After a brief pause, The Penalyst is back once again with a current take on the market. BTC and ETH are ready to move higher after a short-term pullback and continue to cement themselves as individual assets from the stock markets that are not fairing well in the current risk environment. Read on to learn what’s next, and how the rise of new products in the market space also affects future price action.
2023 will most likely not be the type of explosive market trends we have gotten used to seeing in digital assets from previous years, but rather a more traditional cycle trend type of market, where we move higher over time, setting in classic pullbacks that offer great buying opportunities at a discount, with the odd splash of headline volatility.
The reason for this will steam from mostly two main factors, being the fact that with current central bank policy as well as its effects on the general global economy, I don’t see the reason for quick and sudden shifts in policy. These will come more gradually as we move in tandem with the cycle. Now of course we can never say that with full certainty, but how Q1 has developed everything points to gradual shifts rather than emergency policy change as it stands now.
The second reason for the slower, cyclical trend type of price action can also come from a more technical view from investors. Institutional funds are flowing into the digital asset space at an astonishing speed, and with them comes a plethora of new products too. Mainly the rise of structured products, or as Penning has chosen to label them: SDAPS (Structured Digital Asset Products). This new product class consists of sub-portfolios combining mainly options and other derivatives in complex structured products.
So why am I mentioning this? With the rise of these products, a type of investment often applied by institutions, a lot of market liquidity goes into technical market structures from these options portfolios rather than fundamental basis or the traditional buy-and-hold. As such, the market also becomes more technically oriented with Bearish products dominating ahead of, and during pullbacks. And Bullish products dominate ahead of, and during the trend grinding higher.
This comes especially from the nature of these products often trying to place themselves AHEAD of the market moves, and as such also contributing to making for example a pullback play out.
BTC continues to try and swallow up the supply offered in the previously highlighted liquidity zone, and is doing a decent job at doing so without falling back too much. Right now, we seem to have put in a temporary bottom and are ready to make a run toward new highs. We do have some macro news coming this week, so this could be the catalyst needed or the lid that keeps BTC in its current range for now.
US DOLLAR INDEX
The US dollar still gets no love, and after having put in a new low, whilst still being capped to the upside by both short-term and long-term moving averages, this now opens up the way for a run into the lower liquidity zone. As mentioned above, we do have some macro data coming out this week, so expect this to either add fuel to the fire or provide some support for the greenback for now.
US equity markets continue to break the BTC correlation more and more, and I moving forward only give brief comments on it, as it has now become more of a general risk sentiment indicator than anything else. The NASDAQ looks very heavy here, and I wouldn’t be surprised if we see a run lower to test the rising trend line from this year's breakout structure.
Everything seems on track for my year-end prediction of BTC, and it is nice seeing BTC breaking the Nasdaq correlation, creating more of its own identity. Next week, unless we have a lot of changes in sentiment and market direction, I will focus on the upcoming Bitcoin halving in combination with fair value analysis of BTC which combined can provide a very simple yet effective investment strategy for BTC.
- The Penalyst
*Disclaimer: This article is not financial or investment advice, nor should it be perceived as such. Penning Group and the author (Timothy Hellberg) shall not be held accountable for any misinterpreted information by the reader. If you are interested in learning more about investing in the DeFi space, please get in touch with us.