Three Ts: USD woes, miner capitulation, more trouble brewing
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Welcome to the Three Ts with CoinJar. Each fortnight we explore a big Theme, an interesting Trade and some good, old-fashioned Technical Analysis (courtesy of Carl Capolingua of ThinkMarkets Australia).
Pity those poor folk planning a holiday to America. The US dollar is currently pulverising the world’s currencies and it ain’t showing no signs of slowing down. In a mark of how dramatic this shift is, the US dollar is currently overtaking the euro, something that hasn’t happened since the aftermath of the dotcom crash.
*EUR/USD Falls to Lowest Level Since November 2002 at 1.0074 – FactSet
— *Walter Bloomberg (@DeItaone) July 11, 2022
As the global reserve currency, people flee to USD in times of strife, making it more expensive. However, given its centrality to most forms of global commerce, this has primarily negative flow-on effects for essentially every other country on Earth (as well as for most of the major multinationals in the US itself).
As much as we’d like it to be otherwise, Bitcoin is far from immune – the last sustained USD surge in 2018 correlated with the worst of the last bear market.
However, as Arthur Hayes has argued, the consequences of sustained USD dominance this time could be profound, resulting in the potential collapse of the EU and a runway for extreme Bitcoin price appreciation.
— Arthur Hayes (@CryptoHayes) July 11, 2022
Even if you don’t take the apocalyptic view, there’s little doubt that the global economic landscape is very different from the last time the US dollar was this powerful – namely, pre-9/11. America is diminished and China has grown strong. How much longer will the rest of the world be happy to live subject to the whims of a fading hegemon?
Of course, eventually global leaders will tire of footing this bill and the US dollar reserve status will come under threat.
China and Russia are of course already tired of it, but even allied nations will join them on this.
But thats a story for another day.
— Jordi Alexander (@gametheorizing) July 11, 2022
You know things are getting really bad in the crypto cycle when the miners start offloading their BTC.
While this had always been something we inferred via on-chain metrics, the arrival of publicly traded US Bitcoin mining concerns is offering us unprecedented transparency into what’s going on. And it appears that in the last month it has been fire sale season.
For instance, CoreScientific, one of the largest American miners, revealed that it had sold the vast majority of its BTC at a US$23k price point. It’s clear evidence of miner capitulation, something that occurs when the costs of creating new Bitcoin surpasses the amount that can be made from selling it on the market.
32 days since the start of Bitcoin's miner capitulation.
If CPI comes in hot, US equities make new lows, and Bitcoin drops sharply below $20k, get ready for the next wave of capitulations. pic.twitter.com/pKfchsILmf
— Joe Burnett (🔑)³ (@IIICapital) July 11, 2022
Capitulation resolves in one of two ways: either the price increases to a point of profitability; or enough hash power leaves the network that the cost of mining new Bitcoin decreases.
In the past, miner capitulation has served as a pretty strong bottom signal. One way to think about it is in terms of Bitcoin’s relationship to the energy put into mining it – the Energy Value. EV has tracked pretty closely to Bitcoin’s price since the very beginning and right now we’re at historically low levels. The price always returns to meet the red line. The question is: how long will it take?
By popular demand, updated Bitcoin Production Cost data.
We traded below Electrical Cost in June, however the floor has since dropped as inefficient miners capitulate.
All as pre-predicted by Hash Ribbons. pic.twitter.com/6iVj7TlEkk
— Charles Edwards (@caprioleio) June 30, 2022
There’s not much to like about the current price action according to Carl Capolingua from ThinkMarkets. Bitcoin’s recent high at US$22.4k can only possibly be considered a disappointment and further proof that the supply side is very much in control of the market.
As it stands, staying above US$17.6k is about all the bulls can dream of with a visit to the 2019 highs at US$13.8k on the cards if that fails to hold. However, if we do manage to puncture the short-term trend ribbon above then US$25.3k is the next level of interest.
Ethereum is looking similarly dire, so rather than dwelling on the downside, Carl has identified at least one token showing a glimmer of life: Polygon ($MATIC).
Having enjoyed a similarly catastrophic drawdown to every other altcoin, L2 scaling solution MATIC now appears to be in the final stages of an inverse head-and-shoulders, complete with capitulation candles and a move above the short-term trend ribbon (which is offering some dynamic support). If price can show some strength above the 60c mark, then a visit to 70c and perhaps even the long-term trend ribbon could be on the cards.
But just remember that the bear market is fully engaged and altcoin charts will matter for little if Bitcoin decides to take another trip into the abyss. So, lower your risk, ride your stops and for the love of god take some profit when you find it.
CoinJar is Australia’s longest-running crypto exchange. Since 2013, CoinJar has helped more than half-a-million Australians buy and sell billions of dollars in cryptocurrency.
ThinkMarkets is a premium multi-asset online brokerage that provides quick and easy access to a wide range of markets including forex, CFDs on equities, cryptocurrencies, commodities, indices, futures and more.