The last week has seen a downward trend in the cryptocurrency market. The prices of cryptocurrencies rose until Saturday, after which they turned sharply downwards. During the week, the price of the largest cryptocurrency, Bitcoin, fell by about three percent, and the price of the second-largest cryptocurrency, Ether, fell by about five percent. The total value of the rest of the cryptomarket (excluding the largest stablecoins) decreased by about two percent
With the market's relatively lockstep movements, there was no significant change in Bitcoin dominance. However, due to Ethereum's weaker price development compared to the rest of the market, the ETH/BTC ratio dropped by about three percent.
The rise in the cryptomarket at the end of the last week and the following sharp drop at the beginning of the this week created a significant divergence in the weekly price trend analysis. Among the tokens in the Kvarn X trading service selection, the best performer was WIF, which, along with other meme coins, saw a strong increase, rising by about 24 percent over the week. Other notable gainers included SUI (+11%) and FTM (+8%). The weakest price developments of the week were seen in Quant's QNT token (-12%), Arweave's AR (-12%), and AAVE (-11%).
New "Higher High"?
The bifurcated week provides an opportunity for several observations and interpretations in market analysis. We will first present our observations from the weekend's price top and after that analyze the sharp price drop in the last few days.
Over the weekend, the price of the largest cryptocurrency, Bitcoin, rose to a high of about $66,500. It is noteworthy that this local top exceeded the one seen in August (around $65,100). Thus, this is the first "higher high" since March. When combined with Bitcoin's "higher low" made in September, these would indicate the beginning of an upward trend.
A new "higher high" is a significant factor for the sentiment in the cryptocurrency market, as although it does not guarantee anything for the future, it at least provides a basis for expecting higher prices going forward. This marks a clear change from the more than six-month-long downtrend, in which each local top has been lower than the previous one.
In the name of fairness, it should also be noted that some analysts have presented also an alternative interpretation of the price action. According to this view, the late August top and early September low are just noise in one continuous uptrend that lasted from early August to the end of September, and they should not be counted as distinct highs and lows.
According to this interpretation, the last low in Bitcoin's price is still the $49,000 mark from early August (compared to the July low, this is a "lower low"), and the peak at the end of September was yet another "lower high" (compared to the late July local top).
In our analysis, we are inclined to give more weight to the first interpretation, but we want to highlight the latter perspective as well. Regardless of which interpretation one leans towards, the next interesting and informative data point will be the next local low, toward which we currently seem to be heading. More on this next.
The content below is available to Kvarn X Pro customers.
Learn more about the Pro membership and its benefits here.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Dip or Downtrend?
After the price rise at the end of the week, sharp price drops have been seen in the cryptomarket at the beginning of the week. The price of the largest cryptocurrency, Bitcoin, has dropped by about seven percent in two days, and many altcoins have seen price drops of several tens of percent. The steep price drop has shaken the positive sentiment in the cryptocurrency market, so we will focus on analyzing this price decline and the possible upcoming developments in the crypto market in this weekly report.
The most apparent explanation for dropping crypto price is naturally the escalation of geopolitical tensions in the Middle East on Tuesday. In April, a similar rapid drop was seen in the cryptocurrency market around similar events. As tensions back then significantly escalated, Bitcoin's price dropped sharply, and the price of the tokenized gold, represented by the token PAXG, peaked.
We do not question that geopolitical reasons have acted as a catalyst for the price drop this time. However, in our view, they were not the only reason, nor necessarily even the decisive factor.
To examine the situation, we return to the EURUSD currency pair that we often use. The momentum of the EURUSD uptrend began to wane at the end of the week, which is reflected in its Relative Strength Index (RSI) turning downwards. The chart below shows that in the previous five instances this has occurred near BTCUSD local top.
By monitoring the EURUSD currency pair, hints of the possible end of the uptrend were already visible at the end of last week. Additional confirmation of the interpretation was possible from the sharp rise in Bitcoin's price, which was seen when the it’s RSI rose to the overbought zone and then turned downwards on Friday.
