Call the current crypto winter the season of accumulation.
Bitcoin and ether’s significant decline in recent months is providing bullish investors the opportunity to accumulate at a favorable cost basis. Larger crypto investors are continuing to explore this opportunity.
Bitcoin has been trading in a narrow range for nearly five months, with support at about $19,000 a good portion of the time. Ether has dipped as low as $1,000 but has mostly hovered around $1,300 over the same period. Now, both have stepped up a rung, with support above $20,000, and $1,500, respectively.
The increases come amid a fourth consecutive 75 basis point interest rate hike by the Federal Open Market Committee (FOMC) in the Federal Reserve’s fierce battle to stem inflation without throwing the U.S. economy into a steep recession. Crypto markets have largely responded to the central bank’s monetary gyrations and other macroeconomic events, usually rising with encouraging news and dipping when investors are more pessimistic. Such reactions are normal in asset markets of all stripes.
During the recent rate hikes, BTC’s average true range (ATR) has declined approximately 71%. ETH’s ATR has declined 52%.
BTC 110222 (TradingView)
Yet, the pattern has differed in one respect – BTC and ETH have displayed less volatility than traditional assets. Will that trend change? Will the latest robust interest rate hike on Wednesday jar markets?
In remarks following the Fed’s announcement, Chair Jerome Powell reiterated the bank’s months-long commitment to quell rising prices. But a Fed statement earlier in the day offered investors some hope that the present monetary hawkishness would end in the near future.
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the FOMC said.
The dovish signals are likely to send BTC and ETH higher, breaking them from their recent staid mode.
And asset managers will then surely – and wisely – take advantage of this likely upturn. A recent Commitment of Traders (COT) report showed that asset managers have increased their long positions in BTC while reducing their short positions. Asset managers’ open interest in BTC is now 88% long and 12% short, up from 84% long the prior week.
As asset managers generally hold larger sums of deployable capital, they have the ability to sway market prices with their activities.
Looking on-chain, the BTC Exchange Stablecoins ratio implies a sense of bullishness. The tool essentially measures the volume of stablecoins on exchanges to the amount of BTC present. As the ratio declines it implies growing buying power because investors generally move stablecoins on to exchanges prior to purchasing an asset.
Whether asset managers are picking the right price point to go long will play out over the next 12 months, but they appear to be ahead of the curve.
