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September 5, 2022

Bitcoin Fights To Hold Key Support As Stocks Slip For Third Straight Week

September 5, 2022

The $20,000 level remained the key focus for Bitcoin investors last week as the world’s leading cryptocurrency danced inside an incredibly tight trading range.

Although US stocks closed bearish for the third straight week, Bitcoin bulls were able to keep prices above the lows of June 2022, albeit marginally.

While the directional bias for Bitcoin remains unclear, options data released by Glassnode indicates that Ethereum might be setting up for a buy-the-rumour sell-the-news phenomenon ahead of the upcoming Merge.

  • Bitcoin battles $20,000 as investors anticipate the next price move
  • US stocks close bearish for third straight week 
  • Ethereum derivatives indicate buy-the-rumour sell-the-news phenomenon ahead of the Merge

Bitcoin battles $20,000 as investors anticipate the next price move

The price of Bitcoin traded within an unusually tight range last week as the $20,000 level of key support continued to hold. Investors worldwide are now questioning if bullish sentiment is enough to maintain support or if the price is setting up for a new leg lower. 

Since Sunday, August 28th, Bitcoin’s price has ranged between $20,500 to $19,500. Although the lows from June and July 2022 were tested multiple times during the week, bulls thwarted any convincing moves to go lower.

However, the history of past cycles likely weighs heavy on investors’ minds. During every past cycle, Bitcoin has retreated 80% from previous all-time highs. Although currently sitting at a 71% retracement in comparison to the all-time highs of November 2021, a 80% retracement would require Bitcoin to fall back to $13,500; a level that has not been seen since October 2020. 

Although there is clear indecision in the markets, the price of Bitcoin continues to trade below the 200-week moving average, which has, in the past, marked the bottom of every bear market to date. The price of Bitcoin has only dipped below the indicator a handful of times. Every dip below has then been followed by a resurgence of bullish sentiment.

But Bitcoin has never faced the macroeconomic environment it faces today. It may be the reason why the coin has remained below the 200-week indicator for longer than previous bear markets. Rising interest rates and quantitative tightening is restricting money flow, which is hindering risk-sensitive assets such as crypto and stocks.

Bitcoin's average daily moves from January until August 2022


The average daily movement of Bitcoin price between January and August 2022.

US stocks close bearish for third straight week

US stock market indices, including the S&P 500, Nasdaq 100, the Dow Jones 30, all closed bearish for the third week in a row. 

Although market sentiment turned bullish on Friday from the release of steady job growth data, it was not enough to quell the uncertainty regarding the macroeconomic environment. 

Investors continued to look back to Fed Chair Jerome Powell’s annual policy speech from August 26th, which suggested further interest rate hikes would be highly likely heading into the future.

In addition, investors soon realised that the steady addition of 315,000 jobs for the month of August actually meant that the Federal Reserve had less reason to scrap the expected September interest rate hike. If the job market remains strong, the Central Bank has little need to relent in its fight against inflation. A 75 basis point hike is now anticipated.

The Nasdaq 100, S&P 500, and Dow Jones 30, posted weekly losses of 4.2%, 3.3%, and 3% respectively. After climbing early in the week, gains were later erased heading into the weekend, which resulted in equities falling back towards the local market lows from June 2022.

Unexpectedly, Bitcoin did not experience the same level of pain. Although usually correlated with stocks, the world’s leading cryptocurrency posted an uncharacteristic loss of 1%; a nod to the tight $1000 range that BTC market participants found themselves trading within. 

Investors and traders are now looking to the next two economic milestones on the horizon; the September 13th CPI release and the September 21st FOMC interest rate hike decision.US Jobs Growth between August 2021 and August 2022.

Is Ethereum experiencing buy-the-rumour sell-the-news?

During the latest crypto winter, Ethereum has outperformed Bitcoin during bullish rallies and has held its ground better during bearish retracements. As Bitcoin once again tests recent lows, Ethereum remains 80% higher than the lows posted in June 2022.

However, it is believed that much of Ethereum’s upside has come from anticipation surrounding the Merge; an upgrade that is set to take Ethereum from Proof-of-Work to Proof-of-Stake. 

While anticipation pushed prices 90% higher through July and early August, the coin still remains 70% below the all-time highs of $4,950. Now options market derivatives are indicating that a buy-the-rumour sell-the-news game could be at play.

According to a report from Glassnode, for the first time ever, the open interest for Ethereum options is now higher than Bitcoin. The open interest for Ethereum options stands at $6.6B in comparison to Bitcoin’s $4.8B. 

While the open interest in Bitcoin showed little directional bias for September, Ethereum options painted a slightly different picture. 

According to the volume of Ethereum options that are set to expire on 30th September 2022, traders are holding a significantly long bias; there is significantly more demand for call options that profit if the price of Ethereum increases.

However, following the Merge, the demand for call options evaporates. For Ethereum options that are set to expire on 28th October 2022, the market is dominated by put options; purchased by traders that hope to profit if the price of Ethereum moves lower.

With this dynamic, Glassnode believes that sophisticated traders could be positioning themselves for a buy-the-rumour sell-the-news event associated with the upcoming Merge. 

The Merge is still set to take place on September 15th according to the latest reports from Ethereum developers and will be one of the largest upgrades that the cryptocurrency industry has ever witnessed.

Histogram showing that the number of open Ethereum call options is far more than the number of open Ethereum put options for the month of September.


Histogram showing that the number of open Ethereum call options is far more than the number of open Ethereum put options for the month of September.

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