Crypto shines despite difficult macro conditions

The recent market rally has surprised most, mainly because macro conditions have certainly not improved, most notably with the latest CPI data at 9.1% year-on-year – much higher than expected.

Nevertheless, according to some surveys, inflation expectations from the market are calming down. This is an important factor contributing to the latest price increase we are experiencing now, as well as the generally oversold situation we were in just two weeks ago. In fact, headlines that 2022 was off to one of the worst starts to the year for stocks in decades were plentiful.

Coming back to crypto, BTC continuously holding above $20k and ETH being far from below the $1000 mark has been taken as a sign of strength by the market. Both have performed positively.

Here you can see how BTC and ETH have performed against US stocks since the market bottomed on June 17th until today:

The BTC price has risen almost 2% while ETH has appreciated 21%, certainly driven by the proof that the stake is coming. As you can see above, BTC and ETH were volatile until July 12, when they started their current price rally, before a move that stocks would follow a few days later.

Some analysts consider the current situation with Crypto as a proxy indicator of the market’s hunger for risk-rated assets. Besides the major relaxation of the market during this year, BTC has remained relatively stable above the $20K price mark, which has likely been seen as a sign of consolidation and has helped drive the mining narrative.

The disconnect mentioned before can be easily detected if we take a look at the historical correlation between BTC and US stock indices such as the S&P 500 or the Nasdaq 100:

Prior to July 4, the crypto market was basically a mirror of the US indices, maintaining a correlation close to 0.8-0.9.

After that the compression started and BTC and ETH started working differently. Interestingly, the strength of the dollar represented by its index in orange has been perceived lately as a reverse mirror of the crypto market.

But so far in this past month the correlation has disconnected and it seems that Crypto does not hold much correlation to what the dollar is doing as now the correlation between BTC and the dollar is close to 0.2.

As for Ethereum, everyone is wondering if the extraordinary price run it has is going to continue further until the merge date in September. For now, we can point to likely support and resistance points based on data in the chain.

For this purpose we use our chain indicator “In/Out of the Money Around Price”. This indicator covers buckets within 15% of the current price in both directions. By doing so, IOMAP finds key buy and sell areas that can act as support and resistance levels:

As you can see in the chart below, a large part of the addresses have bought ETH at the current levels (from $1,304 to $1,342). This means that the price is likely to act as a support at that price range since these traders are neither profiting nor losing, so the pressure to sell from them may be negligible.

Looking ahead, the $1552 to $1595 price range is another where many addresses bought in the past. They have been underwater for a while, and it is likely that they can sell again when the price approaches these levels. For this reason, this area is likely to act as a potential resistance level.

The next few days will be exciting to follow how the macro conditions develop. Stocks that continue to recover could throw crypto towards a long-sought continuation of a bull market.