Week by numbers
During the past week, the crypto market has moved sideways without a clear trend. The largest cryptocurrency, Bitcoin, declined by about half a percent, while the price of the second-largest cryptocurrency, Ether, dropped by a little over three percent. In contrast, the total market cap of the rest of the crypto market (excluding major stablecoins) increased by approximately two percent.
With Bitcoin's price moving relatively in sync with the rest of the crypto market, there was little change in Bitcoin's dominance. However, the ETH/BTC ratio dropped sharply, declining about three percent over the week, reaching a new low. We will discuss Ether's weakness later in this newsletter.
Although the week was overall sideways chop, individual tokens saw both significant gains and declines. Among the tokens in Kvarn X trading services, ApeCoin had the largest weekly gain, with its price rising around sixty percent. Other top performers were Jupiter’s JUP token (+27%) and Helium's HNT (+19%). The largest weekly declines were seen in MKR, which has been in long a downtrend (-10%), Injective’s INJ token (-8%), and Fantom’s FTM token (-6%).
Market Commentary
In last week’s Kvarn Pulse newsletter, we titled our market commentary with the question, “Local top soon?” At that time, the crypto market was still trending upward, albeit somewhat slowing down.
A week later, it seems our chosen headline was fairly accurate. The largest cryptocurrency, Bitcoin, pushed slightly higher during Friday and the weekend, only to see a sharp drop from Monday to Wednesday, followed by some recovery over the past 24 hours.
In the crypto market, local bottoms often form after sharp “sell-offs.” The decline from Monday to Wednesday brought Bitcoin’s Relative Strength Index (RSI) on the four-hour chart to around 30, which is often considered “oversold.” Could this be a local bottom, and could the past day's recovery already indicate a new upward trend?
We do not consider that impossible. If Bitcoin’s price surpasses the $68,000 mark, we might even consider this the most likely outcome. However, based on current data, the more probable scenario seems to be that this is just a rebound after a sharp drop, with the downtrend continuing. Our cautious expectations are driven primarily due to the state of the stock market, which we will examine further in the next section.
Local top for stock market?
This week’s stock market developments may be suggesting that it might soon reach (or have already reached) a local top. Over the past weeks, we’ve observed slowing upward movement with decreasing volumes, and on Wednesday, October 23, there was a clear down day, bringing the S&P 500 index below its ten-day simple moving average.
From the above chart, we can see that the S&P 500’s drop below its ten-day moving average has often happened near Bitcoin’s local top. Therefore, we are relatively cautious in our expectations for crypto market gains until we see a clearer upward trend continuation in the S&P.
To assess the stock market's risk appetite, we can compare the tech-heavy Nasdaq 100 index and the smaller-cap Russell 2000 index against the S&P 500 index. From the chart below, both indices have been declining relative to the S&P 500 since the summer.
A shift in these ratios toward an upward trend would be noteworthy, significantly increasing our expectations for a crypto price rise. If one wants to look for bullish signs of in stock index relationships, the ratio between the broader Nasdaq Composite (IXIC) and the S&P 500 could be seen as promising, as it has recently made a “higher high” this week.
This is only one data point, and we would not assign significant weight to it until it aligns with other evidence. However, the IXIC/SPX ratio remaining on an uptrend could indicate that there is no clear “risk-off” sentiment in the market at this moment.
Bitcoin Strengthening Against Gold
While our short-term expectations for crypto price development remain somewhat cautious, it’s important to note that this is indeed a short-term view. Over a longer period, we see some promising signs in the crypto market. The most obvious of these is the series of higher lows and highs that Bitcoin has set in recent months.
Another encouraging signal has been Bitcoin’s recent strengthening against gold.
Gold has been one of the best-performing asset classes of 2024, with its ounce price increasing by over 30 percent since the beginning of the year. The accompanying chart shows gold’s price surge, especially since March. Around the same time, the crypto market ended its own strong uptrend and entered a six-month, slightly bearish sideways chop. The simultaneous strength in gold and the end of the crypto rally could be viewed, particularly in hindsight, as a clear sign of decrease in the market risk appetite.
The strength of gold and Bitcoin's sideways movement is visible in the chart below as a downtrend in the Bitcoin/gold ratio since March. The end of this downtrend has been one of the signals we've been waiting for as a condition for raising our expectations for the crypto market.
From the same chart, we can see that since early September, Bitcoin has gradually made higher lows and highs against gold. This is an interesting observation. As long as Bitcoin remains in an uptrend against gold, we are optimistic about its performance relative to fiat currencies (such as the dollar and euro) as well.
Ether Still Weak
Earlier in the fall, we proposed a hypothesis that Ether’s prolonged relative weakness within the crypto market might be nearing an end. However, based on developments in the past few weeks, we must note that at the moment we do not see a lot of evidence to support this hypothesis.
The most obvious way to examine Ether’s relative strength is its ratio to the largest cryptocurrency, Bitcoin. This ratio, which has been declining since 2022, again dropped sharply last week to new lows.
Ether’s weakening specifically against Bitcoin is not surprising, given the overall market trend turning downward. More weight may be placed on Ether’s ratio to the total altcoin market cap (the total crypto market cap excluding Bitcoin, Ether, and the largest stablecoins USDT and USDC).
We previously hypothesized that this ratio might find support around 0.67, where it had twice rebounded upward. However, in the past month, the ratio has dipped below this level twice, forming yet another “lower high” in between.
The dip below the 0.67 level tempers our expectations for the end of Ether’s relative downtrend for the time being. We will continue to monitor the situation and revisit it if Ether starts showing signs of strengthening. For now, it is still somewhat difficult to view Ether as a particularly attractive investment within the crypto market.
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.
