Bitcoin and especially altcoins came under significant downside pressure last week. The sell-off resulted in nine straight weeks of losses in Bitcoin, closing below $30,000 with 2.7% loss.

What was more surprising is that the movement did not correlate with the U.S. stock market, which broke its 7-week losing streak to close higher in the green. Wall Street started to advance after minutes from the Federal Reserve’s May meeting showed that policymakers were optimistic about the U.S. economy and were not looking to impose higher interest rates than discussed already—two 50 basis point hikes in June and July.

Since the markets tend to look roughly 6-12 months into the future to discount what investors believe will occur, no change in the Fed’s plan resulted in buying action in stocks. However, Bitcoin and the crypto market failed to capitalize on the rise in risk-on assets.

Bitcoin has essentially ranged between $30,700 and $28,600 for the last two weeks. The niche market experienced a sudden risk-off move with a steep decline in altcoin prices. Bitcoin’s dominance over the crypto market surged 8.66% in May.

The uptrend in stock markets and Bitcoin’s lead in a bearish crypto market are building a slight possibility of a relief rally this week. Today’s recovery in BTC prices, after China’s positive news regarding easing lockdown measures is just the type of news that the top coin thrives on. It is a clear example of why we should not write off Bitcoin amidst rising risk-on sentiment.

Watch Out for Jobs Statistics

The U.S. jobs market report dominates this week’s economic calendar. The world’s largest economy releases a slew of jobs data, highlighting the current situation in a challenging economic backdrop.

The unemployment rate has reached pre-COVID levels, which keeps recession at bay and allows the Fed to take active steps. Now, the Fed will look to control the increase in wages, which will contain the consumer price inflation.

Last week’s Fed meeting minutes showed that their chairman is preparing for “some pain” down the road as the central bank attempts to rein in inflation. This may include a slow down in new hires, layoffs, and slashing benefits like business class travel or other perks.

Thus, a fall in employment numbers may not deter the Fed and the economy. On the other hand, an upbeat jobs market will indicate that the economy is indeed in a strong position, which will aid the rise in stock prices.

Economic calendar for this week. Source: Forexlive

Dominance Play

The increase in Bitcoin dominance was consistent throughout last week and rose past 46%. History has shown that this signals bearish sentiment among crypto investors as they sell altcoins for safer assets.

Given the risk-off environment in broader financial markets, we could well see Bitcoin further outperforming the market over the coming quarter. This will probably not translate to Bitcoin posting spectacular price gains ahead. However, it does let us know that a price stabilization recovery in BTC of sorts could be coming in the short term.

Bitcoin’s market dominance chart shows a triple-bottom price pattern on a weekly time frame. The price has also moved above the 20 and 50-week moving averages.

More interesting for me is the magnitude of bullish divergence formed during last year’s steep decline in BTC market dominance. I think traders need to pay close attention to it if confidence in altcoins remains weak after the recent Terra Luna episode.

In general, these are very encouraging technical signs, making a solid case for a potential rally towards the 50% dominance area, which marks a primary psychological level.

Bitcoin Market Dominance Daily price chart. Source: Trading View 

On-Chain 

As Bitcoin’s price moved in a parallel range over the last few weeks, not much has changed in long-term indicators like market value to realized value ratio, which are close to oversold levels. The lower price level on such indicators is around $21,000. I am more interested in short-term catalysts that could likely help in a bullish breakout.

Last week, Bitcoin’s difficulty dropped by 4.3%, meaning mining a block became easier. Consequently, the Bitcoin network’s total hashrate increased as miners who were earlier facing a loss resumed operations after the difficulty adjustment.

Bitcoin difficulty. Source: blockchain.com

The above phenomenon avoided a miner capitulation due to decreasing hashrate as Bitcoin trades below the production price of $33,800. The Hash Ribbon indicator, a strong capitulation pointer, had reached its crossing point earlier this month.

A crossover of the lines would have indicated ongoing capitulation, which usually accompanies steep price declines. However, the rise in hashrate resulting from the downward difficulty adjustment avoided the adverse event for now.

Bitcoin Hash Ribbon indicator. Source: Glassnode

There still exists a chance of a capitulation event as the two lines of the Hash Ribbon indicator are moving narrowly close to each other. A slide below $30,000 this week would again force miners out of business. This time, the small miners may need to shut it down completely for not having enough working capital to cover the running costs of miners.

On the other hand, if Bitcoin’s price can gain above $33,800, the supply-side ecosystem will likely thrive without losing a portion of the total hashrate due to reduced profitability.

Bitcoin’s Supply Distribution chart flashed a green signal for the first time in several weeks as mid-tier whales with 1,000 to 10,000 BTC showed bottom signs. This cohort of investors added to their position for the first time in the second quarter. Nevertheless, the ongoing uptrend in retail holdings—wallets holding less than 0.1 BTC—continues to send a contrarian signal for bears.

Bitcoin’s Supply Distribution chart. Source: Santiment

Overall, Bitcoin’s on-chain picture looks positive for the short and long term. However, the overhanging capitulation among retail buyers and small-scale miners will likely happen sometime in the future, weakening medium-term bullish prospects.

Bitcoin’s Chance

There are some solid technical signs for Bitcoin now, starting with the triple-bottom pattern on Bitcoin’s market dominance chart. Another clue is a potential double-bottom pattern on the BTC/USD chart. Bears have had plenty of attempts at the $28,000 level and have failed on all occasions.

If this continues to be the case, I would like to see BTC/USD trading above its 20-day moving average, around $29,500 on a sustained basis. This is something bulls have been unable to accomplish since early April.

Notably, it is exciting to watch BTC/USD Longs on Bitfinex sitting at record highs. Moreover, CME traders also hold a bullish penchant on average, as reflected in the Commitment of Traders report. Both of these signal a rising long interest among professional traders.

Another potential scenario would be for BTC/USD to stage a fake move towards the $27,000 area before reversing. This will give interested buyers an excellent risk versus reward opportunity if they place their stops under the yearly low.

BTC/USD Daily price chart. Source: Trading View  

ETH Becomes Interesting

If we see Bitcoin rallying, it will make sense for Ethereum to follow, given their position as the top two cryptos that investors trust.

As mentioned earlier, investors are practicing caution right now. Thus, only a sustained bullish action in Bitcoin would see liquidity flowing back towards other coins. If Bitcoin leads considerably ahead of ETH, it may be a time to look for ETH long.

I would suggest paying close attention to the crypto total market cap chart (excluding BTC) and Ethereum chart for signs of bullish divergence in Ethereum. If ETH/USD were to recover alongside BTC/USD, I would say that $1,920 would be the first spot to watch. Above this area, buyers would likely target $2,200 and $2,600.

While the trend favors the top two cryptocurrencies, it is not certain that these will outperform the entire market. Other coins such as Ripple and Solano are also sitting at lucrative buy levels at the moment.

ETH/USD Daily price chart. Source: Trading View

Getting Warm

If we look at Bitcoin and the broader cryptocurrency market dispassionately, a case can be made for both bulls and bears. The final confirmation will come after a successful breakout from the current range. With that said, I am becoming slightly more bullish.

I happen to like the fact that bears have failed to make traction under the $28,000 to $27,000 price range and that its market dominance does look like it could be on track to recover further.

Looking at the multi-day divergence between Bitcoin and tech stocks, I think it’s too early to call a decoupling here. I honestly believe that this correlation will remain in place. And if tech stocks continue to recover, Bitcoin will eventually be a beneficiary.