The World of Crypto

Price Correlation

As I noted the other day, there is reason to believe the crypto market will be affected greatly in the near future by a downturn in the traditional stock market. Just like in March, there is a growing exposure of institutional money to the crypto space.

This money is exposed only to the bitcoin price and only in the form of ETFs, with Grayscale being the leading asset for BTC exposure. This means as the price of BTC rises, more and more institutional money will fall in line as more hedge funds post higher profits due to crypto positions. All this capital representing support for a currency many wall street traders do not fully understand is one of the many ingredients needed in this recipe for disaster.

Recently the Penny Coins I have chosen to cover, namely ADA and XLM, have been correlated directly to the BTC price on the daily time frame. This is important because that means they are correlated to the whims of institutional investors' stragtegies. Once the market takes a second downturn, many cryptocurrencies will be hit.

The Big One

Likely by the end of August we will have seen a recorrection to the downside in traditional markets. The reason for the timeline extended out to August is that the reprecussions of current macro economic indicators such as PMI, US Non-Farm Payroll, global central banks' balance sheets on the rise, and a plethora of other negative externalities will not be felt in their entirety for some time. This is because supply chains and business infrastructure is affected in ripples, and it takes time for the larger ripples to propogate fully through the system.

Crypto suffered greatly, and for good reason, in the inital collapse in March from the corona virus panic. It showed a previously unseen correlation to traditional markets which is a weakness in crypto.

New all time highs are being made in the NASDAQ, the SPX is on its way back to pre-March levels along with the Dow. All the while there is mass unemployment across the globe, including record levels in the US itself. If that wasn't enough, many states have been having near daily protests and demonstartions for two weeks over police brutality and racial injustice, which has spread to a number of countries across the globe.

When this game of catch-up between markets and the underlying societies markets are made up of comes to a head, the traditional stock market will drag crypto down with it.

ADA Analysis

On the daily time frame, ADA has recovered very well since the initial downturn across the board in March. It seems to be riding out the last of the buying inertia, with a wavering RSI on this time frame. Being up ~%70 in 14 days is a fast rise, and requires at least a moderate pullback.

On the 4H there seems to be signs of a bull trap already. Price has revealed a bearish RSI divergence, and has now traded sideways for a couple days. This signals weakness in the buyers and possibly a local top. The break above the range high seems to be a fakeout.

Price reduction to around 0.07385 USD would be likely, as that is the first area of support. There was a small sell-off on the second of June which produced a healthy wick into the level and signals this price's significance.

XLM Analysis

Price Trended upwards from May 30th to the fourth of June, while the RSI stayed stagnant and posted numbers all in the same range. This shows weakness on the 4H for XLM as well. Expect a pullback from the current price levels to the May opening level.

Along with ADA, this currency is heavily exposed due to their relatively small market caps. With ADA at ~2.21 bn USD and XLM at 1.614 bn USD, they are subject to large capital in and out flows.

BTC Analysis

BTC continues to set up in a bearish structure. The price is going through its final steps of trend reversal. It has just completed a strong bearish RSI divergence, with impulsive price action up into the weekly resistance level, 10,406 USD, and being immediately rejected.

This in confluence with the lower time frame showing price is firmly trading below the current trending channel. Price is weak due to uncertainty in the crypto market about the uncertainty in the traditional market. It makes for an equation of fear squared, and once the selling starts it will result in another violent move downwards, resembling March 12th.