Market Update: 3 Aug 2021
“…our sense is that the market will look to trade within this 30–40k range..”
Our guess was right! And we’re still keeping with this view for now.
BTC was stumped by resistance in the 42k region and has fallen decisively back into the 30–40k range. A stronger catalyst may be required for the decisive break above 40k or below 30k.
There are some potential ones on the horizon…
This Thursday is the EIP-1559 mainnet implementation and ETH has clearly started to price this in, rallying 57% in the last 12 trading days and breaking out of the consolidation triangle formed over the last 3 months (Chart 1).
The retracement from Asia morning today should find support around the breakout level around 2300–2400 in ETHUSD. This is now a very key level. If ETH successfully holds above, we expect upward momentum from the coming move toward a proof-of-stake Ethereum 2.0 to push for a retest of the all-time high. Otherwise, we will fall back into an extended consolidation for the time being.
The ETHBTC chart is telling a story of its own. The cross has broken out of its Wave 4 consolidation, and we now anticipate an extended Wave 5 higher (Chart 2).
So we are clearly bullish ETHBTC and semi-bullish ETHUSD. What does this mean for BTCUSD?
We are less optimistic about BTC and we think that upside on BTC might be capped in the near-term. Based on our Elliot Wave count (Chart 3), BTCUSD might have completed Wave 4 when it topped on the TD 9 and Trendstall sell signal (Yellow Arrow). This could mean the start of Wave 5 lower.
Even if BTCUSD goes higher from here, above the 42k resistance, it could be completing Wave Z (in the WXYXZ zig-zag) to finally end Wave 4 and then face downside pressure on the Wave 5 lower.
Additionally, in the longer term we are slightly wary of what seems to be a Head & Shoulders pattern forming in BTC and we are looking out very carefully for the break of the neckline at 28–30k support (Chart 4).
Flow wise, we are seeing an unusual increase in two-way OTC option interest. The buyers of short-tenor calls are still trying to chase the break to the topside albeit less aggressively. There has also been noticeable demand for very far out-of-the-money calls.. At the same time there is the expected rush of sellers trying to capture yield from the elevated front-end of the curve.
We continue to maintain a bearish view on vols with BTCUSD back in the 30–40k range and with several exchanges reducing leverage limits significantly (slightly reducing crazy speculation). This has been a profitable view so far and could continue to be with the mixed directional signals discussed above. With that said, a punt on upcoming ETH catalyst events could be well worth it with cost-effective structures.
