League of Traders Weekly Report (2nd week of January 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 second week of January!
- Bitcoin Chart/Ethereum Chart
As of Monday, January 8, the price of Bitcoin dropped more than 8%, from last week’s 45,800 to 40,750 following the release of MatrixPort’s report which rejected the approval of a spot ETF, before eventually recovering to sit near 43,800. The crypto market is currently showing great volatility in response to the news of a possible Bitcoin spot ETF approval. For the average investor, the likelihood of a spot ETF being approved cannot be predicted with any certainty, so this is a good time to hold on to your Bitcoin holdings and let the market react to the volatility. If the approval of the Bitcoin spot ETF is denied and there is disappointment selling, or if there is strong profit-taking selling after the approval of the spot ETF, we could see a correction down to about $39,700 where the CME gap occurred. On the upside, we could see a move to 48k, which acted as resistance during the 2022 decline, and a break above that resistance could extend the trend to all-time highs.
After hitting the year’s all-time high in the last week of 2023, Ethereum’s price has been trending slightly lower this year. For the time being, Ethereum’s trend is likely to follow Bitcoin’s, as the crypto market’s attention is currently focused on the Bitcoin spot ETF. Once the Bitcoin spot ETF is approved, attention may shift to Ethereum, so it’s worth keeping an eye on Ethereum this year.
Bitcoin dominance has risen significantly from 52% last week to 54% this week, as virtual market participants continue to focus their attention on Bitcoin spot ETFs. Depending on whether or not the ETF is approved, Bitcoin dominance could rise further, and dominance is likely to be highly volatile for the foreseeable future.
2. Major Economic Indicators
- US Bond Yields
The US 10-year Treasury rate has returned to 4%, rising from last week’s 3.941% to this week’s 4.053%, as inflation fears have pushed back expectations of a rate cut following the release of last week’s solid US employment data. This week’s release of the December Consumer Price Index could see another round of volatility in rates.
- US Dollar Index
Along with US Treasury rates, the US Dollar Index continued its modest rebound from 102.155 last week to 102.530 this week. Like the US Treasury rate, we expect the US Dollar Index to continue fluctuating based on the US job market and inflation.
- US100 (Nasdaq 100)
The US100 corrected slightly from 16800 to 16500. The sharp decline in the Nasdaq 100 was led by a sharp drop in semiconductor stocks amid a surge in Treasury yields, with the benchmark 10-year U.S. Treasury yield rising to 3.9% from 3.866% on the previous trading day. Upside fatigue from the rally that lasted until the end of last year has also accumulated, and unless there is a major bullish event, that correction is likely to continue.
- Gold Futures
Gold futures have fallen slightly from 2063 to 2027. The price of gold futures appears to be undergoing a slight correction due to a short-term rebound in the dollar index. However, in the absence of a change in US interest rate policy stance, gold futures are likely to remain at their current levels for the foreseeable future or continue to move higher in the long term.
3. Bitcoin Market Data
- MVRV Z-score
The MVRV Z-score dipped slightly from last week’s 1.63 to this week’s 1.54, though it was largely unchanged. As with last week, it’s too early to say if we are in overvalued territory yet.
- 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
Bitcoin’s aSOPR decreased last week from 1.049 to 1.014 this week. While it is still above 1, indicating a continued bull market, it is possible that the aSOPR indicator could fall below 1. It is important to note that we will continue to monitor the aSOPR and if it falls below 1, it is safe to assume that the short-term trend has ended.
- 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
Open interest in exchange-traded perpetual futures decreased from $10.77B last week to $9.68B this week as positions were unwound in liquidations due to volatility on January 3rd. While the decrease in open interest is positive, historical data shows that open interest above $9B is a high level and has a large area of potential for volatility due to changes in futures positions. The estimated combined leverage ratio of exchanges fell from 0.191 to 0.179, the lowest level we have observed. It would be correct to interpret this as an increase in the amount of capital participating in the futures market, not that market participants are using greater risk than in the past. Therefore, while the potential for volatility from open interest is high, the new capital inflow has reduced the leverage ratio, which could lead to further open interest expansion.
4. On-chain data
- Exchange inflows and outflows
Bitcoin positions on exchanges continue to show an outflow dominance this week following last week’s outflow. In light of the Bitcoin spot ETF approval issue, outflows from exchanges could be interpreted positively as they could be buying from smart money (capital from institutional investors or market participants with specialized investment knowledge).
- Number of Whale Wallets
The number of whale wallets holding 10K+ bitcoin declined slightly further from last week. This is the lowest level of whale wallets in over a year, and the likelihood of further whale declines seems to be in the lower range.
5. Last Week’s Major News
- Bitcoin plunges 8% on Matrixport’s rejection of spot ETFs
On January 3rd, the price of Bitcoin closed at $42,848, dropping 4.70% in 24 hours on global cryptocurrency market data platform Coinmarketcap. The drop is believed to be due to a report published by cryptocurrency investment service provider MatrixPort regarding bitcoin spot exchange-traded funds (ETFs). The report predicted that the US Securities and Exchange Commission (SEC) would reject all spot ETF applications.
- BlackRock Expects Bitcoin Spot ETF Approval on January 10th
The waiting period for approval of a bitcoin ETF could be over soon, according to a report from Fox Business on January 6. BlackRock, one of the world’s largest asset managers and one of the firms vying to launch a Bitcoin spot ETF, expects its application to be approved on January 10th. BlackRock is one of several firms, along with Grayscale Investments, Valkyrie, Arc 21 Shares, and Invesco, that filed updated 19b-4 filings for a proposed spot bitcoin ETF on Friday.
- Crypto Analyst says Bitcoin could drop by 30% in a few months
Several technical indicators, including the Funnel Multiple, monthly RSI, and weekly DMI, are overextended, which is a sign that the market is overbought, according to crypto analyst Cryptocon’s latest posts on X (Twitter). The analyst went on to say that we can expect a 30%+ correction in the coming months, resulting in a decline to the low 30s.
6. Major economic events
- Major economic events last week
Last week saw the release of several indicators related to employment in the United States. The unemployment rate, jobless claims, and nonfarm payrolls, excluding the U.S. Department of Labor’s November Job Openings and Labor Turnover Report (JOLTs), all pointed to a stronger-than-expected job market, raising concerns that inflation may not be as easily contained. A larger-than-expected decline in crude oil inventories also raised concerns that oil prices, which had stabilized, could rise, resulting in a rally in U.S. Treasury rates and the dollar index.
This week’s major economic events
The second week of January will see the release of the December Consumer Price Index. This is worth paying attention to because it’s a direct indicator of inflation in the United States.
Summary
Positive indicators: Open interest, exchange outflows, and inflows, MVRV Z-score
Negative indicators: US bond rates, US dollar index
Overall Review: Last week’s volatility in the crypto markets was driven by the prospect of a Bitcoin spot ETF being approved, and this week, the prospect of a spot ETF being approved is likely to be the biggest story in the crypto world. Typically, trends that are formed in response to favorable news can sell off as the news fades, even if the event is true. Therefore, this week, if you are holding your current portfolio and volatility occurs, a technical approach to investing may work to reduce risk by buying on the downside and selling on the upside.
