Last week, Bitcoin staged this year’s largest single-day rally of 14.5%, pulling up the total market capitalization of cryptocurrencies to nearly $2 trillion. While other risk-on assets suffered under the bearish pressures of the Ukraine-Russia conflict, the crypto market showed early signs of decoupling. 

The bullish catalyst for the rise was increasing attention towards the crypto market amid the conflict. It became the number one medium for donations to Ukraine; simultaneously, Russians benefited from its use to avoid financial sanctions. 

Despite the strong hype around the above narrative, it still didn’t justify the near 15% increase in price, especially given the U.S. Treasury secretary stated that they are monitoring the use of cryptocurrency in Russia to bypass sanctions. 

Moreover, on-chain indicators flashed a red flag at the start of the week, making me even more confident about a potential bull trap above $42,000. 

Bitcoin quickly pulled back after suffering a big rejection from the $45,000 level. A Russian missile struck Europe’s largest nuclear power facility, the Zaporizhzhia plant in Enerhodar, which acted as the negative catalyst. 

Last week’s closing below $40,000 will likely accelerate the selling pressure. As the conflict continues to dent global finances, my short-term outlook for the crypto market stays negative.  

Bond Moves

The big question remains whether the U.S. Federal Reserve will announce an interest rate hike in the mid-March meeting. 

As mentioned earlier, we should not rule out the March interest hike because of the tension in Eastern Europe. There is still a considerable risk of a full 50 basis point hike. Although, my money is on 25 basis points. 

Under normal circumstances, the FED would react by raising the rates to curb inflation. However, the slow period of growth in the aftermath of the COVID-19 crisis and new economic sanctions due to the Russia-Ukraine crisis has continued to hinder the global supply distribution, which could cripple further under high borrowing rates. 

Moreover, the United States bond market shows emerging signs of an imminent recession. The difference between the 2-year and 10-year bond yields is close to 25 basis points, falling over ten since last month. An inversion of the 2-year and 10-year spread is typically an indicator of a recession.

Raising the rates under the current period of slow growth could cause further harm to the economy. However, if inflation runs hot, it could lead to social unrest and debt defaults. Thus, it’s likely that the FED will begin raising interest rates, probably at a slower rate than expected before. 

This Thursday, the Consumer Price Inflation (CPI) data release will be a big one to watch. February’s CPI percentage around or above 7% risks a huge drop in risk-on asset prices. 

Also, remember that the current rise in fuel price will likely cause another surge in CPI numbers for next month.

Important events for the week. Source: Forexlive.com

On-chain Risks

According to data from Kraken Intelligence, the amount of BTC and ETH held by whales—BTC addresses with > 1,000 coins and ETH addresses with > 10,000 coins—increased slightly from 8.01 to 8.06 million BTC and 81.2 to 81.4 million ETH in February. 

After a period of sluggish buying action, the on-chain metrics flashed a strong negative signal last week. 

On the last day of the previous month, there was considerable redistribution among whale BTC holdings. The movement triggered several negative indicators. 

The Token Age Consumed (TAC) metric, which measures the number of tokens changing addresses multiplied by the time they last moved, spiked on Feb. 28, indicating a big upcoming directional move. At the time, the price of Bitcoin was around $38,400.

Token Age Consumed metric for Bitcoin. Source: Santiment.net

Following the spike in the TAC metric, a couple of other negative indicators lined up during the course of the week. First, the Supply Distribution chart from Santiment highlighted a sell-off among whale addresses.

The green (BTC add. > 10,000 coins) and peach line (BTC add. with 1,000-10,000 coins) following a negative trend in February. Source: Santiment.net

Second, the Net Realized Profit and Loss (NPL) metric also surged to a monthly high, indicating ongoing profit booking. Combined with TAC, the on-chain picture looked significantly bearish. 

Currently, Bitcoin is trading around the levels of the TAC surge at $38,400. Consecutive daily closes below this level would further confirm a sell-off. The size of the spike suggested an imminent move of around $5,000, which neatly aligns with this year’s low of $33,000. 

Don’t Call Me Bullish

As Pro BTC Traders readers will know, I have had a bearish view from $43,500 last week. 

According to the TradingLite order book heat map, BTC buyers ran into a sell wall from long-standing whale orders between $44,500 and $45,000 area last week. I ignored the bullish narrative from social media and issued a sell signal in that region after confirmation from on-chain indicators.

Moreover, being exposed to a BTC long position above $44,000 is just far too risky in the current macro environment. Even if crypto gains momentum in Russia due to sanctions, the U.S. government will look for ways to penalize Russian crypto holders, negatively affecting the prices.

A much better proposition is buying around the previous year’s low. There are significant buy orders between $30,000 and $35,000, which could lead to a reversal. Nevertheless, I see no clear advantage in buying around mid-range between $44,000 and $33,000.

I would rather short risk-on assets such as crypto than long in this increasingly uncertain world, especially as the direction is pointing lower.

Technically, a head and shoulders pattern on the short-term scale nears completion. If the price falls below $37,500, it will activate a bearish target just below $30,000.

BTC/USD H1 price chart. Source: Trading View

ETH Aims Lower

Ethereum has opened the trading week where it finished last week: on a bearish note. 

As things stand, I don’t expect ETH/USD to come to life anytime soon, and I expect a new yearly low is due.

The buying interest for ETH/USD positively went dry above the $3,000 level last week, and since then, we have seen a sharp $500 price dump to the $2,500 support zone.          

The Median indicator on the weekly time frame suggests that ETH could be headed towards the $1,500 area. While the target is lower than my expectations, it shouldn’t be completely discounted.

A move towards the $2,000 to $1,800 price area sounds more realistic. I will look for a potential long trade around the $1,800 area. However, if it moves below this level, then yes, $1,500 is possible.

ETH/USD Weekly price chart. Source: Trading View

Potential XRP Buying Opportunity

Surprisingly, XRP is one of the strongest looking major cryptos, despite the recent negative price action. 

If you believe that BTC could head lower below $30,000 and ETH under $2,000, then you rightly have no business being long XRP around current levels, as it WILL head much, much lower. However, despite the bearish bias, I believe it could recover quickly. 

If XRP moves close to the $0.45 support region over the medium-term, I would be interested in taking a long position, with a target of no less than $1.2. 

On the other hand, if Bitcoin breaks below $30,000, it will likely drag XRP below this support and head to new lows.

XRP/USD Weekly price chart. Source: Trading View

As things stand, on-chain metrics and technical analysis appear to be pointing to more coming losses for BTC and the crypto market. I would ruthlessly dismiss last week’s temporary strength and pay attention to the correlation between the stock market and Bitcoin. 

The above statements make logical sense considering that U.S. stocks and risk-on assets remain under pressure as the Russia-Ukraine conflict worsens. 

This week, the markets will remain on edge ahead of the February inflation data release, which will build the foundation of interest rate hike expectations by the U.S. Fed in mid-March.