Blocksmith Says: ETH–BTC Gap is Temporary

18 July 2022

A general uplift in risk sentiment has blown through the market with main equity index futures up on average 0.87% since Friday’s close (S&P500 +0.54%, Nasdaq +0.91%, European Stoxx +0.66%, Nikkei +1.38%).  This apparent risk appetite has touched crypto as well with Bitcoin +4% and Ethereum up a significant 14.1%.. The spread between XET and XBT is what we will focus on today.  

Before that however, and outside XETXBT for a moment, my view remains that risk is still down, that a broader bear market is ongoing and that we do not see a meaningful low until late Summer early Fall, when the next 80-week cycle troughs, this doesn’t just magically disappear or come in two months early..

Reference news flow and why it is so hard to rely purely on so called fundamentals: on the plus side (reference equity markets, which as we know are tightly coupled with crypto despite what the brochures might say) we have buybacks kicking in, sentiment too bearish, retail investors still not thrown in the towel.

But on the minus side we still have a 100 bps+ rate hike later this month to look forward to, execrable US earnings so far, 9.1% inflation, energy and food crises building a head of steam and looming recession.  Bearish over consensus notwithstanding, this feels like the backdrop for a bear market bounce and not a major reversal. 

The chart is weekly data and we just had an extravagant real up gap (this week’s low above last week’s high). There have been 11 of these since the start of data in February 2018 (roughly one every 21 weeks). The average change of all 11 a month later however is -3% and it was negative 54% of the time. So by itself, the current up gap is not a definitive lead indicator for a wider spread. In other words, it’s not a given that XETXBT races on and on.  There is a layer of potential resistance some 18% higher around 0.076. 

Christopher Grafton
Christopher Grafton

Chris has been working in the markets for over 15 years variously as a broker, analyst and researcher. He is the author of a well-known book on Hurst cycles analysis, and runs his own market analysis software platform on Bloomberg. He’s also a keen student of both the cello and Brazilian Jiujitsu.

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