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Market overview 1/11: The downtrend continues

Bitcoin’s price keeps falling and it is taking the rest of the market down with it. The downtrend has lasted soon two months but shows no signs of ending. Bitcoin’s dominance has found a floor at 40% level. Chainlink and Internet Computer were rare positive performers. The DeFi sector has also lost liquidity.

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Bitcoin crashed to below 40.000 dollars

The price of Bitcoin is about $41.800 at the time of writing this article. The price is $5.000 lower than it was a week ago. This means that the year 2022 has started poorly. The crypto market downtrend hasn’t found a bottom yet.

The graph below shows Bitcoin’s price development during the past few months. One candle represents one day. The blue trend line is the 50-day moving average and the purple trend line represents the 200-day moving average.

bitcoin-110121

The blue zone around $40.000 is an important support level for the Bitcoin price. This is where the price crashes in September and December found the floor. It would be important to see this floor hold for the third time in six months.

There is one thing that cannot be prevented, though. That is Death Cross. It takes place when the 50-day moving average crosses with the 200-day moving average. The Death Cross hasn’t happened yet but will occur in a matter of days.

Even if Death Cross is a famous negative indicator, it is also a lagging indicator. When Death Cross happens, the market has already fallen for quite a long time. It’s also possible that we’ll see an uptrend starting right after this event.

The 40K support zone has so far held for Bitcoin. The price dropped briefly to under $40.000 but it was bought with a high volume in a matter of minutes. Even if the price is nearing $42.000 investors should be cautious. The danger is not over yet.

The crypto market is being pushed down because of macro events. We have discussed Federal Reserve’s tightening monetary policies several times. The graph below says a lot. It shows the Nasdaq 100 index in 2022.

nasdaq 100

Nasdaq 100 consists mostly of tech companies in the United States. This index has started a year so poorly last time in the year 2000. This was the year when the infamous tech bubble burst and many stocks lost 80 to 90 percent of their value.

Bitcoin might be digital gold to enthusiasts, but professional investors see cryptocurrencies as the highest possible risk assets. When there is uncertainty in the market, institutional investors get rid of their crypto holdings first. The uncertainty is now caused by the fast-increasing inflation and Fed’s actions to fight it.

All markets crashed last week when Fed’s December meeting notes were published. Investors were caught by surprise by how hawkish Fed officials actually were. Fed might even start to shrink its balance sheets earlier than expected.

Central banks (like the Fed) must take action because inflation is getting out of hand. The CPI numbers are the highest in 30-40 years in many major economies. This means that central banks must fight it by reducing asset purchases & liquidity and increasing rates.

This is what makes investors move out of risky growth stocks to value and bonds and the dollar. Tech companies and cryptocurrencies are suffering.

If the CPI went down to a 2-3% level everyone would be happy. The new CPI (from December) in the U.S. is published in two days. If this number beats estimations, we might see another drop.

Investors should be really careful right now. It looks like Bitcoin found the bottom, but we might have a long and bumpy road ahead of us lasting several months. It has never been more difficult to predict where the market is going next.

Bitcoin dominance holds the 40% level

If Bitcoin’s price is on a key support level, we could say the same about Bitcoin’s dominance. The number is 40.56% right now. A week ago, Bitcoin’s market share was slightly below 40% at 39.6%. This means that Bitcoin has had a strong week than altcoins.

cryptocap-110121

The graph shows a downtrend we have witnessed since late October. It looks like there is a bottom around 40%. The lowest Bitcoin dominance has gone was 39.3% a week ago. Now there is a trend reversal taking place.

It’s too early to celebrate a new Bitcoin rally. We have seen similar moves up many times before without any long-term strengthening. Though, it is positive to see Bitcoin hold the 40% dominance level once more. Of course, Bitcoin’s dominance is not a market one can trade, so these figures are more or less for entertainment purposes.

Major altcoins had a negative week

The rise in Bitcoin dominance shows clearly in the altcoin market. When we look at the top 15 ranking list, not one single coin has made a significant profit against Bitcoin (stablecoins excluded of course).

altcoins-110121

Dogecoin is the only altcoin showing green color, but even DOGE is just marginally positive against Bitcoin. Most of the leading altcoins are down 5 to 10 percent. Solana, Terra, and Avalanche were top performers of late 2021. Now they are suffering the most.

Last week wasn’t entirely hopeless. A small group of altcoins made a profit even in this environment. Chainlink did well gaining more than 25% against Bitcoin. The LINK token has gone up more than 40% in USD terms in 2022.

Chainlink is driven up by staking, which was publicly announced on the 1st of January. Staking is not yet implemented on Chainlink, but just the fact that it’s coming has made investors hungry. Read more about Chainlink from our in-depth guide.

Internet Computer has also done well. ICP has got some boost from the new project distrikt, which is a decentralized social media platform.

In general, there is very little happening among the top 100 altcoins. The entire crypto industry is still in a depressing mode. If we want to see an altcoin rally, Bitcoin must first break 50K and get back on a bullish trend.

The DeFi sector has lost liquidity

This time there is no positive news from the DeFi sector either. DeFi sector was growing stubbornly in Q4 of 2021 despite the general downtrend in the market. This isn’t the case anymore. The DeFi sector has lost about 10% of its liquidity in one week.

The TVL (Total Value Locked) of the entire DeFi industry is 228.7 billion dollars. Last week this number was 254.3 billion dollars.

defi-tv-110121

There is nothing surprising in this downfall. Nervous investors have drawn liquidity out of DeFi apps. Some might have even converted stablecoins to Bitcoin and bought the dip.

It looks like all major protocols have lost TVL last week.

defiprotocols-110121

The DeFi market is still dominated by Curve and Convex Finance. These two Dapps are also closely linked together. Curve is still holding above the $20 billion threshold. It has lost less TVL compared to other major DeFi protocols.

WBTC is responsible for the only move in the top 10 rankings by overtaking the Lido protocol. This is mainly due to the nasty drop in Lido’s TVL.

For those who don’t know, WBTC is not a real DeFi app. It represents the value of all wrapped bitcoins in Ethereum. WBTC is BTC transferred from the Bitcoin blockchain to Etherum as an ERC-20 token. WBTC makes it possible to use bitcoins in Ethereum’s DeFi apps.

The blockchain top 10 is unchanged from last week.

defichains-110121

We can see that all major players have lost about an equal amount of TVL. Fantom, Cronos, and Arbitrum have suffered the least. All changes are quite insignificant here.

There are a couple of news pieces we should mention here since several DeFi chains have had performance issues. There have already been two cases in Solana in 2022, and the year 2021 didn’t go that smoothly either.

Ethereum’s Layer 2 solution Arbitrum went down for ten hours last week. Polygon’s network suffered from congestion caused by the popularity of Sunflower Farmers.

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