League of Traders Weekly Report (3rd week of May 2023)
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 third week of May!
- Bitcoin Chart/Ethereum Chart
Bitcoin’s price fell from a high of 28k to 26k last week. Due to the trading volume and liquidity of Bitcoin decreasing, negative ramifications were set by the FUD regarding the US government’s selling of Bitcoin, the Binance withdrawal issue, which is due to an increase in fees on the Bitcoin network, and so on. Additionally, delays in US government debt ceiling negotiations have dampened investor sentiment. This report will further expand on the US government’s debt ceiling issue in section 6, in the major economic events section.
Because the last decline rebounded from the support line MA(99), if it supports the same line, the support price will be in the 25.2k-25.5k range. If the first support line is broken, it could fall to 22k. However, if the market succeeds in rebounding, the key to transitioning to a bull market will be whether it can still strongly break through the 30k mark or not.
Because the last decline rebounded from the support line MA(99), if it supports the same line, the support price will be in the 25.2k-25.5k range.
Ethereum’s price recovered to around $1,900 before falling back to the late $1,700s. In recent weeks, the correlation between Ethereum and Bitcoin has fallen below 80%, and Ethereum has shown a relatively good performance by having a smaller decline when compared to Bitcoin. However, Ethereum Beacon Chain failed twice last week and the volatility was similar to or greater than that of Bitcoin. The problem has been resolved with an update as of now.
The above chart is about Bitcoin's dominance over market capitalization from Market Cap. Bitcoin dominance is currently around 48%. Some analysts say that this percentage will rise due to the increased usability of Bitcoin thanks to the advancement of BRC-20, but it is expected that this impact will be limited. There will likely be a correction that partially restores the rise in Bitcoin dominance, which has been in effect since the beginning of the year. In the short term, it is expected to remain in its current range.
2. Major Economic Indicators
- US100 (Nasdaq 100)
The NASDAQ composite has shown decoupling behavior, rising slightly despite the decline in the price of Bitcoin this year. This decoupling trend is likely to continue for the time being.
- US Dollar Index
The US dollar index rose slightly from about 101 points to 102 points, staying around the bottom of the box for the short term. The US dollar index is also expected to be affected by the outcome of debt ceiling negotiations between the Biden administration and Congress this week.
- Gold Futures
The price of gold futures fell slightly from $2,014 last week to $2,010. The current price is near this year’s highest, and it is likely to trade sideways or weaken for a while until the results of the US government debt ceiling negotiations are announced.
- US Bond Yields
The US 10-year Treasury yield rose slightly from 3.441% to 3.470%, but there was no significant fluctuation. There is no FOMC announcement about interest rates this week, so the wait-and-see stance will likely continue.
3. Bitcoin Market Data
- MVRV Z score
The MVRV Z score was around 0.49, slightly low compared to last week. For the long term, it is still in a buyable zone. In the short term, it seems to be in a neutral zone with volatility on both the upside and downside.
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-core 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
Currently, aSOPR is moving sideways at 1. It is likely to stay close to 1 for some time before the same clear trend as last week emerges.
*aSOPR is short for Adjusted 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
Bitcoin’s open interest continued to decline slightly over the past week. We can assume that the liquidation of long positions was limited since the decrease in open interest was quite small compared to the decrease in price. If the Bitcoin perpetual futures’ funding fee is also a negative number on many exchanges, including Binance, and the price moves along with the change in open interest, it may indicate short-term upward movement due to the short squeeze.
4. On-chain data
- Exchange inflows and outflows
Following last week, the inflow advantage of exchanges continued this week, but the volume has decreased. The risk of exchange inflow and outflow is relatively small.
- Number of Whale Wallets
The number of whale wallets over 10k rebounded. We can see that the number of whale wallets increased by more than 10k due to a spike in whales, as the price of Bitcoin fell last week. However, the possibility that it is simply related to internal transfers cannot be ruled out, so it would be wise to continue observing.
5. Last week’s major news:
- Derivatives make up 77% of crypto market shares, an all-time high
Derivatives accounted for 77% of the cryptocurrency trading volume, a new all-time high. This can also be observed by the fact that the liquidity of spots has decreased, which indicates that the price change caused by short-term position changes of market participants could also have a huge impact, rather than the price change caused by the purchase of spots at the current price range.
6. Major economic events
- Major economic events last week
Last week’s monthly price index release in the US, and the interest rate decision in the UK, were both in line with expectations with no particularly shocking events for the market. However, despite this sense of relief, it did not have a positive effect on the market due to the spread of anxiety thanks to the increased possibility of the US defaulting.
- This week’s major economic events
This week, apart from major public schedules such as the announcement of indicators, the most important issue is the debt limit negotiations between the Biden government and the US Congress on the 16th. The US government’s delay in debt ceiling negotiations is a major destabilizing factor for the market. This is because the Biden government is holding a confrontational position with Congress though the deadline is scheduled for June 1st, with just about 3 weeks left. However, similar to past debt ceiling negotiations, the prevailing view is that it will eventually be resolved in favor of increasing the ceiling, and the possibility of technical default is also being reflected to some extent. If the debt ceiling is not raised, the Congressional Budget Office has said the government’s cash will run out in the first two weeks of June. The current debt ceiling is $31.4 trillion which had been officially reached on January 19th. Analysis by Morgan Stanley suggested that in the most basic scenario, even if an agreement is not reached by the deadline, defaulting will most likely not occur.
However, if the US government defaults, it is difficult to predict how much damage would be caused by the liquidation of a series of bonds since most financial institutions hold US bonds as their main assets. The extent of the damage is likely to be much greater than expected. In addition, in the crypto market, it is known that most of the collateral for USDT held by Tether is made up of short-term US Treasuries, which means it is directly exposed to the risk.
Positive indicators: open contracts, number of wallets holding more than 10k Bitcoin
Negative Indicators: Dollar Index, US Government debt ceiling negotiations delayed
Overall Review: It seems that the market has shrunk significantly due to the recent decrease in crypto liquidity and the possibility of the US government defaulting. If the negotiations between the Biden government and Congress develop unfavorably on the 16th, there may be adverse effects on the overall market. The issue is expected to continue until early June. However, since the debt ceiling has historically been negotiated, it seems like a good strategy to use it as a split buying opportunity when the price of crypto, including Bitcoin, declines significantly.
