League of Traders Weekly Report (1st week of February 2024)
The Weekly Report is our summary of key indicators and recent events in the crypto world that professional traders are closely monitoring. This report and other relevant information are first shared via the official League of Traders Telegram channel.
Here are our notes for the first week of February!
- Bitcoin Chart/Ethereum Chart
Bitcoin’s price has been trading sideways for the past week, faltering especially in the wake of FOMC Chairman Powell’s hawkish comments last Wednesday. The recent weakness in Bitcoin has been attributed to miner selling pressure, which may not be good for miners, especially with the US government conducting a study on Bitcoin mining. However, if the miner-driven selloff ends, we could see Bitcoin with its halving issue become bullish once again.
Ethereum’s price has been trading sideways, similar to Bitcoin. However, there is still some hope that Ethereum’s price could become stronger after a short-term squeeze following news that some of Ethereum’s biggest whales have moved their ETH off exchanges.
Bitcoin Dominance traded sideways at 52.58% this week, down from 52.60% last week, with both Bitcoin and Ethereum trading sideways and the popular Layer 1-centric altcoins lacking a clear theme. While the market is trading sideways, Bitcoin Dominance will also probably trade sideways, but we can’t rule out the possibility that Dominance could move higher as Bitcoin halves and Bitcoin buybacks continue.
2. Major Economic Indicators
- US Bond Yields
US Treasury rates have risen from 4.047% last week to 4.127% this week following hawkish comments from Chairman Powell. Markets were expecting the US to make its first rate cut in March, but Chairman Powell dismissed speculation of a March rate cut. He also mentioned that the number of rate cuts would be three this year, which is less than the market’s expectations. However, it is possible that the FOMC could mention rate cuts again at any time if the economic data in the US deteriorates, so rates are likely to consolidate sideways or stabilize to the downside rather than rise further in the current range.
- US Dollar Index
The US Dollar Index rose further to 104.315 this week from 103.545 last week. The hawkish comments from the Federal Reserve have led to a rebound in U.S. interest rates, which has led to a steep rise in the Dollar Index. Additionally, U.S. stocks have been hitting new all-time highs, which have contributed to the dollar’s preference for dollar-denominated assets. In the short term, the rebound in the dollar index is likely to turn downward if the strength in dollar-denominated assets, such as US stocks, begins to wane while coinciding with talk of lower interest rates.
- US100 (Nasdaq 100)
The Nasdaq 100 hit new historic highs last week, surpassing 17600, and closing at 17656. The gains were driven by better-than-expected earnings from major US tech stocks such as Meta and Amazon, with the latter rising more than 20% last week as it announced its first dividend alongside additional earning surprises. The Nasdaq 100 has been rising consistently since November of last year, so there is some speculation that it may be entering a consolidation phase with Powell’s hawkish comments. The correlation between Bitcoin and the Nasdaq 100 has also remained low since last year, so a positive scenario could be that as the Nasdaq 100 corrects, profit-taking funds will flow into Bitcoin, which is quickly approaching halving.
- Gold Futures
The price of gold futures was seen moving sideways from 2033 last week to 2027 this week. Gold is an asset that rises when interest rates are low, so we expect it to move higher and break out to new all-time highs when there is a signal of real interest rate cuts, which is unlikely in the near term.
3. Bitcoin Market Data
- MVRV Z-score
The MVRV Z-score dropped slightly from 1.44 last week to 1.39 this week. The current range can be viewed as a neutral zone that does not indicate overheating or cooling of the market.
- Indicator explanation: The MVRV Z-score is a measure that determines whether Bitcoin’s market cap is overvalued or undervalued by dividing the difference between Bitcoin’s market cap and realized cap by the standard deviation. If the MVRV Z-score is below 0, Bitcoin can be considered to be undervalued. In the overheated market that reached the All-Time High (ATH) in 2021, scores of 6 or higher were shown.
