As rumors circulate about investigations into Digital Currency Group (DCG) by both the SEC and the FBI, the crypto market experienced a modest mid-week gain, only to close the week within the same consolidation range. BTC briefly touched $26,300 during the week but retraced to around $25,700, while ETH remained stuck at approximately $1,630 throughout the week, failing to respond even to ARK Investments' spot ETH ETF filing.
The crypto market sentiment remains pessimistic, mirroring a weaker performance in the US stock market, where risky assets faced challenges amid the backdrop of a persistently strong US dollar.
Examining social metrics, trader sentiment has grown increasingly bearish. While historically, this bearishness could be seen as a contrarian signal, the current macroeconomic and geopolitical environment suggests caution regarding the possibility of a sustained bounce.
BTC Metrics Reflecting Weakness
Several BTC metrics have been signaling weakness lately, potentially indicating a period of price vulnerability:
- Exchange Reserve Increase: The supply of BTC on exchanges has risen by 3.1% over the past two weeks. This uptick in exchange supply suggests that some BTC holders might be preparing to sell their assets, which could lead to price declines in the near future.
- MVRV Indicator: BTC's MVRV has returned near a crucial support level of 1.2. Typically, an MVRV reading below 1 indicates a favorable buying opportunity for long-term holders, historically signaling price bottoms. The MVRV's performance in the coming weeks, especially leading up to the FED meeting scheduled for September 19-20, will be pivotal in determining market direction.
- BTC SOPR: The BTC SOPR (Spent Output Profit Ratio) has recently broken the equilibrium level of 1, signifying that average holders are selling at a loss. Historically, when the SOPR exceeds 1, it indicates rising price momentum, while falling below 1 is followed by price declines. The SOPR breaking below this crucial level suggests the potential for lower prices ahead.
FTX's Upcoming Asset Disposal Pressures Altcoins
Over the weekend, news that FTX is likely to gain approval to dispose of its crypto holdings on September 13 added to the market's woes. FTX reportedly holds approximately $3.4 billion in cryptocurrencies as of April, and the proposed plan involves selling up to $200 million worth of crypto weekly. If realized, this would mean an extended period of coin disposal lasting around 4.5 months. FTX's wallet comprises significant amounts of FTT and SOL, among others. The market may continue to experience pressure until the court approves the disposal plan, coinciding with the release of August US CPI data on September 13, thereby increasing the potential for heightened volatility.
Strength of the US Dollar Impacts Markets
US stocks faced declines last week due to renewed rate hike concerns triggered by the ISM Services index, which reported a figure of 54.5 compared to an estimated 52.5. The index's prices component also rose 2.1% to 58.9% in August, indicating emerging price pressures. This development led to rising US Treasury yields, pushing the 2-year yield above 5%. The S&P fell by 1.3%, the Nasdaq by 1.9%, and the Dow by approximately 0.8%. Notably, Apple shares contributed significantly to the Nasdaq's decline following restrictions imposed by the Chinese government on the use of iPhones by officials. Escalating tensions between the US and China have reintroduced uncertainties surrounding government policies and their impact on corporate profitability.
In this environment of renewed geopolitical tensions, the US dollar has maintained its status as a safe haven. It has continued to benefit from being the "cleanest dirty laundry in the room" as the US economy remains one of the strongest among its global peers. Consequently, the DXY (US Dollar Index) gained 0.8%, impacting gold, which fell by 1.2%, as investors preferred the yield of the dollar over gold's zero yield. Silver experienced a more significant drop of 5.3%.
Amidst these market dynamics, oil emerged as a notable exception. Saudi Arabia announced an extension of a voluntary 1 million barrels per day production cut until year-end during the OPEC+ meeting. This cut, combined with other voluntary crude output reductions by some OPEC members until 2024, led to a rise in oil prices. Brent increased by 1.76%, while WTI gained 1.35%.
Upcoming Market Events
This week, market activity may intensify post-Wednesday, coinciding with the release of the US CPI data for August. On Thursday, retail sales and unemployment claims data will be released, followed by the Empire State manufacturing index and consumer sentiment on Friday. In the currency markets, the ECB will hold its monetary policy meeting on Thursday, potentially impacting the Euro.
Notably, Japan's benchmark 10-year government bond yield reached its highest level since January 2014 following Bank of Japan Governor Kazuo Ueda's comments about considering the possibility of lifting the central bank's negative interest rate policy. This unexpected development has triggered yen buying and a weakening US dollar, possibly influencing the strong dollar trend if it persists.
