Dancing with bears
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
With the tremors of Terra’s collapse still echoing through the wider crypto market, BTC finds itself fighting to overcome the $30k level that now forms significant resistance. Similarly, ETH trades at $1,9k at the time of writing - having failed to maintain $2k support. Despite the continued drawdown, the market has shown surprising momentary strength in relation to rapidly declining macro indices - specifically the heavily correlated NASDAQ and S&P 500.
BTC (blue), Nasdaq (orange), SPX (turquoise)
Dominance
As is to be expected in times of prolonged uncertainty, Bitcoin has continued to claim more market share, with the leading digital asset inching its way back to 50% dominance.
Interestingly, Ethereum has held steady with a 19% share of the crypto market, further evidencing a shift in narrative from BTC maximalism to broad interest in ETH as the primary infrastructure for Web3 applications (dapps).
It’s worth noting that dominance cannot be viewed in the same light as previous cycles, considering that, at present, stablecoins comprise a significant segment of leading cryptos. However, rising dominance for both USDC and USDT, coupled with a loss of market share for smaller altcoins, inarguably signals that many market participants have derisked in recent months.
Macro outlook
The impact of inflation, evidently, is now making itself known in visceral terms, with major retailer Walmart posting lacklustre earnings on Tuesday in the face of rising costs of goods and transportation. Walmart shares dropped 11% on the day, precipitating a broader sell-off on Wednesday that saw the Dow Jones (DJI) post its heaviest single-day retracement since June 2020, and the lowest close since March 2021.
While many of us in crypto may be desensitised to double-digit percentage swings, the fact that major leading equities have been posting such substantial losses over the course of 2022 is cause for concern.
Further, the real-world impact of the US Federal Reserve’s reckless monetary policy and the ongoing Ukraine conflict is manifesting in food shortages and severe economic crises in many parts of the world. As a sobering example, Sri Lanka is currently facing 40% inflation, with the island nation on the verge of running out of fuel as well as basic goods to support its citizens.
Forward focus
Despite the arduous macro outlook, crypto’s relative strength has been impressive in recent weeks. Further, $29k support has largely held firm - tracing back to July 2021’s lows. At present, BTC has major liquidity above the $30k region, perhaps indicating further constrained volatility.
While the urge to take on leveraged positions in this climate may be strong, it’s important to remember a classic trading adage - the market can stay irrational longer than you can stay solvent.
On high time frames, the picture does indeed look substantially bearish. However, that does not rule out fresh catalysts and narrative driving momentum upward, in crypto at least. Again, in times of uncertainty, the most important thing one can do, and really all one needs to do, is protect capital and remain solvent to trade another day. No trader in history has called price action with 100% certainty, so targeting exact bottoms, for many, can be a frustrating and futile exercise. A small percentage in missed gains is, in many senses, less important than entering a volatile range with an uncertain thesis. For most, it’s far better to enter with confidence and a solid strategy - let the market do the rest.