The past week has seen a downward trend in the cryptocurrency market. The total value of the largest cryptocurrency, Bitcoin, the second-largest cryptocurrency, Ether, and the broader cryptocurrency market (excluding major stablecoins) all declined by approximately four percent.
As various segments of the market moved in sync, there were no significant changes in the ETH/BTC ratio or Bitcoin dominance.
Among the tokens on Kvarn X trading service, the largest weekly declines were seen in Fantom (FTM, -25%), Chainlink (LINK, -18%), and Ondo Finance (ONDO, -17%). One of the few gainers in an otherwise bearish week was the meme coin PEPE (+5%).
Markets Bearish Post-FOMC
At the time of our previous Kvarn Pulse newsletter two weeks ago, the U.S. Federal Reserve's Open Market Committee (FOMC) meeting had just concluded. Comments from Federal Reserve Chair Jerome Powell during that meeting were viewed as quite "hawkish." Powell stated that the Fed expects only two 0.25 percentage point rate cuts by 2025, which was significantly less than market expectations. This triggered a clear downturn in risk assets such as stocks and cryptocurrencies.
Two weeks after the FOMC meeting, both stock and cryptocurrency markets have remained bearish. The S&P 500 index briefly recovered last week but quickly fell back below the 5900-point mark.
The S&P 500 Equal Weight Index, which provides a clearer view of smaller companies' performance, paints a gloomier picture. SPEW has already dropped well below its pre-U.S. presidential election level.
The recent developments in the cryptocurrency market should therefore be viewed in the context of this broader correction in risk assets.
From a percentage standpoint alone, Bitcoin's price has dropped approximately 15% over the past two weeks—a sharp decline indeed.
However, it’s worth noting that just before the FOMC meeting, Bitcoin's price surged by about 10% in a matter of days, peaking at a new all-time high on the day before the meeting.
At this stage of the correction, Bitcoin's price has just fallen below its 50-day moving average, placing it in a very similar situation to the S&P 500 index.
This analysis aims to highlight that, in our view, the cryptocurrency market has so far held up relatively well in the current challenging environment for risk assets. We have not yet seen any signs of specific weakness in the cryptocurrency market. This differs from, for example, spring 2024, when the cryptocurrency market showed distinct weakness, breaking its upward trend even as the stock market continued to climb.
As long as the cryptocurrency market remains in correction mode in tandem with the stock market, our baseline assumption is that when the stock market resumes its upward trajectory, we would also see new highs in the cryptocurrency market. Unless one believes that the stock market has already topped, we see no reason to assume that for the cryptocurrency market either.
Another detail we note is the relative resilience of the alt-coin market against Bitcoin. Even though Bitcoin’s dollar price has been gradually declining over the past week, the OTHERS/BTC ratio has, somewhat surprisingly, remained relatively stable.
The relative strength of alt-coins against Bitcoin may indicate that the largest capital shift from alt-coins to Bitcoin has already occurred, and the relative valuations of alt-coins have found their bottom. This would mean that investors may be reducing their risk primarily by selling Bitcoin for dollars. This would be a rather encouraging interpretation, as when alt-coins bottom out against Bitcoin, Bitcoin itself is usually not far from finding its bottom against the dollar.
To summarize, the cryptocurrency market is currently in a clear correction along with other risk assets, with no clear signs yet of the correction ending. We must therefore maintain relatively cautious expectations for the time being. However, we would not be entirely surprised if the drop to around $91,000 on December 30, 2024, proves to be the bottom of this correction.
At this point, however, we must still leave the door open for further price declines.
Finally, it is worth noting that strong conclusions are difficult to make at this moment. Trading volumes are often low at the end of the year, and price formation is often influenced by year-end sell-offs for tax purposes. The best advice at this stage is to continue monitoring the market with an open mind as the cryptocurrency year of 2025 gains momentum.
With these thoughts, we leave our readers to follow the intriguing situation in the cryptocurrency market as the new year begins. We’ll be back next week with another Kvarn Pulse update, so stay tuned!
New tokens added to Kvarn X – Toncoin, Mantle, Kaspa, Render, and Syrup!
The cryptocurrency world is constantly evolving, and we are excited to add these new tokens to our service in the coming days:
Toncoin (TON): Toncoin is the native cryptocurrency of The Open Network (TON), originally developed by Telegram. It offers fast transactions and scalability, making it a potential game-changer in the cryptocurrency market.
Mantle (MNT): Mantle is a Layer 2 scaling solution for the Ethereum ecosystem that uses Optimistic Rollup technology to enhance transaction speed and reduce costs while maintaining Ethereum network security.
Kaspa (KAS): Kaspa is an innovative Proof-of-Work-based blockchain that utilises the GHOSTDAG protocol, enabling fast and secure transactions. It aims to address scalability challenges while maintaining high security and decentralisation.
Render (Solana) (RENDER): Render Network is a decentralised GPU rendering platform that initially operated on the Ethereum blockchain with the RNDR token. Following a community vote (RNP-002), Render Network has expanded its operations to the Solana blockchain, leveraging its low transaction costs and high performance.
Syrup (SYRUP): Syrup is the native token of the Maple Finance ecosystem, replacing the former MPL token. It functions within a decentralised finance (DeFi) platform focusing on institutional lending and yields. The SYRUP token is used for ecosystem governance, staking, and earning rewards.
Ideas for Building a Crypto Portfolio
If you’re wondering how to build a crypto portfolio or get started in crypto investing, this section offers examples of themes around which you could begin building a portfolio. However, please note that nothing in this newsletter constitutes financial advice or should be interpreted as an encouragement to make investment decisions.
Theme Idea: Category Leaders
If an investor lacks the knowledge to assess which crypto sectors to prioritize, a relatively straightforward approach is to build a crypto portfolio from the largest tokens in each category. Correlations within categories are generally quite strong, so holding the largest token in a category provides good exposure to that category’s overall development.
Since category leaders tend to have the largest market caps, they are also often less volatile, which may help with adjusting to the inherently high volatility of the crypto market. On the other hand, it need to be noted that the largest tokens by market cap may not necessarily offer the best returns within their category either.
An example of a portfolio based on category leaders could include:
- Bitcoin (BTC) (category leader in payment tokens)
- Ether (ETH) (category leader in modular smart contract protocols)
- Solana (SOL) (category leader in monolithic smart contract protocols)
- Uniswap (UNI) (category leader in decentralized finance (DeFi))
You’ll find more theme ideas for building a portfolio in future Pulse newsletters!
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.
