The Beginning of the End? Or Just More Fear, Uncertainty and Doubt?

by Giles Coghlan, Chief Currency Analyst, HYCM

Crypto markets have been moving at a blistering pace lately, with some notable firsts for this bull cycle that require further attention. But before we get to those, a couple of relevant news items also ought to be discussed. 

Mastercard Survey

The first is a survey that appears to be pointing to growing crypto adoption. According to Mastercard’s New Payment Index survey, 40% of consumer respondents to are reportedly planning to use cryptocurrencies in the next year. The survey, which comprised 15,000 online responses across four continents, not only appears to be registering an increased appetite for cryptocurrencies, but also a keenness to learn more about the space, and a challenge to the crypto industry to simplify its products. This is particularly the case among millennials: 67% of millennials stated they were more likely to use crypto now rather than last year, with 75% claiming they would use cryptocurrencies if they understood them better. 

Mr Musk at It Again

In other news, on May 12, Elon Musk tweeted that Tesla would no longer be accepting bitcoin as payment for its cars, owing to the network’s ever-growing carbon footprint. The tweet stated that Tesla would not be selling any of the bitcoin it has accumulated, but would be looking at other cryptocurrencies that use less than 1% of bitcoin’s energy per transaction. 

What ensued was a 15% sell-off in the number one cryptocurrency, causing it to close below $50k for the first time since late April, bringing the price to within a hair’s breadth of that all-important 20-week moving average. 

Then, on Sunday, May 16, Musk responded to a tweet warning bitcoiners that they’d be in for an unpleasant surprise next quarter when Tesla dumps the rest of its BTC holdings on the market, and with the amount of hate Elon’s been receiving since the May 12 tweet, the poster said that they wouldn’t be surprised if this occurred. The response was a one-word tweet from Musk that simply read: “Indeed.” 

Whether Elon’s tweet was in response to the prospect of Tesla selling its bitcoin, or to the concluding comment about the hate, Bitcoin’s price has since crashed down to around $43,000, sending it below the 20-week moving average for the first time since April 2020. However, Elon Musk confirmed early in Monday’s trade that Tesla has not sold its Bitcoin holdings. This, once again, gave some short-term support to BTCUSD. 

End of the Bull Market?

Whether this is the beginning of a new leg down for the premier cryptocurrency, or simply a blip caused by too many people hanging from Elon Musk’s every word, there are a number of things we need to update about our collective maps. If this is the beginning of the end for this bull market, then rather than it following a very public blow-off top that takes the asset to preposterous new highs, it has followed about 12 weeks of sideways action and consolidation. If this is so, then it’s the first bitcoin bull market to date to end in this fashion.

On the other hand, if this is just the market over-reacting to a social media exchange, then it breaks another one of our long-held convictions. If investors on the sidelines were to buy this impromptu dip, sending the price of bitcoin back up to between the high 40s and low 60s, then it will be the first time bitcoin has closed below the 20-week moving average during a bull market with the prevailing trend remaining intact since 2013. 

Bitcoin Dominance Back to 2018 Lows

Finally, we have to look at bitcoin dominance. The bitcoin dominance chart tracks bitcoin’s overall share of the entire cryptocurrency market cap. Up until 2017, it remained above 90%, but the deluge of new crypto projects that followed the launch of Ethereum’s ability to issue native assets, saw this figure dropping precipitously. Bitcoin’s dominance has never gone above 75% since then, with bitcoin’s high-water mark during the last cycle being around 71.5% at the time it hit its then 20k market top. Ethereum’s subsequent rally to $1400 in January 2018 sent bitcoin dominance down to around 34%. 

What’s interesting about the BTC dominance chart today is that it’s repeating the action of the end of the last bull cycle. It peaked in January 2021 at just under 74% when bitcoin hit its then-record high above 40k, and has since tumbled as the rest of the cryptocurrency space has received a bid and what’s known as “altcoin season” began. The events of the last week or so have seen bitcoin’s dominance hit an all-time low of 34.81%, to the last cycle’s low just above 35%. 

What we have now are chart conditions that are starting to resemble the end of the last bull run. This while so much else on the ground is completely different, from mainstream adoption to institutional acceptance, as well as a macro picture that favours the holding of hard assets over cash.  The next week or so will be instrumental in giving us a clue on how the rest of the summer is likely to play out. What’s key to watch out for is how strong the conviction of the bulls remains at these levels, and which cryptocurrencies hold their value against bitcoin, if bitcoin dominance were to rise.

Note: Cryptocurrencies are not available for trading under HYCM (Europe) Ltd and Henyep Capital Markets (UK) Ltd.

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