Week by numbers
During the last week, the crypto market has been on a strong move up. The price of the largest cryptocurrency bitcoin rose by approximately eight percent, the price of the second largest cryptocurrency ether by approximately five percent, and the total value of the rest of the crypto market by approximately seven percent.
With bitcoin's price development stronger than the rest of the market, bitcoin dominance rose by just under one percent. At the same time, with ether's price developing weaker than the rest of the market ETH/BTC ratio, which describes the ratio of the two largest cryptocurrencies, fell clearly, coming down by about three percent in a week.
Among the tokens in the selection of the Kvarn X trading service, the best price development was seen by meme coin WIF, whose price rose by more than fifty percent in a week. Arweave's AR (+27%) and Jupiter's JUP token (+23%) also made strong gains. AAVE (-9%), Uniswap's UNI (-5%) and StarkNet's STRK (-1%) were the few loser in overall bullish week.
First weeks of July in crypto markets
At the time of publication of our previous Kvarn Pulse newsletter on July 4, 2024, the price of the largest cryptocurrency bitcoin was around $57,000, and the entire crypto market was in a steep downward trend. At the time, we wrote about the market situation in Pulse as follows:
"Based on the available information, we think it is most likely that it would be a sharp one-time drop, from which we would recover quickly. Our primary expectations for the coming weeks of the crypto market are relatively positive (more on that below) and we consider it most likely scenario that this would not be a long-term drop in the price.”
More than two weeks later, we can say that our estimate at that time was quite right. The dive of the bitcoin found its bottom the next day at around 54,000 dollars, and about a week later, a rather rapid rise began, where the price of the largest cryptocurrency rose by around twenty percent in a week. In smaller alt-coins, the rises were naturally even more drastic, and many of them saw price jumps of more than 50 percent.
What’s next for the crypto market?
The purpose of the last Pulse was to help the reader navigate the first half of July, and in this newsletter we aim to give our views on the next two weeks. What should one expect from the crypto market next?
If the central message of our previous newsletter was optimism in the midst of a price drop, this time it is an awakening of caution in the midst of a price rise. Despite the strong price increase of the last few weeks, we see some signs that make us aware that this uptrend might soon come to at least a temporary halt.
From a purely technical analysis point of view, the total value of the crypto market (minus the largest stable coins) is approaching the trend line drawn from the previous two peaks. At the moment, the line is about six percent away.
If one doesn’t want to put weight on diagonal trend lines, there is about nine percent of the way to the peak in June.
The above-mentioned are the levels near to which it is easy to see the crypto market rising. Passing through them, however, clearly requires more optimism, and faith in the reversal of the slight downward trend that has lasted for the last four months.
Would now be the moment when the lull that started with the peak in March comes to an end? Of course, it is not impossible, but some factors make us doubt it. A key one of these is the latest changes in one our of trusted tools, the dollar index.
The dollar index has been declining since the beginning of July, which is typically a favorable condition for high-risk asset classes like cryptocurrencies. During the last week, however, we have seen the Relative Strength Index indicator showing "Bullish divergence", which often (althought not always) serves as an indication of the end of a downtrend. At the moment, it is still too early to declare that the uptrend has started, but right now, we see the odds of it being higher than in three weeks.
We will briefly reacp why we monitor the dollar index is so closely. Empirically, the dollar index has proven to be quite a good inverse indicator of the market's appetite for risk. A rising dollar index is usually a significant headwind for the crypto market, and the strongest price increases are usually seen when the dollar index is falling.
The dollar index, the total value of the crypto market and their typically inverse correlation are depicted in the accompanying graph.
In short, if the first signs of a possible new upward trend in the dollar index turn out to be true, then we do not think it is likely that the crypto market would be able to rise above its peak levels in June during that time. The beginning of the week is very interesting in this respect, and a lot of additional light will be provided by whether the dollar index, which is at the level of 104.23 at the time of writing, ends up first above 104.5 or below 103.8.
Additional reasons for caution are given by the stock market
not the movements of the last few days. The S&P 500 index, which had been on a strong rise, was overbought at the beginning of July, and went into a sharp decline last week. Of course it's entirely possible that this just a momentary slump, from which we would recover already during this week. At the moment, however, we cannot rule out a deeper correction like the one seen in April. For the crypto market, the momentary weakness of the stock market serves as a warning sign, until we have seen the stocks return to an upward trend again. The beginning of the week is also very interesting in this respect and offers more insight.
In summary, we state that there are still no convincing signs of the end of the uptrend of the last few weeks, but we consider its probability to be increasing at the moment. As a final tip for watching out for a possible trend reversal, we offer monitoring of smaller crypto tokens (e.g. Trading View ticker OTHERS). If the market's risk appetite started to turn around, it would probably be seen first in the weakening of smaller tokens against both the dollar and bitcoin. There are no convincing signs of this yet, and so far the small tokens have been moving pretty much at the same pace as bitcoin.
However, this is something to keep an eye on.
We hope this information will help the reader in monitoring the crypto market in the coming weeks. Kvarn Pulse wishes you a nice latter half of July and will be back again in about two weeks!
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.