The next hint was the OTHERS/BTC ratio turning downwards on Saturday. This suggests that the flow of capital had shifted back from altcoins to Bitcoin, which is often one of the first signs of a shift in the market's risk appetite.
The OTHERS/BTC ratio did turn back up on Sunday. However, at that time, it coincided with falling dollar prices. Combinations of declining dollar prices and an rising OTHERS/BTC ratio are somewhat atypical, which we are inclined to see them primarily as a temporary discrepancy, which it indeed turned out to be in this case.
Signs of a prices topping out and the possible start of a downtrend were thus somewhat visible even before the geopolitical events on Tuesday. Therefore, our assessment is that geopolitical factors probably just accelerated the price drop, which we would have seen regardless.
With the price drop now occurring, the natural question is, where do we go next?
After rapid sudden drops, it is often difficult to immediately determine whether the market’s de-risking
is complete or if more is to come. Once again, the level of uncertainty is high, and we primarily advise against making strong conclusions in either direction.
At this moment, our assessment is that the door for further price drops should at least be kept open. Although both the cryptocurrency and stock markets have somewhat recovered on Wednesday from Tuesday's sudden drop, they are still below Monday's levels, and there is currently no convincing evidence of a turnaround in the downtrend that began on Thursday.
The currency pair EURUSD provides an even sharper signal than the stock markets. While stocks remain below Monday's levels, the EURUSD dropped lower than the bottom of Tuesday's sudden drop during Wednesday. We view this as a strong indication that there may still be lower price levels ahead in the cryptocurrency market.
A relatively unambiguous confirming signal for the continuation of the downtrend would be if Bitcoin's price fell below about $60,150, which is the low from the night of Wednesday. Conversely, the only upward signal that can be considered is if the high of Tuesday's peak (about $64,100) is surpassed. This is unfortunately quite close to the weekend's peak of about $66,500, so it does may not offer an excellent risk/reward ratio. Finding sustainable support levels around $61,000 could also provide hints of a possible turn upwards.
Addition on October 3, 2024, 11:30 AM:
On Wednesday evening, Bitcoin's price dropped to a new low, briefly going below $60,000. This confirms our interpretation of the continuation of the downtrend.
In this somewhat ambiguous situation, we advise the reader to monitor the following three key figures during following days.
Currently, BTCUSD, EURUSD, and the OTHERS/BTC ratio are all below their five-day moving averages. Until we see a change in this situation, we must assume that the downtrend continues. On the other hand, a turnaround in any of these three would provide a justified reason to assume that the trend may have reversed.
Among these three, we give the most weight to EURUSD, as it has fallen far from its five-day average due to the sharp drop, and returning above the average is unlikely to be mere noise.
On the other hand, a turnaround in the OTHERS/BTC ratio is not a necessary condition for an uptrend, as new capital returning to the market often first goes into Bitcoin, which may initially appear as a drop in the OTHERS/BTC ratio during the early stages of the rise.
With these three indicators, we leave reader into this quite interesting week. We will return with our market analysis again next week, so stay tuned!
Greetings from Wealth Manager
Dear Kvarn X Pro client,
Please remember that as a Kvarn X Pro client, in addition to our weekly market analyses, we offer you personal cryptocurrency wealth management services.
If you would like to discuss the state of the crypto market or the contents of your crypto portfolio in more detail, please contact me.
You can reach me via email (tuomas.maksimainen@kvarncapital.com) or through the support button in the Kvarn X service with a contact request. We can arrange personal meeting with your wealth manager by Google Meet.
Please note that meetings with your personal wealth manager do not include investment advice, and nothing discussed in them should be interpreted as financial advice.
Wishing you a great autumn, and let's keep in touch!
The material contained in this newsletter is produced solely for the purpose of marketing communication. Any information conveyed through this newsletter should not be construed as an offer or an invitation to make any purchase or sale decisions, or as an encouragement to make investment decisions about any investment object. Copying or borrowing the content of the newsletter without Kvarn's express permission is prohibited. The information presented in the newsletter pertains to the situation prevailing at the time of writing, and the information may or may not have changed. Kvarn Capital Oy does not guarantee the accuracy or completeness of the information contained in the newsletter or referred to in the newsletter.
