Technicals Signal More Downside For BTC

GB Market Commentary 19/07/2021 by Marcus Sotiriou

Bitcoin continues to frustrate the bulls as it remains near the low end of the $29,000-$42,000 range, with some key technical indicators and on-chain metrics suggesting more downside ahead. Firstly, Bitcoin closed below the 50 week EMA (exponential moving average) for the first time since it was at $7,700, and has opened below the 50 week SMA (simple moving average). Furthermore, Bitcoin closed last week below the $32,300 level, which is significant as this is the lowest weekly close since December 2021.

Also, Bitcoin has closed below the weekly EMA ribbon (shown on the left) – every time this has happened previously after a parabolic run up it has preceded a 50-60% drop. On-chain metrics from CryptoQuant.com show BTC net-flow to exchanges hitting a 5 month high, with the majority of net- flow from Coinbase – 27.8k BTC transferred back to previous Coinbase wallets. This potentially signals holders getting ready to sell. However, famous on-chain analyst Willy Woo reveals that weekly net flows to small holders (of less than 1 BTC) have been on the rise in recent weeks. Given that it is retail who drive Bitcoin bull markets, this could be a bullish signal. Willy Woo notes that ‘When they stop buying, that's a bear market warning. They haven't stopped buying.’ In summary, due to key support levels being lost and high exchange inflows, the general consensus of traders and analysts is remaining cautious with a bearish bias in the short term.

In a more positive light, the cryptocurrency market continues to be thrust into the mainstream through media endorsements and advertising. Crypto.com's sponsorship of both the Formula 1 and the UFC was on display over weekend. With deals worth a combined $270 million, cryptocurrency continues to be forced into the public sphere, helping normalise the once unorthodox phenomenon.

Last week Malaysian Police sent a strong message to Bitcoin miners using stolen electricity, crushing 1069 computers, purported to be used for mining bitcoin. This may aid the shift in Bitcoin mining operations to countries such as Kazakhstan, which has seen an almost 6X increase in mining capacity since April this year. In contract power used to mine Bitcoin in China has decreased by over 50% in the same period. North American dominance in Bitcoin mining operations has also benefited from China’s regulatory actions, as the United States is now the world’s second largest mining destination.

In the past two weeks there have been some big announcements regarding two new crypto SPACs. A SPAC is a Special Purpose Acquisition Company which is a company listed on the stock exchange with the objective of acquiring a private company, hence going public without the traditional public offering process.

BULLISH, which is blockchain company Block One’s latest idea, is one of the SPACs that will be coming to market soon. BULLISH is an exchange trying to be valued at 9 billion dollars, which seems high considering this figure is 1/6th of the valuation of Coinbase, but currently having no users and zero revenue.

Circle is the other SPAC, which is the company behind the popular stabelcoin USDC, being valued at 4.5 billion dollars. USDC now ranks as the second biggest stablecoin with a total market cap of $26.4 billion. Circle is projecting that there will be 190 billion USDC in circulation by 2023. Aside from their stablecoin product, they have range of services for defi and a platform called SeedInvest which is a security token launch pad, giving Circle a steady revenue stream. Investing in Circle could potentially be a way to own a piece of the picks and shovels of the cryptocurrency industry.