⛓️Block On Chain 012⛓️
Week of November 22-28. Black Friday crash!?😮
Good Evening Investors,
Another rocky week in the markets as crypto assets tried to reclaim previous support levels before making another leg down. Ethereum was able to end the week finding support at the US$4000 price level.
This continued downward price action was triggered due to news of a mutated variant of the Covid-19 virus. This sell off reaction was seen in all markets (Equities, Commodities, Crypto, etc.) due to global macro fears of what this could mean for returning economies.
Essentially, events like these create mass fear in markets resulting in market participants liquidating their assets for cash. It is also a good excuse for larger market participants to swing the market in directions that benefit them (i.e. cheaper assets prices post sell off). This however could potentially be bullish for all asset prices as it may become yet another catalyst for Federal Reserve stimulus despite their recent announcement of tapering1 - a review of post March 2020 crash shows why.
Interestingly enough, El Salvador took this price reduction as an opportunity to buy the dip and publicly announced that the nation state had bought 100 more Bitcoin to add to their current Bitcoin reserves - bullish.
In other news, a big milestone for Ethereum was hit this week: since the implementation of EIP1559, One Million ETH have been burned. In short, EIP1559 was an upgrade to the Ethereum protocol which introduced a fee burning mechanism. The implications are substantial in that ETH has the potential to become an deflationary asset long term. This is a much welcomed milestone and is very bullish for Ethereum’s price long term.
The overall price action this week was incredibly bearish but lets have a look at how market participants reacted on-chain.
Balance on Exchange shows that there was not much of a reaction of market participants looking to get their Ether back on exchanges to sell. Instead, on-chain shows that they are continuing to withdraw their Ether, something that we have been observing for several weeks now. More and more Ether is being withdrawn, essentially being taken off market with low intentions to sell but rather hodled or to be sold at higher prices - this is bullish.
Another interesting metric to consider is the behavior of market participants accumulating Ether. A look at the Balance on Exchanges metric shows that the number of unique addresses holding > 0.01 and 0.1 Ether reached ATHs. These smaller accumulation addresses shows that there is still an increase in Spot buying market participants entering the market during this time, despite the dip in price.
The current macro landscape being altered with possible new information coming into fruition has me overall neutral in the short term. The price action in charts look very bearish, but on the flip side on-chain proves to still be relatively bullish. The overall market is in extreme fear which also makes for an opportune time to be buyer at these discounted prices.
From a monetary policy standpoint outside of crypto, the possible increase in fiat printed to combat a recession due to new virus scares is overall bullish long term. More stimulus in markets raises all asset prices due to the underlying value of the fiat currency falling. This current fearful environment however is not the best for risk on assets such as crypto - at least in the short term.
In the coming week I will be monitoring the macro environment and the implications as well as looking for seller exhaustion in price action - which appears to already be taken place with this sideways price action. I will also be monitoring the ETH/BTC price action as ETH is also positioned for a breakout. On-chain data for ETH and BTC still shows that the market long term is poised for an increase in price and the overall fearful sentiment signals a buying opportunity.
A reduction in the amount of assets the Federal Reserve purchases as well as velocity at which fiat supply is created.