Bitcoin held onto crucial support levels last week, despite a sell-off in the Nasdaq and the S&P 500, showing initial signs of decoupling with the stock market.

During the U.S. trading hours Wednesday, major stock indices dropped to new yearly lows. The Nasdaq index of top 100 technology companies closed the week down by 4.45% and the S&P index fell by 3.05%.

While Bitcoin too declined by 3.29%, its price action appeared stronger than equities as it held above last week’s low of $25,400 and a crucial support level at $27,000. The failure of Bitcoin sellers to push the price below last week’s low is encouraging but still early to confirm a bottom. This is mainly because of the macroeconomic environment.

The broader financial market continues to face significant headwinds with a probability of falling into a recession due to higher prices of goods and services, the ongoing Russia-Ukraine conflict, supply chain disruptions due to Chinese lockdowns, and future interest rate hikes from the U.S. Federal Reserve.

The Fed Watch 

On Friday, the global stock markets staged a positive relief rally, which was backed by an interest rate reduction by the Chinese central bank. The People’s Bank of China reduced the five-year lending rate by 15-basis points, which improved the borrowing conditions in the COVID-19 affected country.

This week, the U.S. Federal Open Market Committee (FOMC) minutes due Wednesday will dominate the economic calendar. The meeting’s discussion will shine a light on the upcoming policy decision when the Fed increases the benchmark interest rates next month.

Currently, the market is largely expecting a 50-basis point hike, but if the Fed members incline towards a 75-basis point hike or higher, it can cause another sell-off in stocks, putting additional pressure on the crypto market.

Economic calendar for this week. Source: Forexlive

Patience Required 

The Commitment of Trader (CoT) data from last week showed that traders on the CME increased their BTC long positions. Although a positive sign, a closer look at the CoT data suggests that large institutions refrained from buying, suggesting that caution is required at this level.

Bitcoin CoT report analysis. Source: Tradingster

Additionally, Bitcoin’s long order volume reached its highest level on the Bitfinex exchange, which is a positive sign as, previously, these traders have profited from accurately predicting swing cycles.

However, several other negative signs are muddying the waters, including the data from crypto derivatives exchanges and options markets.

The funding rate across crypto derivatives exchanges have been uneventful since this year’s start. The magnitude of the funding rate on either side (long or short) has decreased considerably, suggesting indecisiveness among traders.

Bitcoin perpetual swap funding rate. Source: Blockware Intelligence

Additionally, the put/call ratio for Bitcoin hit a 12-month high of 0.72 Thursday, meaning that traders bought more put options—the right to sell Bitcoin in the future—than calls. A relatively higher put volume indicates bearish sentiment among investors. For the record, the options market reached a similar ratio last May, when Bitcoin dropped from $60,000.

Whales Still Absent

The on-chain indicators like Market Value to Realized Value ratio (mentioned last week) and HODL Waves for Bitcoin reached close oversold levels. However, the forces that help build momentum in whale buying activity or accumulation of short orders for a squeeze to the upside are absent in the short term.

Bitcoin’s supply held idle in wallets for over a year has reached an all-time high above 65%. This is a sign of strong hands by investors despite the >50% decline from last year’s highs.

In Bitcoin’s history, holders permanently lost many coins, and Satoshi’s coins are also considered forever locked. Thus, as time moves ahead, the supply of unmoved Bitcoin will always include these coins, which raises concerns about the accuracy of the above metric.

Looking closer at the supply of BTC unmoved for one to two years over the previous cycles, Bitcoin found a bottom formed at levels around 25-28%. Currently, it is around 20%; thus, it’s likely that the negative period could prolong before the BTC price starts to build upside momentum.

Bitcoin HODL waves. Source: Glassnode

Speaking about momentum building, there’s a concern about inactivity among whales and intense buying action among retail holders (Bitcoin wallets with supply less than <10 BTC), a worrying signal in the medium term. Last week, the retail investor cohort recorded the second-highest weekly increase in their BTC holdings.

Bitcoin supply held by retail (green) and 7-day change in their supply (blue). Source: Twitter

At the same time, the mid-tier whales—holding between 1,000 BTC to 10,000 BTC—have primarily refrained from buying the recent dip. The divergence between whales and retail sends a contrarian sell signal in the medium term as the price usually bottoms with extreme retail pain and initial buying action among whales.

For bottom pickers, I would suggest keeping a close eye for exceptional activity in indicators like the Token Age Consumed, Exchange Outflow, and Negative Sentiment. A considerable spike in these metrics could provide a perfect buying opportunity for short term traders.

Bitcoin’s Make or Break Moment 

The main point of contention for BTC traders is whether the chart is starting to form a double-bottom pattern or will continue to reach the target of $17,000, following the head and shoulder (H&S) pattern.

For the latter scenario, sellers need to stage a breakdown below the recent low of $25,400 that would quickly drive BTC to $20,000 and lower.

The other likely scenario is the BTC/USD pair falling back towards the $27,000 region and then recovering towards the $35,000 resistance zone, forming a double bottom pattern.

BTC/USD Daily price chart. Source: Trading View

ETH’s Path Not Clear

Much like Bitcoin, Ethereum’s technical outlook is not clear. It is far too premature to call a bottom in the ETH/USD pair as it has yet to reach its present bearish targets.

First, a large head and shoulders pattern on the higher time frame threatens a decline below the $1,000 level. At the same time, a bearish triangle pattern breakout is also starting to mature, with a similar target as the H&S pattern.

Ethereum traders that feel compelled to buy into a price dip would probably be waiting for the $1,800 support zone, expecting a double bottom pattern to form with a stop loss under the yearly low at $1,700.

Should the above scenario play out, the expected target for ETH would be somewhere close to the $2,500 resistance area.

ETH/USD Daily price chart. Source: Trading View

More Of The Same for XRP 

Last week, I proposed a scenario where XRP’s price action acts as a proxy for the entire crypto market. If XRP can hold above the support of around $0.3500, it will be a potential signal of bottom formation across the broad market.

The playbook for this week remains the same. If this scenario occurs, I think XRP could stage a bounce towards the $0.6000 area.

On the contrary, if sellers broke the $0.3500 level, it would be a terrible sign, and I would not be surprised to see further double-digit losses in XRP and other top coins.

XRP/USD Daily price chart. Source: Trading View

Facing the Reality

The reality is that things are still unclear for the cryptocurrency market, and the dominant trend is bearish. Since last week, very little has changed regarding the technical and fundamental backdrop.

The on-chain and market data remain mixed as well. Although some good signs have emerged, and many critical on-chain metrics are near oversold conditions, they are far from confirming buy signals.

My overall take for this week is to tread very carefully and closely watch the backdrops spilling over into crypto—namely, declining stock, Ukraine risks, and institutional participation.