Despite uncertainties surrounding the ongoing war in Ukraine and the looming likelihood of rate increases, the crypto markets have been surprisingly resilient over the last week. Bitcoin racked up a second consecutive week of solid price gains, surging by $2,300 on Sunday and ending with a strong weekly closing of $46,950. 

The buying interest in the crypto market revived with a substantial rise in technology stocks. In the post-COVID economy, Bitcoin traditionally shares a strong positive price correlation with the Nasdaq index. 

Moreover, TerraLab’s ongoing BTC buying spree has created an unexpected tailwind for crypto. The team behind Terra pledged to add $10 billion Bitcoin to its treasury earlier this month. 

Other bullish news catalysts for BTC last week included:

  • The world’s largest hedge fund, Bridgewater Associates, reported plans to invest in third-party crypto funds due to the risks of holding fiat currencies.
  • Russia is considering accepting payments in Bitcoin against the sale of its oil and gas, a key driver. Russia’s move underscores how Bitcoin is now playing a central role in world geopolitics and could soon threaten the U.S. dollar hegemony.
  • America’s largest gas and oil company, ExxonMobil, debuted a Bitcoin mining program to utilize excess energy for mining Bitcoin.

One theme is consistent in trading, perma bulls get crushed, and so do perma bears. I mention this because the tape for BTC/USD shows a strong bullish penchant, and bears may need to change tactics for a while.

Fighting The Tape

The notion of risk-on assets like equities and crypto rising during the first large-scale war since World War II may seem absurd, but it is happening. The primary market force preventing risky assets from dropping appears to be capital deployment from the bond market. 

Due to high inflation, the bond market is undergoing a significant sell-off as investors expected higher yields. This move has motivated liquidity flow back to risk assets. With rising inflationary pressure, this trade does not look like one that will flip any time soon.

Thus, the potential short-term price path looks to be higher. There is a possibility of Bitcoin touching $51,000 or even $53,200, if it takes out $48,300 this week.

Nevertheless, I don’t think it’s time to throw caution to the wind. I will go out on a limb here to say that the next move higher may not come until the next Fed policy decision—scheduled on May 4. 

The Fed looks set to raise rates by 50 basis points in the meeting. If the market doesn’t crack $51,000 before or on that outcome, it will be challenging to maintain a positive stance.

This week the market will turn its attention to a raft of jobs data from the U.S. economy. It will be interesting to see how the ramp-up in consumer prices translates to wage pressures. If wage increases do not match inflation, it will likely be detrimental to the U.S. economy.

Important events for the week. Source: Forexlive.com

Stock Indices to Watch

While the trend suggests stocks are probably headed higher, keep an eye on the US 100 Index, aka the Nasdaq, and the S&P 500 this week. The stock indices have recorded gigantic amounts of negative divergence, hinting at a possible correction.

Based on Nasdaq’s 1,000-point negative divergence, the implications for a pullback in crypto are significant due to the strong correlation between the two markets. 

The divergence is on the lower time frames—the 4-hour chart, so the negative price action could arrive shortly. I am pointing this out because it presents an opportunity for patient buyers looking to enter a trade at a better price level.

Volatility is also on the rise, and of course, this can cause wild price gyrations. 

This week, I will implement the Crypto Volatility Index from COTI in my regular Wednesday War Room webinar, where the chief investment officer of COTI will join me. The index has strong similarities to the Volatility Index VIX for the equities market.

US100 Index H4 price chart. Source: Trading View

Do Kwon’s Bet 

TerraLab under Do Kwon has embarked on a journey to buy $10 billion worth of Bitcoin to build UST reserves. According to SIMETRI research’s findings, Terra Labs has been deploying around $125 million daily to purchase Bitcoin from their Ethereum multi-sig wallet. 

So far, they’ve deployed close to $0.9 billion, with another $9.1 billion remaining. The buying pressure would likely persist for 74 more days at the current rate.

Miner Capitulation Averted 

The Hash Ribbon indicator suggests that Bitcoin’s supply-side entered a crucial phase last week. The shorter-term moving average (30-day) of the network’s total hashrate touched the 60-day MA, inching close to a capitulation. 

Periods of miner capitulations are usually marked by significant sell-offs.

Bitcoin Hash Ribbon indicator. Source: Glassnode

To gauge how the Hash Ribbon will play out shortly, we can look at Bitcoin’s hash rate over the last 30 days. 

Bitcoin’s hash rate in March saw an increase of 25 EH/s from the month’s second week, a 13% increase. This decreases the possibility of a capitulation led by the supply side in the near term.

Bitcoin’s total hash rate. Source: blockchain.com

Overall, Bitcoin has caught an uptrend, and it’ll likely stretch until bullish FOMO pervades the market’s sentiments thoroughly. 

Triangle Watch

By now, probably every technical trader has Bitcoin’s well-defined triangle pattern on their radar.  

Looking at the bull case first, continued price gains above the triangle could see BTC testing a minimum of $48,300 this week, with an outside chance of the breakout reaching the $51,000 resistance level.

Bitcoin’s 200-day MA, located at $48,300, is a natural upside target. If we see a positive trend above the 200-day MA, it would likely bring in fresh institutional money.

If we see Bitcoin failing again around the $45,000 resistance level, then a scenario exists where BTC falls towards its 100-day or 50-day moving averages, close to the $42,000 to $41,000 price range. 

As highlighted by the attached chart, the ultra bearish scenario would see BTC falling towards the bottom of the triangle pattern near $37,500.

BTC/USD Daily price chart. Source: Trading View

$3,200 Remains Key

Like Bitcoin, Ethereum has broken above a large triangle pattern and could either explode to the upside or relinquish its former price gains with a substantial downside correction.

If Ethereum continues to hold above the $3,200 resistance level this week, I expect a quick rise towards the $3,500 to $3,600 technical area.

On the downside, a rejection from the top of the triangle pattern on the daily time frame could probably drag ETH down to the $3,920 to $2,850 support zone—to begin with.

The ultra-bearish scenario is one in which ETH plummets with momentum, tracing a complete technical test towards the bottom of the triangle pattern, close to the $2,500 level.

ETH/USD Daily price chart. Source: Trading View

The Bull Case

Bitcoin’s failure to break below the $37,000 level under bearish pressures and the revival of bullish catalysts like ExxonMobil’s mining pilot program makes a compelling case for buying Bitcoin in the short term. 

Given the ongoing events in Ukraine and the fact the Fed is widely prepared to raise rates by 50 basis points at the May policy meeting, it may seem an odd time for stocks and crypto to turn bullish. 

Perhaps rampant and possibly out-of-control inflation causing a rout in the bond market holds the key to why crypto and other risk assets are surging. At the same time, the ongoing BTC buying spree by Terra Labs is adding to the positive pressure. 

Bearing in mind the popular saying in trading circles: “the trend is your friend,” I will look for favorable entry points to open a long position this week.