Over the past week, the cryptocurrency market has moved sideways without a clear trend. The price of Bitcoin, the largest cryptocurrency, rose by about two percent, while Ether, the second-largest cryptocurrency, fell by about one percent. Total value of the cryptocurrency market (excluding the largest stablecoins) increased by approximately one percent.
Due to Bitcoin's stronger performance compared to the rest of the market, Bitcoin dominance increased by about one percent. Meanwhile, the ETH/BTC ratio decreased by around two percent, given Ether's comparatively weaker performance against the broader market.
Among the tokens traded on the Kvarn X trading platform, notable weekly gains included Aptos's APT token (+16%), SUPER (+8%), and the meme coin WIF (+5%). The largest weekly losses were seen in BEAM (-20%), Helium’s HNT token (-15%), and XRP (-11%).
Next Direction for the Crypto Market?
The past week on the cryptocurrency market has been marked by back-and-forth movement: prices declined at the end of last week, rose over the weekend and Monday, and have fallen again in recent days. This sideways movement naturally raises the question of where the next clear trend for the cryptocurrency market might head.
In this weekly report, we present arguments for both bullish and bearish directions and give our final assessment. We start by placing the past week’s price action in a broader context.
The crypto market reached a local top at the end of September and has since moved down with slight fluctuations. This sideways movement offers an intriguing opportunity to interpret the situation as either a “dip” within an uptrend or a “pullback” within a new downtrend.
Well, which one is it?
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We begin by presenting arguments in favor of the uptrend continuing. In our view, the clearest argument for the uptrend's continuation is the sustained rise in the stock market. The NDX index is still clearly on an upward trajectory.
A pessimist might counter that this rise has clearly started to slow down, which can be seen in the accompanying graph in the Relative Strength Index (RSI) turning downward.
Another perspective would be to look at the relationship between the NDX index and the broader SPX index instead of the NDX index reading alone. NDX is still on an upward trend relative to SPX, which can generally be seen as favorable for cryptocurrency market trends.
In summary, the stock market seems to still favor risk-on assets in an uptrend, and although the rise has slowed, we do not yet see signs of a clear reversal to a downtrend.
Another argument for the uptrend's continuation is the currency pair USDJPY. The strengthening of the U.S. dollar against the Japanese yen has created a favorable environment for cryptocurrencies during this year, with the price declines generally occurring when the yen has been strengthening.
For context, we note that the sharp drop in crypto and stock markets at the beginning of August was directly linked to the Bank of Japan's somewhat surprising rate hike, which triggered rapid yen rally.
These arguments support the continuation of the uptrend. Next, we examine the evidence that could indicate a downtrend.
First, we highlight, somewhat paradoxically, the strengthening of the U.S. dollar. As shown in the graph below, the decline in the EURUSD pair, indicating a stronger dollar, has almost always meant a downturn for Bitcoin during this year.
How can the dollar's strengthening against the yen benefit cryptocurrencies, while its strengthening against the euro creates a negative environment? The impacts of monetary policy on currency rates and stock prices are quite complex, but a reasonably good rule of thumb so far has been, that a strong dollar is generally unfavorable for risk-on classes like cryptocurrencies. However, if dollar strengthing against the yen is primarily due to weakness in yen, it can indeed create favorable conditions for crypto.
In summary, for currency pairs, as USDJPY pair is rising and the EURUSD pair is declining, the signals somewhat are mixed, and we are cautious about making strong conclusions.
Third, we examine capital movements within the crypto market.
We first compare the total market value of cryptocurrencies excluding Bitcoin and Ether (excluding the largest stablecoin, USDT) to the total market value of Bitcoin.
In the short term, we see that the (TOTAL3-USDT)/BTC ratio is still on the rise. Therefore, capital has not yet started to shift away from altcoins toward Bitcoin.
In a slightly longer timeframe, we see that the (TOTAL3-USDT)/BTC ratio typically declines at same time or shortly before Bitcoin's USD price turns downward. Until we observe a clearer downward turn in this ratio, we lack a strong basis for expecting a downtrend.
Another view compares the total market value of larger altcoins (ranked 3-10 by market cap, excluding the largest stablecoins) to that of smaller altcoins (outside the top 10 by market cap).
This analysis shows that, since Monday, the ratio of the total market value of smaller altcoins (OTHERS) to that of larger altcoins (TOTAL3-USDT-OTHERS) has turned down sharply.
In a slightly longer-term view, we observe that when this ratio has declined, dollar-denominated prices have also had tendency to fall.
In summary, the internal dynamics within the cryptocurrency market are currently somewhat mixed: smaller altcoins have started to weaken against Bitcoin, but altcoins as a whole have not yet shown weakness against Bitcoin.
In this analysis, we have looked at the stock market, exchange rates, and internal relationships within the cryptocurrency market. Each of these signals has been somewhat mixed, providing grounds for both uptrend and downtrend arguments. What should we make of all this?
Our primary observation is that, in the presence of conflicting signals, it may be wise to delay drawing strong conclusions just a little bit and allow the situation to become more clear. We expect that these temporary contradictions observed in the data will likely resolve soon, and that within a week, the situation will be significantly easier to read. If possible, we would maybe try 0avoid making major decisions today and wait for the evidence to more clearly align in one direction.
If a decision were absolutely necessary right now, our view would lean slightly (but only slightly) toward a bearish. We currently see slightly more characteristics of a stalling uptrend than signs of a new upward movement. We would prefer to see a re-acceleration of the stock market's rise and/or signs that the EURUSD downtrend is at least pausing before confidently favoring an uptrend. However, this is not a strong opinion, and evidence for an uptrend may indeed emerge any day. Thus, the defining feature of the current moment is its temporary ambiguity.
Over the next week, we recommend monitoring not only cryptocurrency prices but also:
- The potential re-acceleration or reversal of the stock market
- Whether the EURUSD downtrend continues or possibly reverses
With these points in mind, we invite readers to follow along through what promises to be a complex and fascinating week in crypto. We’ll return with more insights in the next Kvarn X Pro weekly report, so stay tuned!
Greetings from our Wealth Manager Tuomas
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!
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