Cryptocurrency markets erased $6 billion in market value the last 7 days. During The last week, most of the largest cryptocurrencies by market capitalization were in the red. Cardano and Bitcoin held up the best, but they still managed to lose over -2% each. The positive momentum leading up to the Bitcoin halving came to a halt. In addition, the stock market lost all gains from the prior week due to economic uncertainties including CPI
Cryptocurrency markets lost $6 billion in market value the last 7 days ( 1 week ), after adding $22 billion the prior week. The markets started the week with increased hype as Bitcoin approached its 3rd halving. There was a lot of pent up demand the last month revolving around the Bitcoin halving. The last 4 weeks leading up to the event resulted in the entire cryptocurrency markets growing nearly $60 billion. After the halving, Bitcoin slowly started to “cool down.” With a majority of the altcoin markets pumping hard during the Bitcoin uptrend, they also fell much harder as the Bitcoin price began to cool down. Below we can see that the market sold off, with altcoins taking a harder hit than Bitcoins price.
Bitcoin Market Dominance
With Bitcoin successfully completing its 3rd halving, there’s no doubt that trust is growing in the environment. With hyperinflation being a fundamental risk traditional markets face post COVID-19, the Bitcoin “inflation hedge,” is a topic that many are talking about. The 3rd halving put Bitcoins annual inflation around 1.8% which is significantly lower than the average annual global inflation rate. As discussed previously, this comfort in the Bitcoin “inflation hedge” was confirmed by billionaire wall street veteran, Paul Tudor Jones. With this being said, you are seeing Bitcoin market dominance growing to the highest level in 3 months. At the time of this writing, Bitcoins market dominance hovers around 67%.
The Current Risk - Bitcoin Miners
Even with the pent up demand that Bitcoins price experienced up until the halving, price still fell short of investor expectations. Many investors were looking for a $10,000+ surge post halving which didn’t happen. As Visionary Financial covered on a Twitter thread, we were watching Bitcoin hash rate closely to assess miner sentiment. We hinted at a potential bull trap post Bitcoin halving if the 1 year hash rate resistance couldn’t be surpassed. This almost played out to a tee, with hash rate rejecting the 1 year resistance post halving. Consequently, Bitcoins price dropped sharply after rejection, dropping from $9,800 to $9,250 levels. It will be crucial to watch Bitcoins hash rate. Investors seem to be waiting for that 1 year resistance break to confirm a potential bull run. The hash rate will give us a better idea on miner sentiment post halving. With production costs increasing to $14,000-15,000 levels post halving, this will put significant pressure on miners. During the last halving, production costs were only about ~20% below the current Bitcoin price, compared to ~70% this time around.
Bitcoin Vs Traditional Year To Date
Bitcoin Vs Stocks Year To Date
Bitcoin Technical Analysis
Bitcoins price is hovering around $9,381 at the time of this writing. Right now, the strongest support level occurs at $9,050. This is the level to watch closely for Bitcoin. If Bitcoins price can hold this support level, you could see that $10,500 test that many investors and traders were anticipating post halving. On the flip side, if the miner network / hash rate continues to struggle post halving, you could very well see Bitcoins price reject that strong support zone at $9,050. If this becomes the narrative, then BTC could very well retest $8,000 to the downside in the near term.
Traditional markets lost all the prior week gains, as the NASDAQ, S&P 500, and the Dow Jones all finished negative. Out of the top 11 U.S sectors, Technology is the only sector that is positive year to date, seeing around +2.5% growth. Energy has been the worst performing sector year to date, plummeting -39% .
Consumer Price Index
Despite many people not being on the roads during COVID-19, many have enjoyed the low cost of gas. Gas prices have been the main driver behind Consumer Price Index dropping. Last week, it was reported that the Consumer Price Index dropped -0.80% in April which is the largest decline since the financial crisis of 2008. Core inflation which ignores food and energy costs fell from 2.4% to 1.4%, which represents the largest month to month decline the market has ever recorded. Many investors have their eyes on CPI data as it measures overall inflation. In a near zero interest rate environment, the economy is still witnessing deflation. Despite the Federal Reserve stating they have no interest in negative interest rates, it might be the only option in the playbook if CPI continues to go down.
Debt To GDP
In addition to deflationary pressures the economy is seeing right now, investors have also had their eyes on Debt To GDP levels. The Federal Reserve is on pace to inject $6+ trillion into the markets to provide financial aid during COVID-19. From the figure above, we can see that the current Debt to GDP is almost 2X the 50 year average. If we go back in history, the last time Debt to GDP was close to these levels was after World War 2. Some investors argue that the recovery from COVID-19 will be quicker than expected. With this being said, bulls believe that metric won’t be significant in the long term. Critics on the other hand argue that because consumer spending accounts for nearly 70% of GDP, the economy could be in for a rude awakening if the economy takes longer then expected to kick into full gear.
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