Crypto shines in spite of dire macro conditions

The recent market recovery has caught most by surprise, mainly because macro conditions have certainly not improved, most notoriously with the latest CPI data at 9.1% year over year – much higher than expected.

Nevertheless, according to some surveys, inflation expectations from the market are calming off. This is a major factor contributing to the recent price rally we are experiencing now, as well as the generally oversold situation we were in just two weeks ago. In fact, the headlines that 2022 had one of the worst starts of the year for equities in decades were abundant.

Coming back to crypto, BTC continuously holding above $20k and ETH being far from the sub $1,000 mark have been taken as a sign of strength by the market. Both have been performing positively.

Here, it can be seen how the performance of BTC and ETH against US equities since the market bottomed on June 17th until today: 

BTC price has gained almost 2% while ETH has appreciated 21%, certainly driven by the proof of stake merge coming. As can be seen above, BTC and ETH were volatile until the 12th of July, when they started their current price rally, preceding a move that equities would follow some days later. 

Some analysts consider the current situation with Crypto as a proxy indicator of the market hunger for risk-rated assets. Besides the large unwind of the market during this year, BTC has maintained relatively steady over the $20K price mark, which has probably been seen as a sign of consolidation and has helped drive the recovery narrative.  

The decoupling mentioned before can be easily spotted if we take a look at the historical correlation of BTC against US equities indexes such as the S&P 500, or Nasdaq 100:

Before the 4th of July, the crypto market was basically a mirror of the US indexes, keeping a correlation close to 0.8-0.9.

After that, compression started, and BTC and ETH started to perform differently. Interestingly, the strength of the Dollar represented by its index in orange has been perceived lately as an inverse mirror of the crypto market.

But so far in this last month, its correlation has decoupled, and it seems that Crypto is not keeping much correlation to what the Dollar is doing, since now the correlation between BTC and the Dollar is close to 0.2.

Regarding Ethereum, everyone wonders if the extraordinary price rally that it is having will continue for longer until the merge date in September. For the time being, we can point out likely points of support and resistance based on on-chain data.

For this purpose, we use our on-chain indicator “In/Out of the Money Around Price”.  This indicator covers buckets within 15% of the current price in both directions. By doing so, the IOMAP spots key buying and selling areas that could act as support and resistance levels:

As can be seen in the chart below, a large chunk of addresses has bought ETH at the current levels (from $1,304 to $1,342). This means that the price is likely to act as a support in that price range since these traders are neither profiting nor losing, so the pressure to sell from them could be negligible.

Looking forward, the price range of $1,552 to $1,595 is another one where many addresses bought in the past. They have been underwater for a while, and there is the likelihood that they might sell again when the price approaches those levels. For this reason, this range is likely to act as a potential resistance level. 

The next few days will be interesting to keep an eye on how macro conditions develop. Equities continuing their recovery could catapult crypto towards a long sought by many, continuation of a bull market.