As we turn the page on another quarter in the crypto markets, we leave behind yet another period of aimless price action.
Bitcoin ended the period unchanged after giving back some of its slight gains earlier in the quarter. The leadership was outside Bitcoin, as Ethereum sported some modest gains.
Other names, like Polygon and Binance, are well above the lows achieved in the mass capitulation event in June. This came after Ethereum completed the transition from Proof-of-Work to Proof-of-Stake.
There's been no denying the importance of the US dollar when it comes to evaluating risk appetite.
It's been clear -- the dollar has been the safe haven.
Not gold.
Not the yen.
Certainly not bonds.
When the dollar has been strong, crypto and equities have been pressured, and vice versa when the dollar's eased off.
Just look at the last few sessions of trading: The dollar sold off, and equities quickly got back above their June lows, putting in a failed breakdown.
In fact, it's not just the broad indices putting in these failed moves. There are ton of whipsaws out there this week.
One, in particular, that's caught our interest is gold.
After running the stops below this support level, gold finds itself back in the high time frame range.
It's piqued our curiosity to see crypto volatility dampen while risk markets have continued to sell off in recent weeks. This comes as equities lost their June lows, where downside volatility looked poised to follow through.
But, this week, risk appetite has shown a completely different face.
The S&P 500 is back above the lows, putting in a failed breakdown.
What's more is that both Ethereum and Bitcoin have risen in conjunction with equities, supporting the case that the conditions for a countertrend rally have been set.
Equity markets have been selling off hard, while Bitcoin and crypto have been flat.
The primary driver of Bitcoin and crypto price action, more generally, has been the tight trading correlation to legacy markets. In fact, the two have been trading tick-for-tick over the last year now.
So Bitcoin's volatility in the face of the recent risk-off action in equity markets has our attention.
But is this a new trend? Is Bitcoin finally going to decouple here, or is this just a temporary bout spurred on by unique conditions?
It's hilarious. This little observation is becoming a running gag around here. Because, let's face it, in this tape, a strong dollar has proven to be a significant headwind.
The analysis need not be more complicated than this basic framework.
The simple fact of the matter is that if you're going to make money long equities and cryptocurrencies in the late stages of 2022, you're betting that this dollar strength will ease off.
As long as the dollar remains strong, expect Bitcoin to remain under pressure.
As technical analysts, we pride ourselves on never being dogmatic in our approach.
Always being open to a variety of scenarios will always be a virtue for market analysts and traders who put money to work. We constantly play devil's advocate, questioning whether elements of our macro thesis hold up to criticism.
An integral part of this objective approach is to have a predetermined list of data points that would invalidate our initial models and theses.
In the case of the current market environment, we're of the view that if Bitcoin's holding its prior cycle highs of 18,000 and the S&P 500 is defending its June lows, we don't want to be looking for short opportunities.
Instead, we're better served either focusing on names shaping up as potential long candidates while remaining patient until a more defined directional bias can be ascertained.
But what if we take the other side of this discussion?
Since then, we've seen equity markets make a decisive move to the lows, while currency markets have acted in spectacular fashion. The US dollar continues to strengthen, while the UK pound sterling printed at new all-time lows.
As far as risk markets are concerned, this is a rather treacherous tape, and caution is still advised over more substantial time frames.
Much of our job as technical analysts is to discover pieces that don't conform to the regular puzzle.
What's caught us by surprise is the resiliency of crypto markets in the face of this risk-off action. Bitcoin continues to defend its critical 18,000 support level even in the face of equity markets selling off.
Furthermore, our breadth metrics suggest that altcoins have been holding up better than individual equities.