- aSOPR
The aSOPR is shifted sideways from last week’s 1.016 last week to this week’s 1.015. With aSOPR consistently above 1 last week, we can interpret that the long-term uptrend is still in operation.
- aSOPR is short for Adjusted Spent Outfit Profit Ratio, a value obtained by dividing the price of received bitcoin in the past by the price at the time of transmission. When SOPR is less than 1, it indicates a downtrend, and when it is above 1, it indicates an uptrend. aSOPR is a more accurate value that removes meaningless transactions within the hour for adjustments.
- Open Interest
The exchange-matched open interest in perpetual futures is at $9.72 this week, down slightly from $9.93B last week. The exchange aggregated estimated leverage ratio is up slightly from 1.80 last week to 1.85. With the current sideways trading range, open interest and leverage ratios are not changing much, and while open interest is high when compared to historical data, the leverage ratio is relatively low, so there doesn’t appear to be much potential for a crash.
4. On-chain data
- Exchange inflows and outflows
Bitcoin positions on exchanges are showing inflow dominance for the second week in a row. This can be interpreted as an influx of miner selling, and since inflows are decreasing, we can expect that balance to shift back to outflow dominance and institutional buying due to the launch of the ETF.
- Number of Whale Wallets
The whale wallets holding more than 10K Bitcoin are holding steady after last week’s big rise. The whales are not making any significant moves at this current price point.
5. Last Week’s Major News
- Ark Investments “19.4% optimal rate of Bitcoin investment last year”
The ideal allocation of Bitcoin in an investment portfolio is less than 20%, according to asset manager, Ark Investments, in its annual report. Stating in the report that over the past seven years, Bitcoin has outperformed the returns of major asset classes. Additionally, the analysis shows that a portfolio’s risk-adjusted return would have been maximized by allocating 19.4% of total invested assets to Bitcoin last year. Adding that in 2015, the optimal allocation to Bitcoin was 0.5%.
- US Government investigates Bitcoin mining…What’s the purpose?
The U.S. Department of Energy (DOE) is set to scrutinize Bitcoin (BTC) mining. The Energy Information Administration (EIA), the statistical arm of the DOE, has issued an emergency data collection request to examine the electricity usage of minders over the next six months. The EIA cited the potential for public harm from cryptocurrency mining as the reason for the data collection, but markets are concerned that the information collected will be used against the mining industry, given the wording of the ‘emergency order’ and the US government’s critical stance on cryptocurrencies.
6. Major economic events
- Major economic events last week
Last week’s hawkish comments by US Federal Reserve (Fed) Chair Jerome Powell at the FOMC press conference sent prices of major cryptocurrencies, including Bitcoin, into a tailspin. In a press conference following the FOMC meeting, Fed Chair Jerome Powell played down the possibility of a March rate cut. Stating that March is not the most likely time for a rate cut while emphasizing that there needs to be more encouraging data on inflation. Other data, such as employment and unemployment, showed that the US economy remains in good shape, significantly reducing expectations of a rate cut due to inflationary concerns.
This week’s major economic events
Treasury yields rebounded sharply in New York this week after Powell said in a speech on Monday that the FOMC would likely cut rates only three times this year. As he did in a press conference following last Wednesday’s Federal Open Market Committee (FOMC) meeting, Powell said it was unlikely that the FOMC would take the first rate cut in March. Powell’s comments shouldn’t shock the crypto markets too much, as he had already made hawkish comments last week suggesting that a rate cut could be delayed, but they should dampen hopes of an early rate cut for the time being.
Summary
Positive indicators: aSOPR, Exchange Aggregated Perpetual Futures Open Interest
Negative indicators: US bond rates, US dollar index, exchange outflows and inflows
Overall Review: Cryptocurrency markets have been weakened by hawkish comments made by Chairman Powell last week. However, the extent of Bitcoin’s decline has been limited and the estimated futures leverage ratio is not high, so any further weakness in Bitcoin is likely to be more of a sideways shift rather than a major drop.
