Blockster Weekly Cryptocurrency Update

Recent Price Action

Bitcoin – The first month of 2022 was a complete disaster for Bitcoin. During the month of January, BTC lost over 10,000 points. On 21 January, BTC fell below the critical support level at $39,713 (Chart #1). The short-term chart pattern will remain bearish as long as Bitcoin remains below $39,713. The momentum is clearly in favor of the bears. The next level of support is $31,710 (Chart #2).

Despite the recent brutal decline, the weekly chart remains bullish. However, the bears could easily push the momentum in their favor during the next few weeks. Chart #3 displays the weekly support level at $28,383. The chart will turn bearish on a Friday close below $28,383. Based on the recent price action, it certainly appears as though Bitcoin will drop below this major support level within the next few weeks.

On-balance volume (OBV) is one of the most popular indicators within the Bitcoin trading community. OBV was developed in 1963 by Joseph Granville. OBV is a momentum indicator designed to use volume activity to predict changes in stocks, commodities, forex and cryptocurrencies. Granville believed that volume was the key ingredient to forecasting major moves in speculative assets. According to Granville, a major spike in volume is often preceded by a substantial rally in risk assets.

Granville was a big believer in investor sentiment. According to his research, speculative assets rarely generated a substantial move without a coordinated purchase by a large group of investors. Granville developed OBV as a way to measure investor sentiment and attempt to generate a profit by trading in the same direction of the sentiment.

The objective of on-balance volume is to determine when institutional investors have entered the market. Typically, trading volume will increase substantially when institutional money enters and exits the market. Granville believed that an increase in volume was often followed by a subsequent increase in price. Conversely, Granville believed that a decrease in volume preceded a major low.

Chart #4 contains nine months of Bitcoin trading activity. OBV is displayed at the bottom of the chart (red line). As you can see from the chart, OBV performed incredibly well at forecasting major turning points in Bitcoin. For example, on-balance volume declined substantially on 21 June 2021. OBV recorded one of its lowest levels of 2021. The heavy decline in volume marked an important low in BTC on 22 June at $28,957. This was an excellent buy signal.

OBV forecasted another important turning point on 11 November. The indicator recorded one of its highest readings in several months. The huge spike in volume indicated a major reversal in the price of Bitcoin. As you can see from the chart, BTC immediately rolled over to the downside following the spike in OBV.

During the past few trading days, OBV has recorded very low readings. This is an indication that Bitcoin could be on the verge of posting a major low.

Ethereum – The intermediate-term chart pattern turned bearish on 24 January when the price of ETH declined below $2,807 (Chart #5). The momentum is clearly in favor of the bears. The next critical support level is $1,998 (Chart #6). In order to reverse the bearish trend, ETH must generate a weekly close above $3,888. The most likely scenario is a trading range for the next several days.

The Relative Strength Index (RSI) is one of the most popular technical indicators in the crypto trading community. RSI is a momentum oscillator designed to forecast tops and bottoms in stocks, commodities, forex and cryptocurrencies. During the past few years, RSI has worked incredibly well with Ethereum. It has captured all of the major turning points.

Chart #7 displays nine months of ETH trading activity. The oscillator is located at the bottom of the chart. RSI fluctuates between 0 and 100. However, it rarely moves above 75 or below 25. A reading above 75 is considered extremely overbought. Conversely, a reading below 25 is considered extremely oversold.

As you can see from the chart, RSI recorded a reading of 21 on 27 January. This marks the first time in over two years that ETH has fallen below 25. Based on the RSI oscillator, it’s quite possible that Ethereum generated an important low on 24 January at $2,163.

Solana – One of the biggest movers in 2021 was Solana (SOL), with a gain of 11,216%. During the first month of 2022, SOL has experienced a sharp correction, along with the entire crypto universe. Solana declined 42% in January (Chart #8).

Despite the recent decline, the long-term chart pattern continues to remain bullish. As long as Solana stays above $66.36 on a weekly closing basis, the momentum is in favor of the bulls (Chart #9).

Chart #10 contains Fibonacci support and resistance levels for SOL. The Fibonacci indicator is one of the most popular tools in the crypto trading community. During the past several years, Fibonacci has accurately forecasted major tops and bottoms in several cryptocurrencies. As you can see from the chart, Solana briefly violated the Fib support level at $88.22. However, the bears have been unable to generate a daily close below this important level. This is good news for the bullish camp. If SOL can create a weekly close above $124.51, the short-term trend will reverse from bearish to bullish.

Will Cryptocurrencies Become A Major Asset Class?

What is an asset class? It is a group of financial instruments which have similar financial characteristics and behave similarly in the global marketplace. From a broad macro perspective, these financial instruments are divided between real assets and financial assets. Real assets consist of commodities and real estate. Financial assets consist of stocks, bonds and cash. Therefore, there are a total of five major asset classes.

During the past few years, an increasing number of investors have argued that cryptocurrencies should be listed as a major asset class within the realm of financial assets. Their argument is based on the fact that cryptocurrencies are playing an ever-increasing role in the global investment ecosystem. Are cryptocurrencies on the path to being recognized as a major asset class? Let’s discuss the details.

Without question, the crypto universe has experienced unprecedented growth during the past decade. In terms of Bitcoin market capitalization, the rate of growth has been staggering. Please review the market cap of BTC from 2013 through 2020. This data was gathered from Statista.

During the past nine years, the market capitalization of Bitcoin has increased 107,745%. From a historical perspective, this represents the largest percentage move of any asset class over a

9-year period. How does the market capitalization of cryptocurrencies compare with other major asset classes? Please review the following data provided by Bloomberg, Savills PLC, Futures Industry Association and Federal Reserve System.

As you can see from the data, Bitcoin is tiny compared to the other major asset classes. In fact, even if we include the market cap of all cryptocurrencies, the values are not even close. Cryptocurrencies are less than 1% the size of the smallest major asset class, commodities. However, the relative size of the crypto universe should not be the only determining factor when deciding if cryptocurrencies should be listed as a major asset class.

In addition to market cap, another important factor is asset correlation. For example, do cryptocurrencies move in the same direction of the other major asset classes? Based on historical results over the course of the past decade, the answer is “No.” Cryptocurrencies have a tendency to move independently of stocks, bonds, commodities and real estate. Asset correlation is a very important determining factor because it provides investors with the opportunity to diversify their investment portfolios.

Arguably, the most important factor in determining the suitability of cryptocurrencies as a major asset class is availability. Are cryptocurrencies available to the global investment community? Can investors from all over the world buy and sell cryptocurrencies? Generally speaking, the answer is “Yes.” In fact, in terms of accessibility, cryptocurrencies have a longer global reach than stocks, bonds, or commodities. It’s much easier for people in developing countries to purchase cryptocurrencies in comparison to stocks, bonds, and commodities because cryptocurrencies are decentralized. They are not linked to centralized exchanges or legacy financial systems. This is a huge benefit for cryptocurrencies.

Recognizing cryptocurrencies as a major asset class would be incredibly bullish for Bitcoin because it would encourage institutional investors, pension funds, family offices, and endowments to become crypto investors. For the most part, institutional money has remained on the sidelines in regard to cryptocurrencies. Large institutional investors and high net worth individuals have basically ignored Bitcoin and other cryptocurrencies as a legitimate investment vehicle. The attitude of the global investment community will completely change if cryptocurrencies are classified as a major asset class. Based on the continued growth rate of Bitcoin and other cryptocurrencies, it’s only a matter of time before everything in the crypto universe is listed as a major asset class.

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