Crypto chops sideways

The last week has seen a slightly upward trend on the crypto market. The price of the largest cryptocurrency, bitcoin, rose by approximately five percent, the second largest cryptocurrency, ether, by approximately six percent, and the total value of the rest of the crypto market by approximately ten percent.

BTC, ETH and rest of crypto market 17-24.4.2024

With Bitcoin's slightly slower rise than the rest of the market, bitcoin dominance fell by about one percentage point to just under 55 percent, and the ETH/BTC ratio, which indicates the ratio of the two largest cryptocurrencies, rose by about one percent to about 0.049. However, these changes only appear as small corrections to the trend of the past months, where bitcoin dominance has been clearly increasing and the ETH/BTC ratio has been decreasing.

Bitcoin-dominance and ETH/BTC-ratio 3/2024-4/2024

Momentary recovery of the crypto market has been seen especially in the of alt-coin prices. As the price of Bitcoin rose by around five percent during the week, the total value of the alt-coin market (excluding stable coins) has risen by almost 15 percent.

Bitcoin and total market cap of altcoins (excluding ether and stablecoins)

Some individual tokens in particular have seen quite substantial weekly gains. Among the tokens in the Kvarn X selection, the strongest gainers of the week were Hedera's HBAR (+64%), Arweave (AR , +40%), Algorand (ALGO, 33%), Immutable X (IMX), NEAR Protocol (NEAR, +30%) and Gala (GALA, +28). Of the Kvarn X tokens, only Maker (MKR, -6%) ended up in the negative. Along with Bitcoin, Tron (TRX, +1%), Dogecoin (DOGE, +6%) and Arbitrum (ARB, +6%) were the smallest gainers.

Weekly best and worst performances of Kvarn X tokens

Weekly gains of several tens of percents in alt-coins are an indication of how the crypto market can offer good short-term profit opportunities to those who follow it closely, even when the general direction of the market is sailing in a sideways movement without a clear trend. Of course, with alt-coins, you also have to keep in mind their downside risk. A couple of weeks ago, as the crypto market was falling, the top gainers of this week all saw price drops of 30-40% in a week.

HBAR, AR and ALGO 4/2024

With alt-coins, one should always keep in mind the general direction of the crypto market, because trading against it is fundamentally much more difficult than trading in the direction of the trend.

Bitcoin halving done, Runes protocol launched

The halving of the block reward of the largest cryptocurrency bitcoin  took place as expected on Saturday morning. Halving takes place in predetermined intervals of 210,000 bitcoin blocks, which under normal circumstances means just under four years. In this fourth halving in Bitcoin's history, the amount of new bitcoins rewarded to miners halved from 6.25 to 3.125 per new bitcoin block.

This time, around the same time as the halving, another interesting milestone also happened in the Bitcoin ecosystem, when the new Runes protocol, built on top of the Bitcoin protocol, was launched. Runes are reminiscent of the Ordinals protocol, previously created by the same developer Casey Rodamori, which attracted a lot of attention in the bitcoin world in 2023, which made it possible to “inscribe” data into individual bitcoin protocol units, satoshis (1/100 000 000 bitcoins).

Roughly simplified, the difference between two protocols is that the satoshis "inscribed" using the Ordinals protocol are unique ("non-fungible") and in this respect in some ways similar NFT’s of the Ethereum protocol, while the tokens created on top of bitcoin using the Runes protocol are mutually exchangeable ("fungible ”), and thus resemble more meme coins.

As a result of the release of the Runes protocol and the subsequent activity, the transaction fees of the Bitcoin protocol rose very drastically at the time of the halving. The cost of a single bitcoin transaction fee temporarily rose to over a hundred dollars, and the ViaBTC mining pool that mined the halving block (block number 840,000) itself received transaction fees of over 2.5 million dollars for mining the block.

In the case of Ordinals, bitcoin transaction fees spiked for a few weeks in the spring, and it will be interesting to see what kind of impact the Runes protocol has on bitcoin blockchain activity.

Optimists see the Ordinals and Runes protocols contributing to the long-term security of the bitcoin network by maintaining financial incentives for miners. Skeptics, on the other hand, consider them just a distraction that weakens the usability of the bitcoin network and obscures the narrative of bitcoin.

The markets waiting for PCE index

The most interesting macroeconomic data point of the week will be available on Friday, when the PCE index, which describes the price development of personal consumption in March in the United States, is published. The PCE index is one of the US Federal Reserve's preferred indicators for monitoring the development of inflation, which is why there is a lot of interest in the numbers being published this week.

Inflation has been stickier than expected over the past six months, and the "last mile" from three to two percent seems to be a rather difficult process. Currently, many experts expect the annual PCE index to rise to 2.6% in March from 2.5% in February. Excluding the typically volatile food and energy prices, so-called “Core PCE” is expected to decrease from 2.8% to 2.7%. Those interested in the schedule of possible key rate cuts should probably keep an eye on the Core PCE to be published on Friday. If the figures received on Friday were higher than expected, this could now send the prices of risk-on assets, such as cryptocurrencies, downward.

Expectations for key interest rate cuts have decreased significantly during the beginning of the year, and keeping the key interest rate unchanged for the whole of 2024, something which was considered almost impossible just a month ago, is currently given an 11 percent probability. The market considers two 0.25% interest rate cuts by the end of the year to be the most likely, and a total of about 75% probability is estimated for 0-2 interest rate cuts.

Local top for DXY?

Dollar index, which has been on a strong rise for a couple of weeks, has given some early indications of the formation of a local top. If these indications prove to be true and the dollar index moves downwards, this could mean a positive development for the prices of cryptocurrencies, which are typically inversely correlated with dollar index, in the coming weeks.

Even if a local top really is formed, the dollar index has made a series of "higher lows", which is why we are still cautious to predict the actual reversal of the trend for the time being. The dollar index started its current rise about six weeks ago, and at the same time, bitcoin's sharp rise in the price of the beginning of the year was interrupted.

DXY, BTC and 90 correlation coefficient

Our expectation is that a reversal of the dollar index trend would be a prerequisite for bitcoin's possible next bigger move upwards, so we are following its development with interest. A shorter-term correction movement for dollar index could provide an opportunity for a visit to the upper end of the current $60,000-$73,000 range, while a more permanent trend reversal would create the conditions for a new ATH.

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