For the first market update of the year, we think it makes sense to zoom out and look at things from a more macro angle as an entire year of price action lies ahead of us.
CME open interest rose a bit after a few days of lacklustre price movement. In fact, futures volumes on January 2 signal that the bears are still in control of the market. For a few weeks, CME futures haven’t opened on the weekly with a significant gap, implying there are no extreme expectations from institutional players at this point in time.
Data from skew shows an interesting anomaly for Bitcoin derivatives. After the flash crash on Deribit a few weeks ago, the market seems to be pricing in this kind of risk on the platform. May 2020 futures are fairly consistent across OkEx, FTX, and BitMEX, while Deribit has a major premium. FTX and BitMEX are priced near $7,350 for May 2020 futures, while Deribit is seeing a going price of $7,450. Mispricing opportunities like these give a very good yield with minimal risk, but we don’t want to put ideas in an amateur trader’s head by describing them.
This week’s price action saw a bit of volatility come back into the picture. After dipping from $7,300 to $6,800, the Bitcoin price is back near the $7,300 range. While this choppy movement is very beneficial for intraday traders, long-term HODL-ers should also keep an eye on this range, given how strongly it has held up thus far.
The weekly chart gives us a better glimpse into where we stand in the market. The absolute worst of the consolidation is over. This holds true even if the price dumps to the $5,000s considering the coin is still down over 50% from the wave high.
The trendline continues to hold up really well, with a pin bar rejection coming through on the weekly. If this diagonal support holds, it can truly be the end of any bearish outbreak. At the same time, we must understand that the real trendline confirmation comes from closes. So if a weekly candle closes below the trendline, it would shift our bias to bearish. But a wick down to even $4,000 and a close back up above the trendline would still be bullish. Follow this trend line for long-term moves, but not for short-term positions.
On a more granular note, the daily chart shows a bullish engulfing candle, which is bound to create some longs on its own as the most easily recognizable chart pattern. However, this came during the Asian trading session, so it’s likely to be a sly move by Asian market makers. We think this will serve as a short-term bull trap.
As we said before, a close above $7,800 is the only thing that can get us to even consider a bullish case for Bitcoin right now. We need to see a long-term consolidation range at the bottom before being confident that any kind of bottom is in.
ETH is still dependent on BTC. A potential decoupling that we theorized in the last update spun off the tracks and failed.
ETH has fallen enough and more to be able to create a strong bottom and range around before being ready for take-off. We assume that it continues to consolidate until July.
Why July? Well, ETH 2.0 was slated for Jan 3, 2020, which is today. But Justin Drake pioneered an effort to push this to July in order to allow the multi-client testnet some more time to reveal bugs and be refined. This is bullish in the long-term but will probably indicate bearish price action for a while.
On the daily chart, Ethereum re-entered a range, and if it can make two consecutive daily closes above this range, we think a bounce to $140 may still be on the cards.
XRP is far too unpredictable and hinged to other events for us to attempt any sort of accurate estimation, so we’ll just stick to the short-term chart.
The bottom trend line continues to hold, but price action sticking to the line is not exactly a strong sign. We believe it will break sometime this month and lead price close to $.15. XRP seems like a decent best at that level, but considering it is the most unpredictable coin in the market, we don’t recommend anyone dabble with it unless they really, really understand the risk.
That said, risk-reward is asymmetrically aligned towards reward, but the risk is still incredibly high.
The current trend line should be the main point of focus for the next few days or week of XRP price action.