Bitcoin and ether both traded lower on Friday following Thursday’s mild increase. Both digital assets continue to trade sideways, as they lack a substantive catalyst to push prices higher.
Bitcoin’s (BTC) price fell 4% on moderate volume on Friday, following a 5% increase on Thursday. The largest cryptocurrency by market capitalization is now trading below $19,000 and is down 5% week over week. So far this year, bitcoin prices are down 61%.
Ether (ETH) fell 3%, also on moderate volume compared to its 20-day moving average. Ether prices are down 12% week over week, and 65% year to date. Since the widely anticipated and successful Ethereum Merge, ETH prices are down approximately 20%. Ether supply has increased by 5,400 post-Merge, though supply would have likely increased by more than 105,000 ETH had it not occurred. So while the Merge has not been deflationary by textbook definition, it has slowed ETH’s inflation rate considerably.
The CoinDesk Market Index (CMI), a broad-based market index that measures performance across a basket of cryptocurrencies, fell 2.79% on the day.
Economic Calendar: The economic calendar was light today, but there were a couple of items worth considering.
The private sector business activity continues to contract, but not at the rate that was expected. The S&P Global U.S. Composite PMI, which tracks data from manufacturing and service companies, was 49.3 in September. Readings above 50 indicate an expansion of business, while readings below 50 indicate a contraction.
September’s reading was higher than August’s reading of 44, and above expectations for 48. Ironically, business expansion is not ideal for risk assets at the moment, as it will likely prolong the Federal Reserve’s current fight against inflation.
U.S. Equities: Traditional equities declined, as the Dow Jones Industrial Average (DJIA) fell 480 points, a 1.6% drop that sent the index to its lowest point of the year. The tech-heavy Nasdaq composite and S&P 500 both slipped about 2%.
Commodities: Energy sold off as well, with WTI crude oil falling 5.4%. Natural gas declined 3.4%, while European Brent crude and gasoline (RBOB) fell 4.4% and 4.7%, respectively. Despite its safe-haven reputation, gold fell 1.8%. Copper, used as a barometer of economic conditions, decreased 3.6%.
The Dollar Index (DXY) was stronger, increasing 1.18% and at one point changing hands at 113.23, a 20-year high.
● Bitcoin (BTC): $18,895 −1.9%
● Ether (ETH): $1,304 −1.6%
● CoinDesk Market Index (CMI): $945 −1.3%
● S&P 500 daily close: 3,693.23 −1.7%
● Gold: $1,652 per troy ounce −1.1%
● Ten-year Treasury yield daily close: 3.70% −0.01
Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.
The USD Continues to Offer the Clearest Signal on BTC Prices
The macroeconomic narrative saturating every pore of crypto-asset markets is difficult to ignore.
With the Federal Reserve trying to stave off inflation by raising interest rates and reducing the size of its $8 trillion balance sheet, risk assets, including cryptocurrencies, will continue to come under pressure.
As interest rates increase, holding the U.S. dollar becomes more attractive because of rising yields. Speaking on Friday’s First Mover program, Coindesk’s Lawrence Lewitinn likened the current bid behind the dollar to investors who purchased UST in search of higher yield.
The correlative or causative relationship between the two assets remains unclear, but also cannot be easily ignored.
For starters, bitcoin (BTC) and the U.S. Dollar Index (DXY) have an almost completely inverse relationship currently. As recently as November 2021, the opposite could be said as BTC and DXY prices moved relatively in tandem.
Ultimately, the relationship appears to be between BTC and an increase in a risk-on appetite, with the impact occurring via the relationship between BTC and the U.S. dollar. Given the on again/off again relationship between the two assets, traders will likely be watching for correlations to shift again.
On a technical basis, BTC appears to be trading near fair value as mentioned in Wednesday’s Market Wrap. Bitcoin’s weekly chart going back to July of 2021 shows an asset trading near an area of significant price agreement.
Absent a new bullish catalyst, there doesn’t appear to be much incentive for investors to push prices higher at the moment.
Derivatives markets show some appetite for risk, but little that counters a “neutral for now” narrative. Looking at Glassnode’s BTC open interest by strike price chart, there appears to be elevated put buying at the $18,000 strike price.
A put option represents the right but not the obligation to sell an asset at a specific price. Were bitcoin prices to fall below $18,000, those put options would likely be exercised, putting additional downside pressure on the markets.
Call option purchases (i.e. the right but not the obligation to buy) begin to increase at the $19,500 strike price, a 4% premium to current prices.
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Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk Market Index (CMI) is a broad-based index designed to measure the market capitalization weighted performance of the digital asset market subject to minimum trading and exchange eligibility requirements.