Can Bitcoin and Ethereum Recover from a Disappointing Week? Cryptoasset Weekly Update (August 17 2024)

BTC/USD & ETH/USD Key Points

• Kamala Harris’s economic agenda is seen as likely inflationary, a development that could benefit cryptoassets at the expense of the US dollar if Harris is elected.
• Last week’s data underscored the shift in the market’s focus from inflation to the labor market and health of the consumer.
• BTC/USD remains within its recent range, but the technical outlook for ETH/USD remains negative after breaking key support.

Cryptoasset Market News

• Bitcoin applications to list options on spot ETFs are finally picking up traction again. Many are now pegging options on ETFs to be available before November.
• The Swiss National Bank disclosed holdings of 466,000 shares of MicroStrategy. Goldman Sachs also disclosed $418M in BTC ETF holdings.
• The US Government moved 10,000 of Silk Road BTC worth $590M from one wallet to another, a possible precursor for another round of long-dormant supply dumping.

While not crypto-specific news per se, US Democratic Presidential Candidate Kamala Harris laid out her economic agenda last week. Many of the priorities could be characterized as “populist,” including the elimination of medical debt for millions of Americans, a ban on price gouging for groceries and food, a cap on prescription drug costs, a $25,000 subsidy for first-time homebuyers, and an expansion to the Child Tax Credit. Many observers have labeled these priorities as likely inflationary, a development that could benefit cryptoassets at the expense of the US dollar if Harris is elected.

Macroeconomic Backdrop

Last week’s economic data highlighted a key narrative shift that readers should have been “ahead of the curve” on if they’ve been regularly reading these articles. Ostensibly, the most impactful economic release was Wednesday’s US CPI report, providing an early update on how price pressures had evolved through July in the world’s largest economy. That report came in roughly as expected at 2.9% y/y (3.2% core), and it led to a relatively subdued market reaction as traders have moved on from inflation representing the biggest risk to the economy and Federal Reserve policy.

Instead, the market’s bigger focus is now on the labor market and the health of the consumer. Accordingly, Thursday’s much better-than-expected retail sales report (and the simultaneous release of strong earnings from retail giant Wal-Mart) alleviated concerns of an imminent slowdown in the economy and sharply reduced the expected interest rate cuts from the Federal Reserve this year to below 100bps (or 1%) worth. All else equal, these developments should be supportive of risk assets like Bitcoin and Ethereum, but prices clearly disappointed bulls’ expectations last week (more below).

Sentiment and Flows

The sentiment gauge we watch most closely, the “Crypto Fear and Greed Index,” fell to 27 last week. Overall, it has fallen toward the 1-year lows set earlier this month, potentially setting up a contrarian bullish reversal signal if we see any positive developments in the coming weeks:

Source: Alternative.me

Another way of gauging sentiment, flows into exchange-based cryptoasset investment vehicles, remained tepid last week. As of writing before the release of Friday’s data, Bitcoin ETFs have seen slight outflows of -$3.5M over the last four days. Over the long-term, inflows from “tradfi” investors provide incremental demand for Bitcoin and could help support the price.

Source: Farside Investors

Meanwhile, the outflows from Ether ETFs (namely the higher-fee legacy Grayscale product (ETHE)) have started to moderate slightly. These outflows, which have already totaled nearly 30% of the fund in just 3 weeks, could still continue for the next several weeks until it reaches a more appropriate level of assets given its fee structure.

Bitcoin Technical Analysis: BTC/USD Daily Chart

Source: StoneX, TradingView

Despite impressive recoveries in other risk assets like US stock indices and the original “non-sovereign store of value” asset, gold, Bitcoin struggled to get into gear last week. BTC/USD also saw a “death cross” of the 50-day EMA below the 200-day MA, signaling a possible bearish shift in the long-term trend.

 From a bigger picture perspective, the cryptocurrency continues to consolidate within its broad post-March range, leaving a neutral near-term outlook and a longer-term bullish outlook intact for now, though a break below 53K is looking increasingly likely and would call that perspective into question.

Ethereum Technical Analysis: ETH/USD Daily Chart

Source: StoneX, TradingView

Like Bitcoin, Ether remained relatively weak last week. ETH/USD similarly saw a “death cross of its own, and with prices below their previous Q2 range, the technical outlook for the second largest cryptoasset is decidedly less bullish. ETH/USD is trading well below its 200-day MA, as well as previous-support-turned-resistance at $2875, keeping the near-term bias to the downside for now.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos and be sure to follow Matt on Twitter: @MWellerFX