Bitcoin to go
- Last week’s big breakouts in Bitcoin and Ethereum will be tested with dips today.
- Bitcoin has at least 4 long-term bullish catalysts.
- Ethereum’s successful “Shapella” upgrade has de-risked the staking process and potentially paved the way for a large reduction in ETH supply.
It’s been a whirlwind few weeks for large cryptoassets.
Between general “Risk on” trading and last week’s successful “Shapella” upgrade on Ethereum, Bitcoin and Ethereum both hit their highest levels since last summer above $30,000 and $2,000 respectively Just as traders were getting comfortable with last week’s big breakouts, today has brought a round of selling into the room that begs the question of whether the recent rally is legit or just a ‘fakeout breakout’.
Bitcoin Analysis: Four Long-Term Bullish Catalysts
Considering first the largest cryptoasset in the world, Bitcoin’s longer-term prospects remain bullish for 4 reasons:
First, in its most recent quarter, Bitcoin posted its biggest quarterly gain (+70%) in two years, signaling strong buying pressure after the washout below 18,000 in Q4 2022.
Second, long-term holders used this time to accumulate the cryptocurrency, marking a classic shift in the “accumulation phase” from weak hands to strong hands. These so-called Risk Astleys (because they will “never give up on you”, you know?) now hold record amounts of Bitcoin with over 80% of the outstanding supply. This supply has essentially disappeared from the market, setting the stage for the next bull cycle.
Source: Glassnode
Third, with the next Bitcoin halving now about a year away, we are entering a historically bullish period for the crypto market that could last for the next two years.
Finally, and arguably for the first time in its existence, Bitcoin has found a use case beyond commerce. Similar to NFTs on other chains, “Inscriptions” or “Ordinals” now allow Bitcoin enthusiasts to inscribe data onto the Bitcoin blockchain. With the demand for blockspace increasing beyond pure trading demand, there is now greater interest in using the blockchain, increasing its fees and security. As the chart below shows, daily bitcoin transactions are running at levels historically only seen near euphoric price spikes:
Source: Glassnode
From a technical perspective, Bitcoin is still holding above key prior resistance-turned-support at $28.6k, despite today’s slump. While we wouldn’t be surprised if today’s decline extends to these levels, given the rising 50- and 200-day EMAs, longer-term accumulators may try to intervene before we see a too steep dip.
Source: TradingView, StoneX. This product may not be available in all regions.
Ethereum Analysis: Smooth “Shapella” Could Drive Long-Term Supply Down
Compared to its bigger brother The longer-term outlook for Ethereum may be even more optimistic. Heading into last week’s “Shapella” upgrade, many analysts expected sell-offs to hit the world’s second-largest cryptoasset as stakers backing the network could finally sell their previously locked ETH.
While it makes sense, there’s at least one major problem with this theory so far: Stakers don’t sell in bulk. In fact, the net staking redemptions only lasted a few days, and since earlier this week, ETH holders have increased net staking activity:
Source: Nansen
In a way, this makes sense as objectively it is now less risky to stake Ethereum as it is now relatively easy to withdraw your funds when needed (i.e. staking ETH now has less liquidity risk than it did early last week). As the chart below shows, Ethereum is well below other proof-of-stake chains in terms of the percentage of its supply that is staked and If this increases in the coming weeks, it will result in a steady reduction in supply, which could further support prices:
Source: StakingRewards
As for the short-term price action, ETH/USD is testing its previous breakout level at 2,000, and a break below it could signal a deeper retracement. Even if we see this short-term decline, The aforementioned Ethereum ecosystem tokenomics should attract buyers and break below the price, with initial support near $1800where the 50-day EMA coincides with a key level of previous resistance.
Source: TradingView, StoneX. This product may not be available in all regions.
— Written by Matt Weller, Global Head of Research
Follow Matt on Twitter @MWellerFX
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