CoinLoan Weekly: BTC stagnant before $30K, ETH's pre-Shapella rise, economic blues
After a 7-day low of $27,629.01 on Tuesday, April 4, Bitcoin topped out at $28,616.17 the following day. Next came a return below $28,000, a volatile Thursday with a lower low, and a flat Friday. BTC then see-sawed between just under $28,000 and $28,130 until late Sunday, April 9. The next day, its price finally breached $29,000, jumping as high as $29,249.09.
While BTC was stuck at around $28,000, the Crypto Fear and Greed Index remained locked in the greed zone. Investors were mulling over several bearish signals, from disappointing US non-farm payroll data to lower-than-expected Services PMI (Purchasing Managers' Index). The revised jobless figures left most investors unmoved, despite being favorable for the market.
At press time, BTC has broken above $30,000 for the first time since last June. According to Richard Mico, Banxa's US CEO and Chief Legal Officer, "the market is pricing a slowdown in growth, and in turn, a loosening of monetary policy by the Federal Reserve over the course of 2023." Crypto investors may expect a significant liquidity influx, partly as the narrative around BTC is shifting: "BTC is now properly starting to be perceived as a risk-off asset," Mico says.
At press time, BTC is trading at $30,079.00, with a 24-hour gain of +6.2% and a 7-day rise of +8.1%.
Ether outperformed Bitcoin ahead of the Shapella upgrade. It rose steadily from below $1,800, reaching a 7-day high of $1,921.33 on Wednesday, April 5. After a slight dip, the price fell below $1,880 the next day and past $1,860 on Friday, April 7. The first day of the weekend brought a short-lived uptick. Then, in tandem with BTC, ETH soared on Monday, April 10, almost touching $1,900.
Traders' sentiment appeared contemplative, while whale enthusiasm waned and the exchange supply stagnated. As the Shapella upgrade looms, the share of ETH transactions worth $100,000 and above has shrunk. Based on Santiment's data, between March 11 to April 10, whale transactions sank to 2,346 — an 84% decline.
Combined with flat exchange balances, the plunge reflects doubts about ETH's short-term future. Following the previous price hike in March, investors moved their coins out of exchanges into cold wallets to position themselves for future profits. Stagnant supply may impede explosive price action in the wake of Shapella, as fulfilling buy orders with reduced volumes creates upward pressure.
At the time of writing, ETH is worth $1,921.22, with a 24-hour increase of +3.2% and a 7-day rise of +6.1%.
Ripple lost ground at the beginning of the week, slipping from over $0.522. It dove to a 7-day low of $0.491427 on Tuesday, April 4, bounced back the next day, and swiftly declined, hitting $0.496 on Thursday, April 6. After starting the weekend at around $0.514, XRP gradually descended until a boost on Monday, April 10. After trading near $0.508, XRP reached $0.513581 close to midnight.
On April 8, XRP jumped after Ripple was reported to be the sole "platinum partner" at the upcoming Digital Monetary Institute (DSI) Symposium. This annual two-day event, scheduled to start on May 10, is devoted to the theory and practice behind CBDCs and financial markets. Its previous participants include 126 central banks, US Treasury, and experts from across the sector, but no crypto firm has secured a premium status before.
Last week also brought a new twist in the SEC vs. Ripple case. According to a statement by the regulator's expert, up to 90% of XRP fluctuations since mid-2018 may be explained by the movements of BTC and ETH. Lawyer Jeremy Hogan expects a "split" outcome based on this assumption. If the judge rules that XRP sales constituted unregistered security sales until mid-2018, the blockchain firm may be fined.
As of this writing, XRP is trading at $0.523514, with 24-hour growth of +3.6% and a 7-day gain of +5.3%.
ETH rises as investors anticipate Shapella
Ether leapt mid-week as the final countdown to the Shapella (Shanghai + Capella) upgrade started. On Wednesday, April 5, the coin reached $1,921.33, the highest price in nine months. According to MarketWatch, it is now 60.62% up year-to-date, behind BTC's 81.35%.
Since 2020, investors have been able to stake ETH to earn an income as transaction validators. Starting this Wednesday, April 12, they will be able to withdraw those locked-up coins. Previously, they could only exchange them for other tokens via CeFi or DeFi platforms and protocols like Lido.
