CoinJar’s Three Ts: Ethereum upgrades, the DXY factor and a weekly close for the ages

Welcome to CoinJar’s Three Ts. Each fortnight we explore a big Theme, an interesting Trade and some good, old-fashioned TA (courtesy of Tom from trading gurus FX Evolution).
 

Ethereum rising?

With Bitcoin hitting its highest level in a month, things are mostly champagne and roses in crypto-land right now. But it might be worth paying more attention to crypto’s second-in-command, Ethereum.

The much-hyped EIP-1559 upgrade is due to go live in early August, bringing a new token burn dynamic to the network that should apply deflationary pressure to the market.

Add to that the increasing roll-out of the Optimism scaling solution (goodbye $50 gas fees!) and the imminent arrival of Serenity – AKA ETH 2.0, Ethereum’s proof-of-stake solution – and you have what some commentators are referring to as a Triple Halving event on the horizon.

Triple Halving$ETH will undergo a massive supply shock equivalent to a total of 3 halving events for $BTC

This is a 90% drop in sell pressure from miners thanks to changes to $ETH including POS, deflation, as well as liquidity

It will be known as the “triple halving” https://t.co/IuP2Ifgzz0 pic.twitter.com/G9SXmIzuiz

— croissant (@CroissantEth) July 18, 2021

Dollar dollar bounce y’all

For the past half a decade, the most consistent Bitcoin price correlation has been with the US dollar index ($DXY).

The relationship is simple. Strong dollar, weak Bitcoin; weak dollar, strong Bitcoin. It makes sense as Bitcoin has always presented itself as a weapon against inflation. If fiat currency is losing strength, Bitcoin becomes a more appealing place to park those dollars.

So when the US government started printing trillions of US dollars to mute the economic effects of the COVID-19 pandemic, it was little surprise that the DXY began to plunge – and the Bitcoin price went parabolic.

However, now we’re beginning to see signs of a turnaround in the DXY – a double bottom followed by a break of resistance – and if those trends continue it could spell continued stagnation or even downside for BTC.

$DXY #Dollar

I think we continue to see the dollar rally here towards 94.

Correlation with Crypto has been inverse so could line up with further potential #Bitcoin downside. https://t.co/YO3CJdMje7 pic.twitter.com/0nWpjd8qIV

— Mayne (@Tradermayne) July 19, 2021

But before you rush into any 100x shorts: DXY moves can take months if not years to play out, so there’s plenty of scope for Bitcoin upside in the interim. And hey – from another perspective that’s just a rising wedge ready to collapse…
 

Wyckoff to the races

And there we have it: some actual, high volume movement in the Bitcoin market.

While the more immediate cause of the impulse was likely a short squeeze – overleveraged short positions being liquidated in a self-perpetuating cascade upwards – for Tom from FX Evolution, what we’re seeing matches up well with a classic Wyckoff accumulation pattern.

If the model holds, we should see a return to a newly established support around US$36k over the next few days before making another push for US$40k and above.

If you’re unfamiliar with Wyckoff schematics, they’re basically a way of mapping out trading movements and price manipulation at market tops and bottoms. You can find a good summary of the phases and terminology here.

The giant green candle we saw around the weekly close yesterday also signalled a reversion to the 20-week EMA (Exponential Moving Average), an important trendline for the Bitcoin price.

As we can see, price is now sandwiched firmly between the 20-week and 50-week EMAs.

While yesterday’s gains are certainly the most positive bit of price movement we’ve seen in months, we’ll need to see a break and close above the 20-week before we can more confidently declare a return to bullish conditions.

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