Searching for Support
Since the correction of January 10-11, BTC prices have been volatile but range bound, whipping around with daily sometimes 10% daily ranges while mostly staying confined to a channel between 34k and 38k. On Tuesday morning of this week, coming out of the long weekend in the US, prices made a run to try to break free from the range to the upside and were quickly rebuffed. Tuesday brought with it testimony from the confirmation hearing of new (again) Fed president Janet Yellen, who made cautious remarks about crypto with respect to its use for illicit activities and potential money laundering.
While I believe that a more robust regulatory environment is actually supportive of major coins like ETH and BTC (though probably a negative for privacy coins like XMR), Yellen’s comments were cautious enough to add some fuel to the sellers and profit takers. It is worrisome that a new Treasury Secretary takes a somewhat hostile stance to a growing asset class. The comment that crypto is “mainly” used for illicit activity is not factually correct and means that the crypto industry needs to educate this new administration.
In the early morning hours of Thursday, before US traders began their day, BTC broke through the lower end of the range and made a run at the lows from the initial January selloff. As of now, we’re holding over those lows. So far this week, the support from institutional buyers that I had expected would help stabilize prices and start to reassert the trend has yet to really appear, or at least has yet to overpower sellers. As such, near term price action looks precarious at best, especially so in the context of continued dollar weakness and a general risk-on attitude coming from equity markets, with growth stocks taking a front seat throughout Tuesday and Wednesday as the US successfully (and thankfully peacefully) completed the transition of power. Anxiety about potential violence in the last days of the Trump presidency have eased significantly, and world equity markets reflect that, but crypto prices have not participated in the relief rally. For much of the BTC rally, directionality of crypto markets has been closely tied to equities, but this is not the case right now. This decoupling of BTC from other risk assets is definitely concerning, as it implies that the selloff really is crypto specific and not part of a larger macro picture. It is important to pause and look at the broader picture. By all measures, other than looking solely at the last 2 weeks, BTC is still incredibly strong.
One interesting aspect that traders are looking at is the BTC-ETH pair. While ETH has not been spared from the pullback from Tuesday mornings highs, it has shown relative strength compared to its big brother BTC. It’s quite possible that we’re continuing to see some rotation from BTC to ETH against the backdrop of the consolidation here.
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