The Purge | Market Update
Review Date: Saturday, May 7, 2022
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Market Update: The Purge
BTC Weekly Chart
In bitcoin, the 2-day close below $38,600 seems to hint at a move to $29,000. There may be a retest of $38,600. If BTC gets back above $38,600, then BTC could be stable.
ETH 4-hour Chart
On the ETH 4-hour chart, DeMark’s Elliot Wave tool suggests that ETH is currently in a 3-wave down. This wave count implies that ETH can fall below the low of Wave 1. That level is $2,164. Using Fibonacci work, the target for Wave 3 should be somewhere between $2,164 and $1,750.
BTC 4-hour Chart
Looking at the 4-hour chart of bitcoin, $37,400 is resistance. We believe that any approach of this level will represent the last rally before a major three-wave down begins. This move could send bitcoin to either $32,000 or $30,727.
Total Altcoin Market Cap (TOTAL3) vs. ARK Innovation
ARKK is an ETF that follows the equity market’s most speculative and popular stocks. Since the start of 2021, ARKK has been dropping. ARKK has recently retraced the pandemic rally and returned to where it was in March of 2020. We call ARKK the “altcoin of the stock market.” It TOTAL 3 follows ARKK back to its March 2020, which would represent a 60% decline in altcoin market cap.
Bitcoin Dominance (BTC.D) vs. Total Altcoin Market Capitalization (TOTAL 3)
If the move mentioned above unfolds in Total Altcoin Market Cap (TOTAL3), BTC Dominance (BTC.D) returns to the higher end of its recent range. If such a move unfolded, TOTAL could fall from ~$600 billion to less than $200 billion, and BTC Dominance could rise from 44% to 66%. A bullish divergence and a bullish downward sloping wedge on the BTC.D chart could fuel a sharp move in bitcoin dominance.
Bottom Line: This is not a bear market. It is a crash. ARKK took seven weeks to drop to its March 2020 lows. If altcoins follow the same track, TOTAL3 could fall to shockingly low levels by July 4.
Nasdaq 2000, Bonds vs. Bitcoin
Nasdaq Composite Weekly: 2000 – 2003
During the week ending 5/6/2022, the Federal Reserve raised the Fed Funds target rate by 0.50%. Since that rate hike was smaller than the market’s fear of a 0.75% hike, stocks reversed course and closed up on the day of the hike. A stock market reversal of that magnitude has only occurred once in the last 40 years. That was in March of 2000. That rally was at the top of the internet bubble in March 2000.
Bonds are falling because long-term interest rates are rising. Long-term rates are rising because inflation is out of control, and the Fed has declined to fight inflation using short-term interest rates. Rising long-term rates and falling bond prices are destructive for risky assets, especially crypto.
Bottom Line: The author of the above section of this report has moved to 100% cash. Sell in May and go away.
Microstrategy Bitcoin Margin Call Levels
Microstrategy, a U.S. software firm well-known for its eccentric CEO (Michael Saylor) and its substantial Bitcoin holdings, announced in its recent quarterly earnings webinar that the company would face a margin call if the price of BTC falls to $21k. In the past two years, Microstrategy has taken on a sizeable amount of long-term debt, roughly $2.3 billion, to finance the purchase of approximately 129k bitcoins at an average price of $30,700 (the current value of their holdings is $4.6 billion based on current BTC price of $35,000). Although there has been speculation around where Microstrategy would face a margin call triggering a liquidation of their Bitcoin holdings, this instance is the first time the firm has publicly identified a specific level.
It would take roughly a 42% decrease from current prices to reach the level of $21k. While this may sound far-fetched, it is not unheard of for Bitcoin to rapidly fall 50% or more in short periods. And given the current global political and macroeconomic landscape, this may be more of a possibility than people think. At this point, Microstrategy has become more of a quasi-Bitcoin ETF. Looking at it from this lens, MSTR’s stock has fallen so sharply that it is now back to where it was back in December of 2020. So, if MSTR was a defacto bitcoin ETH, you could say bitcoin was already trading at $20,000.
The BTC and MSTR charts show that $20k is a former major BTC resistance point from December 2020 that has not been retested. A retest of that level would liquidate Michael Saylor’s holdings. If and when Michael Saylor gets liquidated, that could bring BTC to the head and shoulders top target of $15,000.
Bottom Line: A purge may be coming in risk assets and crypto. It may be wise to adjust portfolios sooner rather than later.
