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Week of December 13-19. Easy mode for Bears🐻📉

Good Evening Investors,

Another crazy week in crypto with more downside this week as bears continued to take charge with price making lower lows. For Bitcoin and Ethereum, price continued to bleed lower with Ethereum ending the week just under US$4000.

Source: TradingView | ETHUSD Daily

Macro

This week provided some important macro shifts for all markets. FOMC¹ revealed that the US Fed is looking to keep interest rates the same but taper the velocity of printed money. Simply this means that cash is still free, but there will be less of it.

This monetary policy adjustment is meant to eventually reduce the amount of inflation. A reduction in Dollar production leads to a lessening of inflation - which is at ATHs. This does not entirely strike disaster in markets as an unchanged interest rate means that dollars are still not something good to hold and that cash is basically free to borrow.

In the meantime, this changes the overall landscape of the macro market. A taper like this will reduce the froth in the market. Investors will likely shy more away from risk on/hyped assets and gravitate to hold assets with reduced risk as well as sound fundamentals.

Despite the tapering to continue into 2022, it is unclear how long this environment will actually last as more Covid-19 virus worries arise coupled with higher than expected unemployment and lower than expected retail sales - the Fed may need to intervene with stimulus to keep the economy rolling.

Source: Glassnode

In other news, while many market participants are bearish and fearful of the most recent price action, larger market participants have actually been taking this as an opportunity to accumulate. The Canadian Bitcoin Purpose ETF increased holdings by acquiring ~5,000 BTC since the beginning of December - this is bullish. Allocation of Bitcoin via a fund like this usually means they consider the current price to be at a discount and they are expecting higher prices.

On-Chain

As usual, lets take a look on-chain to see what asset holders are doing with their Ether. As mentioned in weeks prior, investors appear to be more risk off given the current uncertainty. This week on-chain is showing mixed signals due to the current ongoing macro-economic shift.

Source: Glassnode

Exchange Net Position Change showed that instead of accumulating, asset hodlers were depositing Ether to exchanges. Given the lack of bullish price movement and sentiment, this can actually be a positive sign as it shows that there is market capitulation . Capitulation means that market holders have reached their threshold of max pain and are looking to sell. It can be observed that in previous events of capitulation, there is usually a resume of market participants resuming accumulation.

These events transfer wealth from weak hands to strong hands. In other considerations, market participants may be looking to be more liquid and cash ready into the new year. In addition, institutional funds are exiting to close this year’s Unrealized gains/PnLs. Other market participants might also be exiting to prepare for taxes, etc. Deposits onto exchanges at the end of December can be observed in previous years as well. I will be looking for a continuation in accumulation to confirm this observation.

Source: Glassnode

When we zoom out from a longer term macro scale by looking at Balance on Exchanges this is far from concerning as the overall trend is still in tact. This means that the overwhelming majority are still withdrawing their Ether and are in accumulation mode - this will likely appear to just be a blip in price history. This continued divergence in price along with the previous mentioned considerations still leaves me short term neutral but long term bullish with no immediate concern.

Conclusion

As we lead into the conclusion of 2021, it would appear a lot of market participants are preferring to end the year more risk off. Adjusting ones position based off of the macro environment is crucial for shorter term investors but as we can see, long term is still positive.

It can be noted that the Ethereum exchange deposits this year are far less than the exchange deposits from the year prior which shows a sign of participants expecting higher prices but reducing risk due to the macro environment and factors mentioned above. No overly frothy blow off top has occurred and retail is generally asleep.

Personally, I am bullish into the new year. There is a lot of capital sitting on the sidelines with a slow bleeding market. I think we may get one more significant run up during Q1, 2022 before a dramatic slow down in asset appreciation.

With no known pressing news left in the year, most of the price action will likely stay organic and follow suit based off price action rather than news and narratives. From a Technical Analysis standpoint, price for both Bitcoin and Ethereum appear to be on easy mode for the Bears as this range continues lower. A break above this ranging trend will likely shift the momentum of the market to bullish. It would appear that Bears have been stacking a lot of orders at the top of this range whilst the overall volatility has been tightening leading me to believe a short squeeze may be in play in the coming week(s).

-Kadeem

1. Federal Open Market Committee