Q4 Crypto Market Outlook: Bitcoin and Ethereum Consolidation Continues

Bitcoin and Ethereum Takeaways

• Global interest rates are finally reaching their peak, presenting a more favorable backdrop for cryptoassets in Q4 and beyond.
• Market internals show the market is poised for a new bullish cycle if a catalyst emerges.
• Bitcoin remains relatively strong vs. Ethereum, but both are generally consolidating within their mid-year ranges.

Bitcoin and Ethereum Fundamental Analysis

“The opposite of love isn’t hate; it’s indifference.” – Elie Wiesel

Despite a dramatically fluctuatuating macroeconomic outlook, the highest interest rates seen in decades, and a complicated regulatory backdrop, Bitcoin and Ethereum have spent the last 6+ months consolidating within a few thousand points on either side of the $28K level. More to the point, all speculative interest in the entire cryptoasset space has been gobbled up by the latest investment theme du jour, Artificial Intelligence.

In other words, traders have gone from loving Bitcoin and Ethereum two years ago, to hating them at this time last year, to being completely indifferent to them today.

Under the surface though, there are signs that the cryptoasset space may be ever so gradually entering a new bullish cycle. From a monetary policy perspective, global central banks appear to be approaching their peak interest rates, barring a surprise resurgence of inflation, with fewer and fewer central banks raising interest rates each month:

Source: Alphacast

Even if the Fed or Bank of England is able to squeeze in another rate hike this quarter, it would likely be a “one and done” scenario before a longer period of either holding interest rates steady or outright cutting them if economic growth stumbles.

Keying in on crypto market internals, the proportion of Bitcoin’s supply that is held by long-term holders (>155 days) is approaching record highs above 75%. In contrast to short-term traders who try to capture quick moves, these investors tend to be “true believers” who rarely ever sell their coins, suggesting that the true supply of Bitcoin available to buy and sell may be lower than it has been in nearly a decade:

Source: Glassnode

Like a pile of dry kindling, this situation sets the stage for a potential “supply shock” if there is a catalyst that leads to an increase in Bitcoin demand. Meanwhile, Bitcoin’s “dominance,” or Bitcoin’s market capitalization relative to the total market cap of all cryptoassets, continues to trend higher above 50%. Traders will be watching for this ratio to roll over to signal increasing speculative appetite in the crypto market and the next bull market to start in earnest:

Source: TradingView, StoneX

Bitcoin Technical Analysis – BTC/USD Daily Chart

Source: TradingView, StoneX

Turning our attention to Bitcoin itself, prices remain within the broad $25K-32K range as we go to press. Looking ahead, the first zone of support to watch will be from $25,000-25,500, which has put a floor under prices multiple times already this year; a break below this zone exposes the Fibonacci retracements at $23,700 and $21,700 next. To the topside, there’s little in the way of resistance until the top of the 6-month range in the $31,000-32,000 area, and on the off chance that resistance zone is overcome this year, the next level to watch will be closer to $36,000, the 38.2% retracement of the 2021-2022 drop.

Ethereum Technical Analysis – ETH/USD Daily Chart

Source: TradingView, StoneX

Looking at Ethereum, the world’s second-largest cryptoasset has trailed Bitcoin of late. Ether is arguably in a bearish channel since peaking for the year in early April, with prices failing to exceed $2,000 since then (though bulls are putting up a fight to defend support in the $1,500-1,550 area as of writing at the end of September. Looking ahead, a break below $1,500 support would leave little in the way of nearby support until the Q4 2022 lows around $1,150. In terms of levels to watch on the topside, a recovery back to $2,000 would certainly satisfy many bulls after starting the year below $1,200, and a move much beyond that may be too much to ask in the current environment.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX