Week by numbers
During the last week, the crypto market has moved mostly in a sideways movement, turning a little more clearly in a downward during Thursday evening. The price of the largest cryptocurrency bitcoin fell by about four percent, the second largest cryptocurrency ether by about one percent, and the total value of the rest of the crypto market by about three percent.
Alt-coins strengthened during down week
It is worth noting in the week's price development that in a downward trending week, price of the largest cryptocurrency, bitcoin, fell more than smaller crypto tokens. This is not quite usual, as smaller tokens are usually clearly more volatile than bitcoin.
There is no single clear reason for this unusual dynamic, but some explanations can be sought from the relationship between the TradingView ticker OTHERS, which describes the market value of smaller (non-TOP 10) alt-coins, and bitcoin.
At least two things can be observed from the graph above. In the short term, the OTHERS category was temporarily oversold against bitcoin at the end of July. It is noteworthy that this oversold dip happened already before the short-term crash of the stock and crypto markets seen at the beginning of August, which pushed OTHERS/BTC ratio even lower. Smaller alt-coins have therefore been somewhat undervalued against bitcoin, and it is not surprising that in this regard we have seen a small correction movement backwards in the form of strengthening of alt-coins.
In the longer term view, it can be seen that the OTHERS/BTC ratio was at its lowest at the beginning of August at around 0.155, from which it has bounced upwards in the last week. Interestingly, this is very close to the same level where the OTHERS/BTC ratio bottomed out in summer 2023 after a long downtrend. It will be interesting to see if 0.155 will act again as a support level, from which we would see alt-coins starting to strengthen. It's still too early to say, but we think this hypothesis is worth keeping an eye on.
What would the strengthening of alt-coins against bitcoin mean for a crypto investor? Combined with the general upward trend of the market, it would mean that alt-coins could see quite large price increases, as on top of bitcoin's increase in dollar terms, alt-coins would also strengthen by several tens of percent against bitcoin. In case of general downward direction of the market, the relative strengthening of alt-coins could have a dampening effect, i.e. they would not collectively weaken against the dollar as much as bitcoin.
Finally, it is worth remembering two things:
1. There is still no certainty that 0.155 was the final bottom of the OTHERS/BTC ratio. A possible general downward trend in the market in the coming weeks would shed more light on this this, as downward movements have a tendency to knock all air out of the OTHERS/BTC ratio.
2. It is also worth keeping in mind that in everything said above, the OTHERS category has been considered as a whole. The development of the OTHERS category does not in itself say anything about the price development of an individual alt-coin. Periods when the OTHERS category collectively does well against BTC and/or against the dollar are still much more favorable for investing in alt-coins and trading them.
Crypto moves sideways, next move down?
After recovering from the sharp drop seen at the beginning of last week, the crypto market has spent the last week in a sideways movement with no clear direction. The absence of a trend and sudden vertical changes in the price level have been quite challenging to trade outside of the shortest timeframes.
As we noted in this week's Kvarn X Pro weekly report, until the price of bitcoin breaks the current range from either the upper end (around $62,800) or the lower end (around 57,500), it is difficult to make predictions about its next direction.
Addition 16.8.2024:
After writing the text, the price of bitcoin fell below the aforementioned $57,500 level, trading at a low of around $56,000. This increases our confidence in the interpretation that the short-term direction would be downward.
Looking at the currency pair EURUSD, which we often use when navigating the crypto market, also makes us somewhat cautious. On Wednesday, EURUSD became overbought as measured by the RSI indicator, and RSI has since fallen below 50, which would indicate a downward trend. In previous times, such a pattern has often occurred when the local peak is already behind or very close ahead. With some exceptions, the crypto market has rarely made its strongest moves when the EURUSD is in a downtrend.
An additional reason to be cautious is that the stock market, which usually correlates with the crypto market, has surged upward in recent days, but despite this, the crypto market has not found a stregth to climb up.
A similar decoupling of the stock and crypto markets was seen at the beginning of June, when the crypto market turned down while the stocks were still going up. In this case, it could have been be that the crypto market, which tends to react faster to decrease in investor’s risk appetite, gave preliminary indications of the coming correction movement in the stock market. It will be interesting to see if the relative weakness of the crypto market works as a warning this time as well.
Layer-1's rally
While the general direction of the crypto market is sideways without a clear upward trend, some notable movements have been seen within the market. One such move was the so-called price rally of so called alternative layer-1 protocol tokens, that started last Thursday. Strongest gains were made Sui’s, SUI token, whose price rose by about seventy percent in a few days. Fantom's FTM and Aptos' APT also made notable gains.
At least one catalyst of this price rally of alternative layer-1 protocols was the SUI Trust launched by the crypto industry investment company Grayscale, which, like Grayscale's previous funds, aims to offer investors exposure to the price development of the SUI token without the need to own and custody the token itself.
The fact that a large operator like Grayscale opens its own fund with a token for a token outside the TOP 30 in terms of market value shows confidence in the future of the Sui protocol, and it is not surprising that such news triggered a strong price rally in the market. The most optimistic market commentators have compared Sui's position to Solana in the previous market cycle. The Sui protocol is definitely worth keeping in mind.
At same time, we would like to point out that despite the strong rally of SUI, it may not be necessarily the best possible purchase for a crypto investor right now. Last week's rally took SUI's relative valuation within the crypto market very high, which can be seen, for example, in the attached graph as the SUI/BTC ratio rising to overbought.
This means that SUI may be a bit overvalued at the moment, and if the next of the crypto market is downward, SUI has room for a fall even more than other tokens of the same market value.
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