Digital Assets enjoyed their best weekly gain in more than 50 weeks — with price rallying +30% and volume in top coins / tokens +20%. Gains were very broad based with 91% of the top 200 coins / tokens ending the week higher. Overall market risk appetite looked much improved with Alt Coins outperforming Bitcoin for the first time in 5 weeks.
This week’s bounce was primarily technically driven after triggering a number of statistical oversold signals last week.
News flow was mixed in terms of themes but was more positive this week than last. Top stories this week included: 1) Reports that Facebook is considering a cryptocurrency for WhatsApp payments, 2) Coinbase successfully executing a massive US$5B Digital Asset migration, 3) HK regulators reportedly ‘hesitant’ on Bitmain’s IPO, 4) Blockstream extending global BTC satellite coverage and 5) a slew of tax related news from regulators in Australia, UK and France.
Looking into next week, it will be interesting to see if Alt Coin outperformance can continue. BTC shorts remain stubbornly high despite covering in ETH and LTC. If gains are extended into next week, will likely see short covering in BTC.
As highlighted this week Market Bottoms Have A Lot in Common. As demonstrated by NASDAQ in 2002, Asian markets during the 2003 SARS correction, the SPX in 2009 and BTC in 2015, the typical pattern is for a short, sharp rally followed by a period of consolidation and an eventual continuation of the initial rally. BTC looks tentatively to be in the first stage of this pattern.
The most likely scenario over the next 2–3 days is down, but still higher over the next week. The primary caveat being that BTC needs to hold above the $3,800 level. If we end up consolidating for more than a couple of days at the $3,800 level, there is increased probability that we will retest and probably break recent lows. We expect significant support at the $2,300 — $2,800 range given the long period of time BTC spent consolidating at this level over the previous 2 years.
If BTC is able to extend the rally,the first key areas of resistance are probably the $4,500 and $4,800 levels. We expect this to be a significant area of resistance given the 60 days BTC spent trading in this range from Aug — Oct last year (4th longest period of consolidation over the last 2 years). If we are able to get through that, $5,600 may also be possible.
Statistically, last week’s drop to a -50% 60 Day ROC is also a reason for optimism. This has occurred only 3 times over the previous 4 years and has delivered an average rally of 91%. A 91% rally off of this signal would put BTC back up to the $6,300 mark — a significant level of resistance. Stubbornly high shorts and a sharp drop in margin longs this week imply that the consensus view remains tilted towards a dead cat bounce. An extension of this week’s gains exasperated by BTC short covering looks to be the least expected outcome and the path of maximum pain for traders.