Bitcoin fell 0.74% on minimal trading volume as the largest cryptocurrency by market capitalization traded lower for a second consecutive day.
Ether followed suit, declining 1% on somewhat lesser volume compared to its 20-day moving average in terms of the trading volume.
Both digital and traditional marketplaces remain driven by macroeconomic forces. September housing starts in the United States decreased 8.1% to 1.43 million, falling short of the average estimated 1.46 million. Construction of new homes in August was revised down to 1.57 million from 1.58 million.
Although September housing permits, a predictor of the future building, gained 1.4% over August, the decline in home starts appears to reflect a deteriorating economy.
The U.K. (10.1%) and Canada (6.9%) are seeing higher-than-anticipated price increases, contributing to the ongoing acceleration of global inflation. Both nations have recently raised their benchmark interest rates by 0.50% and 0.75%, respectively.
Inflation higher than anticipated raises the possibility that both countries would aggressively boost interest rates, similar to the United States, which has also experienced surging costs.
The likelihood that the Federal Reserve will raise interest rates by another 75 basis points at the U.S. central bank. The odds of the Federal Open Market Committee holding a meeting on November 2 remain close to 96%.
FOMC Target Rate Probabilities 10/19/22. Image: CME FedWatch Tool
The relevance of these variables that are unique to bitcoin, ether, and other digital assets is pretty simple. As global central banks continue to raise interest rates, economic growth is anticipated to decelerate, eventually exerting downward pressure on risk assets.
A Closer Look
Depending on the investor’s time horizon, the decision to go long with bitcoin at current levels will be made on a technical basis.
BTC appears to provide investors with short-term trading horizons with little chance. The actual average range (ATR) for BTC has decreased by close to 74% since the beginning of the year, removing the volatility required for short-term traders to create other alpha.
As support for BTC prices is establishing itself near present levels, the outlook for long-term holders appears to be improving. The lack of volatility should prove advantageous in this aspect, allowing investors with the luxury of patience to acquire BTC at a more beneficial price.
The most recent Commitment of Traders report, published each Tuesday by the Commodity Futures Trading Commission, reveals that asset managers’ reportable bitcoin futures positions are now 80% bullish and 20% short.
Long positions held by asset managers currently account for 37.5% of total open interest on the Chicago Mercantile Exchange.
With a level of 45.7, BTC’s Relative Strength Index (RSI), a metric widely used as a proxy for momentum, is in the neutral zone. Readings below 30 indicate an asset is “oversold,” while readings above 70 indicate an item is “overbought.”
BTC Daily Chart 10/19/22. Image: TradingView
Since hitting a low of 29 on September 6, RSI has grown by 53%, while BTC’s price has only increased by 2%. The difference between the rate of change of the price and the RSI provides early indications of a bullish divergence, albeit an increase in volume would strengthen the argument.
Ether’s RSI trend parallels that of Bitcoin, as RSI has surged 33% from its previous low, while prices have risen 4%.
The proximity of BTC’s current price to support and the absence of active catalysts presents a problem for BTC holders now.
Prices falling below the 10-day moving average again indicate a lack of market interest. Waiting for BTC’s 10-period moving average to cross above its 50-day moving average, which is 4% away, could be a strategy for investors looking to add to long positions.
Given the absence of price movement for BTC, it appears doubtful that this will occur soon. A look at the distribution frequency for bitcoin in 2022 reveals a mean return of -0.25% and a low possibility of a 4% return.
BTC Frequency Distribution 10/19/22. Image: Optuma
On-chain data should be monitored, and unique entities holding more than 1,000 BTC have gradually transferred more BTC to exchanges. After 30 days of “whale” removing BTC from exchanges, investors have added bitcoin to exchanges for the fourth consecutive day.
Bullish investors fear that coins are frequently transferred to exchanges when they are prepared for sale. Given the scale of whale investors, any big BTC sales by this group have the potential to have a disproportionate effect on the markets.