocurrencies” is still below its 200-session moving average at $22,800. Bitcoin unexpectedly fell below its average last week, causing a cascading selloff and liquidation of more than $500 million worth of bullish positions. Demand has clearly weakened, buyers are clearly struggling to re-attack above the average, which has turned from support to resistance;
- Also of concern is the drop of major cryptocurrencies below key levels on the chain, i.e. below what is known as the realized price, which determines the average purchase price of a cryptocurrency on the blockchain. This means that the vast majority of the market is now at a loss. While long-term declines below these levels have historically supported demand, in the short-term they have often been associated with weakening sentiment and an impending wave of panic;
- Ethereum has identified two significant bugs ahead of the “Merge” with a reward of up to $1 million from the Ethereum Foundation for identifying them and other significant issues in the Ethereum code. Speculation swirled in the markets that the developers, faced with these errors, could still delay the merger at the last minute. However, these reports have not been confirmed by the ETH developers, so they should only be taken as unsubstantiated speculation;
- The capitulation of bitcoin miners has historically indicated the late stages of a bull market, prompting Charles Edwards, founder of the Capriola fund in 2019, to create a “hash bar” indicator to identify cryptocurrency buying opportunities. When the hash bar’s 30-day moving average (the famous death cross) falls below the 60-day moving average, we generally see miners capitulating. Therefore, Edwards reversed the indicator and suggests watching for a possible intersection of the 30-day average with the 60-day average, which heralds the return of miners to the market and potentially allows exposure to the “cheap”, but which returns in favor of bitcoin;
- Some analysts remain bullish on bitcoin’s long-term valuation due to the perceived capitulation of miners. The hash ribbons indicator shows weakness. As of May 30, the 30-day hash bar average has risen from 7% to no less than 10%, confirming the decline in bitcoin network strength due to the mining suspension;
- It appears that a near-term improvement in crypto market sentiment could be triggered by Powell’s surprisingly dovish speech, although that is not a likely scenario at this point in time, as the market currently assesses. Expectations for a rate hike in September have risen to 75 basis points, while 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 not been able to stay above this level which has historically signaled weakness. It is worth noting 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 $13,700, which may prove to be the bottom of the current bull market, also due to strong technical support at these levels (including the top of the 2019 bull market). In the past, bull markets often stopped falling only after reaching a “delta” price. Source: Glassnode
Investors in the bitcoin market are poised for net losses despite the cryptocurrency’s massive selloff this year, illustrating the market’s continued weak sentiment toward risk assets and its vulnerability to external risk factors. Following the 90-day moving average, we can see that the cryptocurrency quotes only turned lower when the number of sellers turned out to be low, but the sell-off continues, as confirmed by the August 21 sell-off. The market is dominated by short-term investors with a lower level of conviction and sensitivity to market volatility. Source: Glassnode
The “Fear and Greed” index indicates fear, but the extreme levels are still relatively far away, which in case of further decline leaves plenty of room for continued weakening of sentiment. Source: alternativa.me
Bitcoin chart, H4 interval. The major cryptocurrency has fallen below a key support level, with weakening RSI and Fibonacci levels indicating downside potential. Source: xStation5
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