Wind of change

The market continues in that marked dichotomy between ETH and BTC as we have commented in other posts.

We have a BTC in a clear support zone, in addition to the bottom zone of the old distribution channel, that is, we have revisited the low zone of the last fall

In the case of ETH, we have not only entered the zone of the old distribution channel, but the correction has stopped at the support zone of approximately USD 1,500

This leaves us with an interesting market situation where the contexts are very different. In the two largest assets, the sentiment clearly differs from a bearish position to a more neutral bullish one, and that is surely due to the great milestone of the crypto market in the coming days, which will undoubtedly be the Merge of the ETH network.

Divergences between BTC and ETH

How can we measure this situation of divergence in the market?

Well, the simplest way is to see the relationship between the two assets.

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Today we have trading platforms capable of doing this, and more. In the case of TradingView, we can indicate that the chart calculates the relationship between these two assets, showing how it is at its lowest right now. In other words, the relationship between BTC and ETH is in a situation of minimums of the first with respect to the second

This is a fact that we could qualify as significant. We can verify this by comparing this metric with the market capitalization data, in which it stands out that at times of increase in the ratio (BTC above ETH), they coincide with bear markets, and vice versa

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Merge Impact

Beyond this circumstance, we can try to look for the impact of the Merge a little further and see the evolution of the DeFi ecosystem in recent weeks or months.

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In this case, we can see a slightly upward evolution but significantly higher than BTC. It is possible that we will see promotions in other networks considered competition of ETH, foreseeing possible alternatives

Change of trend in the market

What we can appreciate from a quantitative point of view is that the market is changing its context. We can see it with systems that we are testing in different timeframes.

These systems were in short medium and short-term positions, and we are seeing how a process of closing these positions has begun and a process of opening bullish positions has begun.

Obviously, as the market has accustomed us, this is not going to be immediate but we are going to see a progressive change in positions. But it is very significant that we begin to see these changes

Still, we must watch the positions of the dominant asset, Bitcoin, which seems to be still in a strong bear market with a recent visit to lows. This could invalidate all the previous arguments

Increased activity in the market

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Let’s also not forget the fact that the market is liquid and its structure is constantly changing. It is perfectly noticeable how in recent months we are seeing an increase in capital turnover and this would indicate that investors are expectant and are moving their assets looking for good positions so as not to miss the next bull-run, or making moves to protect their purse.

What is clear is that there seems to be less of a tendency to hold crypto assets indefinitely.

Macro context in the last quarter

To close this post, we could not stop talking about the macro context in traditional finance or tradFI.

After the ECB’s announcement, it seems clear that we are entering a scenario of strong contraction in order to reduce the high levels of inflation. The question is whether this is going to be achieved with such high energy prices

I guess at least the hope is to mitigate the impact a bit and control those price spikes, but as Powell said in Jackson Hole, the price to pay will be high and there will be pain…

The big question remains how the cryptoactive market will behave in a scenario of contraction and recession at the macro level. If the entire economy enters a phase of contraction, the assets most affected by the reduction in liquidity will be the most volatile and risky

We still do not have the answer, but investors will have to start deciding where they classify crypto assets within their portfolio and risk profile, and even if the parameters to decide their risk profile should not start to include other variables that reveal the fragility of the FIAT system