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Market Review 12/21: A glimmer of hope

Bitcoin’s price seems to be breaking a downtrend lasting all December. Though, it’s too early to celebrate just yet. The Bitcoin dominance is slowly going down but found support at a 40% level. Smart contract platforms are looking strong. Terra moved above Binance Smart Chain in the DeFi blockchain rankings.

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Is there finally an uptrend in Bitcoin’s price?

Bitcoin’s price is $48,900 at the time of writing this article. The price was $49,000 flat a week ago and a thousand dollars lower two weeks back. Almost nothing has changed in this sense. The price has been in a tight range since the early December collapse.

The graph below shows Bitcoin’s price development in late 2021. One candle represents one day. The blue trendline is a 50-day SMA (simple moving average) and the purple line represents a 200-day SMA.

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The orange line shows the downtrend Bitcoin price has been in. The price has clearly formed lower highs and lower lows meaning each top is a bit lower than the previous one. The same goes for price drops. Each bottom has gone a bit deeper.

Bitcoin’s price dropped all the way to $45,500 last week. At highest, the price reached $49,500 last Thursday. This was due to a relief rally ignited by the U.S. stock market. It happened because the Fed announced its tapering operations as expected.

This relief rally was short-lived. Bitcoin’s price returned to lower levels over the weekend.

Many analysts are asking the question: is Bitcoin finally breaking this long downtrend? We believe it’s too early to make that call. The price needs to first go above $53,000 and make this resistance level to a support.

The positive thing is that the price is firmly above the 200-day moving average. There are also more data examples supporting a trend reversal. One such example is the daily RSI. A famous analyst Willy Woo tweeted another example.

On-chain data looks very interesting. Large amounts of bitcoins are being withdrawn from exchanges. This could be a signal of a large whale or an institutional purchase. No matter who the buyers are, there are fewer bitcoins in exchanges than in three years.

This could trigger a massive supply shock if the price starts to move up and short positions were liquidated. The sell-side and the buy-side are both thin since there are so few coins in exchanges. This could create a perfect storm situation where we would see a big price jump. The same happened in early December downwards.

Even if there is data to support a trend reversal, there are other factors at play. Inflation is a big problem for everybody. Central banks need to tighten their monetary policy and raise interest rates. This is negative for the stock market and crypto market.

Is it possible that the crypto market would diverge from the stock market in 2022? It is possible but not very likely. Cryptocurrencies are high-risk investments for most investors. This means they are liquidated first in times of uncertainly.

The next market report will be published after the New Year. We’ll have much more data on the potential upturn by then.

Bitcoin’s dominance tested the bottom again

Bitcoin’s market share is 40.8% at the time of writing this article. A week ago, this number was 41.6%. The slow and steady downtrend continues. However, it seems like there is pretty strong support for the dominance at the 40% level.

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Bitcoin’s dominance was surging higher last week and reached 42.2% on Thursday. When the price started falling after the previously mentioned relief rally, the dominance went down with it. This means altcoins did better in a downtrend again.

Bitcoin’s market share has been on a clear downtrend for two months. So far, the 40% bottom is holding, though. The dominance has touched this bottom several times in the past months.

Even if the 40% level is holding, this development doesn’t look good on Bitcoin. It feels like a potential uptrend in the markets would push Bitcoin’s dominance even lower. Meaning, even if Bitcoin would o up in dollar terms, altcoins moved faster.

Avalanche and Terra performing strong

Smart contract platforms have dominated the Q3 and Q4 of 2021 crypto market. Last week was no different. This time it was Avalanche and Terra making the headlines. Two other platforms have also done well in the top 15 rankings.

Below is a list of the biggest cryptocurrencies and their price development compared to Bitcoin.

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Avalanche was boosted by fresh institutional interest. The company behind the USDC stablecoin, Circle, announced that USDC will be soon launched on Avalanche. BitGo announced support for Avalanche too. BitGo is a large company offering custody services for institutions.

Terra’s LUNA token was once again boosted by the UST stablecoin. The market cap of UST has grown by 40% in just one week. LUNA tokens are needed for issuing new UST. Polygon has also gained more than 20% due to positive news.

The biggest mover in the top 100 is the Yearn Finance’s YFI token. This is because Yearn Finance will be buying its own tokens from the market and re-distributing them to YFI holders.

There are both winners and losers in the market at the moment. When we look at the top 100 rankings, only 27 altcoins are up more than 5% against Bitcoin. The rest are only marginally positive or on minus.

Terra climbed above Binance Smart Chain as a DeFi platform

The DeFi sector has continued its slow decline. The TVL number describing the whole industry has fallen about one percent. The number is now $243.23 billion. The TVL was 246.6 billion a week ago.

defitvl-122121

We have written about this trend reversal for several weeks. A strong uptrend started last summer and ended in mid-November. The TVL has been slowly going down since.

DeFi tokens are also doing poorly despite the fact that YFI had a strong week. We believe this was just a one-time price boost. Investors are pouring money on platforms running the DeFi apps (Solana, Avalanche, Terra) but the governance tokens of these apps are not doing well.

Let’s look at the DeFi market at the protocol level.

defi-protocols-122121

The top 10 list is unchanged from last week. There is one thing we should mention, though. Uniswap will be soon scaling with Polygon. It is currently the most popular DEX by a wide margin. Uniswap has so far been scaled with Layer 2 solutions Arbitrum and Optimism. Polygon is a bit different beast as it is an Ethereum sidechain.

The biggest movers are Anchor and Lido. Both are Terra’s DeFi apps. Lido is also running on Ethereum and Solana.

There has been a major change at the blockchain level!

defi-chains-211221

Terra has claimed second place in the rankings! It moved above Solana just a few weeks ago. Terra is officially the biggest challenger of Ethereum in DeFi. Binance Smart Chain had kept this status the whole year.

Terra’s liquidity has grown 54% in just one week. Besides previously mentioned Anchor & Lido protocols, Terraswap has also contributed to this.

Avalanche is also doing strong. It has overtaken Solana and claimed 4th place in the blockchain rankings.

Tron is still hanging in there even if the platform has been out of headlines for about two years. There was also a surprise announcement last week. Tron’s founder Justin Sun will step down from the CEO position of the Tron foundation. He joins the government of Grenada and becomes its new full-time ambassador to the World Trade Organization.

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