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Market Update Week of 25 July
In this week’s newsletter:
Bitcoin Price Analysis
Bitcoin continues its rally off the 18 June lows, currently having rallied over 30% in the last 5 weeks.
With its 41-day higher lows and higher high structure remaining intact and the stock market and Ethereum also having a relief rally bitcoin seems unlikely to crash off the highs soon.
If Bitcoin can flip the 24k level as support, there is not much except air to stop it from reaching 28k soon after.
Bitcoin has formed its third flag pattern since the November 2021 highs, the previous two flags were the beginnings of massive selloffs (See Fig. 1).
Bitcoin is currently near the top of our third flag pattern, threatening a breakout up to the 28k resistance zone (See Fig. 2). Yet no breakout has occurred yet.
With many calling for another breakdown of the current flag pattern, the flag pattern structure is certainly a factor to beware of in the short term.
Ethereum Price Analysis
Ethereum, the second largest cryptocurrency by market cap and often regarded as the pack leader of the altcoins is currently leading the crypto economy in the current rally.
Currently, up over 80% off its 18 June lows, it sits at an average price of 1570 over the past week.
After having set up an Ascending Triangle pattern with a liquidity grab deviation on the 11th of July Ethereum saw the pattern breakout occur on the 16th of July (See Fig.3). Not having looked back at the 1300 level since the breakout Ethereum continues to soar.
In stark contrast to Bitcoin which is currently still 20% off its previous lows, Ethereum has already tested its previous lows and continues to attempt to break that resistance (See Fig. 4).
The Market Effects of 'The Merge'
The Ethereum mainnet will soon execute 'The Merge' with the Beacon Chain proof-of-stake (POS) system. Here are the implications of 'The Merge' for the Ethereum network and tokenomics.
According to Vitalik Buterin’s (Founder of the Ethereum network) recent remarks about Merge at the 2020 Ethereum Community Conference in Paris the Merge marks the 55% completion of the Ethereum network, implicating much growth for the ETH token and community to come soon.
The Merge will mark the end of all proof-of-work (PoW) processes on the Ethereum network. Although most ETH miners are willing and ready to move to the POS system some want to continue PoW mining. Vitalik strongly recommended to these miners to join the ETC network, causing capital and computing power to surge into the Ethereum Classic network.
The end of PoW mining on the Ethereum network will cause ETH's energy consumption to be cut by more than 99%, which is likely to attract a lot more investors that were previously worried about ETH's environmental implications.
The Merge has also made a big impact on the tokenomics of tokens related to the Ethereum network, including Polygon’s native token MATIC and Ethereum Classics native token ETC. Both being secondary market leaders in this recent rally.
Both the MATIC token and ETC token have put in over 200% since the June lows.
The ETC token has currently broken over its diagonal resistance line which was in place since Sep 2021 and the $40 psychological/horizontal resistance level. If ETC bulls can hold these levels, the next resistance sits at $50 per token (See Fig. 5).
With The Merge being completed somewhere in mid-September ETC bulls have sufficient time to hold onto key levels and maintain price increases well into Q3 of 2022.
The FED Continues Rate Hikes
The Federal Reserve enacted its second consecutive 0.75 percentage point interest rate increase on Wednesday, taking the current base rate to a range of 2.25%-2.5%.
The FED has previously indicated they will begin to slow hikes due to the pressure it is causing upon the economy. When this ease will begin is still unknown, but it is safe to speculate that we are closing a short ‘easing’ period in the next few months.
Chairman Jerome Powell indicated once more at Wednesday’s meeting that there will indeed be a point where the Fed starts to slow hikes to assess their impact, yet he did not specify when.
Currently, the interest rate sits at the 2019 high and is 0.25%-0.5% above the 25 Year mean (See Fig. 7).
