The past week has seen crypto markets move sharply downwards. The price of the largest cryptocurrency bitcoin fell by about ten percent, the price of the second largest cryptocurrency ether by about seven percent, and the total value of the rest of the crypto market by about six percent.
The past week has been a continuation of a correction movement that has now lasted more than seven weeks, starting in early March after bitcoin reached a new all-time high of around $74,000. From this top, the prices of the largest cryptocurrencies have come down by about 20-30 percent, and many smaller tokens have seen price drops of 30-60%.
With bitcoin price dropping slightly more than the rest of the market, bitcoin dominance, which describes bitcoin's share of the total value of the crypto market, fell by about 1.5 percent, ending up at about 54 percent. The ETH/BTC ratio, which describes the ratio of the two largest cryptocurrencies, on the other hand, rose by around three percent, ending up at around 0,505.
When the crypto market moves down, we usually see the rest of the crypto market fall more than bitcoin. During the last week, this relationship has been the other way around, as bitcoin has weakened faster than the rest of the crypto market, which may be something worth paying attention to. An “alt-coin optimist” could see this as a sign of the strength of alt-coins and that the ratio of the total market value of alt-coins to bitcoin, which has been declining for a long time, could be finding its bottom and soon turning around. A more pessimistic view would be that this is only a momentary overvaluation of alt-coins, and that the inevitable mean reversion will mean a particularly strong downward movement for alt-coins, especially if at the same time bitcoin's dollar price decline continues.
In the downward-trending market, the best price development of the Kvarn X service tokens was seen from the TRX token of the Tron (+7%), Cosmos' ATOM token (+4%) and Polkadot's DOT token (+0%). On the other hand, meme coin Dogecoin (DOGE, -15%), Hedera's HBAR (-13%) and Algorand's ALGO token (-13%) saw the biggest price declines of the week.
How deep correction?
Bitcoin's downward movement last week took it below the $59,000-$60,000 support level for the first time during this correction. After this support level has broken, the question naturally arises as to how low the price drop can continue after this? From a technical analysis perspective, the next potential support level could be around $52,000, which could mean another drop of around ten percent.
What makes the current price level of around $58,000 particularly interesting is that it is quite close to the average cost basis of the Bitcoin spot ETF inflows. Since their launch in January, BTC spot ETF’s have had a net flow of capital (=also taking outflows into account) worth of more than ten billion dollars. At the moment, it is not yet clear what kind of investment strategies and risk tolerance the investors who have taken advantage of this new avenue of crypto-investing are operating with. Because of this, it will be interesting to watch over the next week how the investors who ended up sitting on losses for the first time in the history of the Bitcoin spot ETF will act, and whether their reactions to the market will cause more selling pressure.
Taking a slightly longer-term view, bitcoin price can be seen to be still above its 20-week moving average (SMA). However, there is not much marginal anymore, with the 20-week average already rising to around $55,500. If this moving average, which is often considered an indicator of a bull market, will not work as a support level, it may test the faith of many crypto investors in the continuation of the upward trend. We consider it quite likely that if the level of $55,500 does not hold, the price could go all the way to $52,000.
GDP and PCE raise concerns about stagflation
During the last few weeks, the data points obtained on the state of the macroeconomics have brought at least somewhat dark clouds in the investor outlook. The Q1/2024 statistics published last week said that GDP in the United States grew by only 1.6% year-on-year, which was significantly below expectations. The growth rate was only about half of the previous Q4/2023 rate (3.4%) and only about a third of the Q3/2023 rate.
In addition to slower-than-expected economic growth, last week there were indications of more stickier inflation than expected. The PCE index, which describes the price development of personal consumption, published last week, told that annual inflation was 2.8% in March. Excluding typically volatile food and energy prices (so-called "Core PCE"), annual inflation was 2.7%. Both numbers were higher than expected, and well above the US central bank’s two percent inflation target.
Combined, these indications of slowing economic growth and possibly re-accelerating inflation, have even raised concerns about possible stagflation. Typically consisting of low economic growth, high unemployment and high inflation, stagflation has traditionally been quite a toxic combination for riskier asset classes.
The signs received now are just early indications of the possibility of stagflation, and our view is that based on these, the investor should not be making any dramatic decisions. However, it is useful to be aware that in the possible macroeconomic development paths over the next few years, one possible scenario is also the stagflation, which, if realized, would probably mean price declines in higher-risk asset classes. Kvarn Pulse will monitor the situation in the coming months, as more macroeconomic data comes in.
Participate in the lottery - Main prize 10 SOL tokens!
As a new Kvarn customer, you can participate in our spring lottery. We will draw 10 SOL tokens and 10 movie tickets among customers who have made at least 30 buy and/or sell transactions during the participation period.
The campaign runs throughout May 1st to May 31st, 2024, and to participate, you must perform at least 30 trades during the participation period – approximately one buy/sell trade per day.
With a minimum of 30 trades, each buy and sell transaction acts as a raffle ticket: the more trades you make, the greater your chance of winning!
Example 1: You make 20 purchases and 10 sales of your chosen cryptocurrencies (total of 30 trades). In this case, you have 30 raffle tickets in the draw.
Example 2: You make 28 purchases and 18 sales of your chosen cryptocurrencies (total of 46 trades). In this case, you have 46 raffle tickets in the draw.
Example 3: You make 14 purchases and 13 sales of your chosen cryptocurrencies. In this case, you are not eligible for the draw, as the total number of trades is only 27.
Attractive prizes:
- Main prize: 10 SOL tokens (drawn in 1 SOL token increments)
- 10 Finnkino movie tickets, worth 10 euros each (drawn in 2 ticket increments)
Learn more about the detailed rules of the lottery here.
The material contained in the Kvarn Pulse is produced solely for the purpose of marketing communication. Any information conveyed through Kvarn Pulse 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.
