Dec 20, 2023

Bitcoin Market Analysis - December

Bitcoin Macro

Markets Bitcoin Market Analysis

Over the last two weeks, Bitcoin has been moving sideways, and its next significant move is likely to happen soon. Over the past two months, Bitcoin has rallied from 27k to approximately 44.5k, fell to around 40.5k, and is now back at 44k. Although there is room for upside, several indicators have started to suggest that the recent run-up is overheated, and we might have transitioned into a distribution/bearish phase. Elevated funding rates and USDT’s slight discount to the USD are indicating a potential shift in the market, confirming what we are seeing on social media and on-chain – overheated bullish sentiment.

However, despite the fact that the price of Bitcoin seems significantly overvalued in the short term, it could still rise to 49-53k, mainly due to the ETF approval being three weeks away, along with favorable market conditions as liquidity has been rising and will probably keep on rising for a few more weeks. In the short to medium term, the market could dip down to 39k to fill the major CME gap left, yet this is probably going to occur after BTC rises to 46k or higher. Over the next few months, there is the possibility of a significant price reduction, potentially with a dip to around 31-33k. This seems plausible and would actually be healthy before reaching new all-time highs. So far, nothing we have seen indicates a market crash or the end of the bull market; however, some of our analysis suggests that we're getting closer to a major correction. It’s possible that before the market breaks to new ATHs, we could see at least one 20-30% correction, and we think that’s a reasonable scenario that fits well with our overall macro view. However, this correction seems unlikely to happen before the ETF approval by mid-January. Bitcoin Dominance & Ethereum's Market Position Something else that’s very important to note here is that Bitcoin's dominance remains high and has just bounced off support, as the market as a whole has corrected. Currently, it looks more likely that Bitcoin's dominance will increase rather than decrease, although this could happen because the entire market faces a downturn or because Bitcoin outperforms everything else. The anticipated ETF approval by mid-January offers some reassurance for Bitcoin, which might be able to outperform the rest of the market, even if only in the short term.

Ethereum’s chart appears much cleaner and has just seemed to have bottomed right at the previous key breakout level, and yet Ethereum has been totally unable to outperform Bitcoin. What is worrisome for ETH, despite its very clean ETHUSD chart, is that ETHBTC is looking extremely bearish. Given that we've been in an alt season since late October, the current weakness of Ethereum is definitely not a positive sign for the rest of the crypto assets in terms of their short- to medium-term performance.

In recent months, the top three coins by market capitalization after Bitcoin have had poor performance. Their performance is somewhat surprising, given that for ETH, a BTC ETF approval could pave the way for an ETH ETF approval. Regarding XRP, its wins in the court indicated a much brighter future potential. BNB faces challenges, as the settlement with the DoJ and CFTC could foreshadow a pretty bad settlement with the SEC; however, on the flipside, we now know Binance will survive, and client money isn't in danger.

Analysis of Top Performers in the Crypto Market and Altcoin Market Trends Other than the top 3 and several older coins like Litecoin, Stellar, etc., most other coins have performed very well over the last 2 months. If we look at the ‘legit’ and ‘liquid’ coins, about 40% have been in a pretty decent bull market over the last two months and have outperformed Bitcoin. Initially, most of the gains were concentrated in specific coins/tokens and in specific sectors, but then the rallies started becoming broader with more crypto assets spiking. The best sectors have been those of AI, Computation, Memes, Ordinals, Gaming, along with a few select Layer 1 protocols and the top tokens of the ecosystems of those protocols. Some examples of the best performers in the top 100 are: Solana, Avalanche, Injective, Internet Computer, Immutable, Kaspa, Celestia, Thorchain, Stacks, Render, Fetch, Bonk, Ordi, and many others, all of which are quite different from each other. Their outperformance has largely been attributed to their increased adoption, rapidly positively evolving fundamentals, or being an integral part of an important sector. Solana, in particular, has experienced remarkable adoption, contributing to its success and establishing itself as a formidable competitor to Ethereum. The market is clearly experiencing a ‘mini’ alt season, despite the fact that top assets by market cap are underperforming. Of course, this could end at any moment, and we don’t want to call it a proper alt season, as we are still early in the bull market. For a proper alt season to begin, we will probably need some or all of these conditions to be met: 1) Bitcoin ETFs approved, 2) Ethereum ETFs approved, 3) Coinbase beats the SEC in court, 4) All US agencies have fully settled with Binance and BinanceUS, 5) ETHBTC hits 0.04, 6) Bitcoin hits 100k. Some extras that could be beneficial to the market are: 7) We are past the Bitcoin halving, 8) FTX & other bankrupt companies distribute assets, 9) The SEC provides regulatory clarity. Currently, there are no specific apparent bearish indicators for these smaller assets, other than the general data points that indicate the market is overheated or is getting overheated. Of course, the market is showing signs of being overextended, and a major correction is not that far away time-wise. As we have mentioned in our previous analyses, risk assets are getting closer to what we think could be a top, but they still have some room and time to rally. Having things rally for a couple more weeks makes a lot of sense, hence we might get a final 10-20% rally in BTC and ETH, potentially driving the rest of the crypto assets even higher, which in turn could lead to the larger correction we are anticipating.

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