The rally resembled the bouts of enthusiasm ahead of the previous technical revamps. For example, in September 2022, Ether sprang up shortly before the network transitioned to Proof of Stake, a more sustainable consensus mechanism. With the Merge upgrade, validators replaced miners, who had expended computing power to solve complex puzzles and mint ETH.
Ethereum Foundation researcher Danny Ryan has noted that ETH is becoming a "productive asset… not something you might just speculate on, but it's something that can earn returns." Furthermore, "it's probably the lowest-risk return inside of the Ethereum ecosystem," considering smart contract vulnerabilities and counterparty risk in DeFi.
Possible impact on ETH price
The total staked amount — over 18 million ETH worth roughly $33.7 billion — constitutes 15% of the total supply. To prevent too many simultaneous withdrawals, stakers will join queues. Yet while some experts predict a boost in Ether's long-term profitability, others worry about short-term flooding.
K33 Research estimates that $2.4 billion worth of ETH could be released into the open market. The risk of technical glitches remains, and some nodes may have lost the keys to their staked holdings.
However, if the withdrawals go smoothly, more investors are likely to stake ETH, leading to an influx of capital. Bloomberg analysts expect the demand for withdrawals to initially eclipse new deposits, with staking becoming more appealing afterward.
The Block has reported an upswing in the ratio between the open interest of ETH put and call options. The highest level since May is a possible sign of a bearish bet accumulation ahead of the upgrade.
Around 70% of all staked ETH is locked in DeFi protocols like Lido, which may enable withdrawals in May. Lido alone holds roughly a third of all staked ETH.
The remaining 30%, according to research firm Bernstein, belongs to "original believers," who are unlikely to exit their positions at current prices. Meanwhile, the volatility of liquid-staking tokens could rise.
Economic blues keeps BTC stuck at $28,000 before a surge
Despite the bank fears subsiding, Bitcoin failed to breach $30,000 last week. According to Bloomberg, the $29,000-to-$30,000 area, where it had found support before, was an upside barrier.
In Q1 of 2023, BTC's reputation as an inflation hedge and TradFi competitor helped it outperform other major assets. However, the liquidity and volumes in the crypto market stayed below the levels that preceded last year's black swans. Fundamentally, this market is yet to recover, and there is no "narrative for price action," according to Aya Kantorovich, FalconX's former head of institutional coverage.
"You're not necessarily seeing net new users," she told Bloomberg. Although the banking turmoil has energized BTC bulls, institutions flocked to other "safer" assets such as ETFs or mutual funds. "The immediate reactions will typically be either retail or already engaged crypto traders or institutions."
Bear market blues
The week delivered several bearish signals. First, the March non-farm payroll data stoked recession fears. Not only is the increase of 236,000 jobs in March well below the 239,000 projected by economists polled by Reuters. It is also the lowest monthly increase since December 2020, combined with slower pay growth.
These changes stem from weakening consumer demand and more expensive borrowing. Furthermore, the International Monetary Fund expects the global GDP to grow by about 3% over the next five years, the slowest pace in two decades.
Finally, the Services Purchasing Managers' Index (PMI) also fell short of expectations. According to the Institute for Supply Management, it reached 51.2% in March instead of the projected 54.5%. A measure of market conditions, a falling PMI suggests an economic contraction.
What lies ahead
Kadan Stadelmann, CTO of blockchain infrastructure development firm Komodo, believes "the market is undecided," while the risk-off sentiment has been positive for BTC. "The bank runs we have seen in recent months build the case for Bitcoin. They are why Bitcoin was built," he explains.
Stadelmann suggests BTC's rise above $30,000 this week may be short-lived. Subsequently, deeper recession fears may trigger panic selling followed by a quick rebound.
Seasonality may also come into play. Typically, BTC has performed well in April, with an average monthly gain of 15.63% over the past five years. As per Bespoke Investment Group, April is the second-best month behind October.
Matt Maley, Miller Tabak + Co.'s chief market strategist, suggests BTC is a victim of its own success. Recent dramatic swings in both directions have been followed by range-bound trading. "Once it makes that move, investors get nervous about the move, and then the crypto falls into a sideways range for a while," Maley says.