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Monthly Macro Update - March 2022

Crypto markets acting like a roller coaster is an understatement. When 2022 started the market was in the midst of a dump, where the majority have been calling for another full fledged bear cycle awaiting us. As the first quarter ended we seem to be back to where we started off, but now in a much different narrative. The market seems to have forgotten about the rate hikes, the Ukraine war, or even Defi GodFather Andre Conje rage quitting this industry; the total crypto marketcap took a beating pretty much throughout the first 3 months of the year, testing 1.5T multiple times before jumping back above 2.0T during the last week of March. While the market continues to debate if Luna Foundation Guard (LFG) saved the market with ~130mm USD worth of daily BTC purchases, One can see clearly that a bull div was formed quite nicely even on the weekly chart, as we now head back above the dangerous kumo clouds.

Total Marketcap (weekly) - staying above the kumo clouds

We're not out of the woods yet though ; looking at technicals on Bitcoin which represents ~42% of the total market capitalization, it is stuck in between the D1 200D EMA and SMA (Light and Dark Lines). As spot has not touched either MAs since late December of 2021, we see that there will be some choppy action on BTC (highlighted by the white rectangular box) before deciding whether it wants to go for the 50k-53k area or back to the lower 40s. It is also worth mentioning that the yearly open is at 46.2k which also is the lower boundary of the white rectangular box - it is important to not lose this level as we would expect more downside if it does.

BTCUSD (Daily) - stuck between two 200D moving averages

So as long as BTC chops around the aforementioned area, this would be good for alts to make another comeback. We've already seen many Layer 1 (and 2) chains such as ETH, SOL, LUNA and AVAX have spiked 15-25% higher - and seeing more room to go. Looking at Bitcoin dominance as mentioned in last month's commentary we are seeing a bearish divergence against RSI playing out - which explains the potential for alts to have a run. Structurally it also looks like it's forming a wedge here - will need to closely monitor which way it wants to break out as there could be vastly different implications to not just Bitcoin but the fate of other altcoins this year. We're looking to see BTC dominance play within this wedge for the next few weeks to come.

BTC Dominance in a wedge formation. Currently observing for breakout

Q2 narrative: ETH Merge

With altcoins heating up, there's more and more chatter about the full transition of Ethereum from proof of work (PoW) to proof of stake (PoS) - aka ETH 2.0 that could happen in the summer of 2022. With Ethereum being the king of smart contracts (representing 54% of Total Value Locked across all chains), moving into ETH 2.0 its token will finally become deflationary and more energy efficient. As mentioned in our telegram channel, we highly suggest you take a read on the details and its implications, which is summarized quite nicely in this article: Ethereum’s ‘Merge’ is Coming: Here’s What You Need to Know.

ETH TVL Dominance against other chains. Source: Defillama

With the attention turning to ETH, this also benefits many Layer 2 protocols that run on ETH. We've seen chains/protocols such as Arbitrum, Optimism, Starkware, METIS, zksync and more showing massive growth in TVL over the past 3 months. Don't sleep on these chains, especially if they already have a token.

Layer 2 protocols. Source: L2beat

Looking at ETHUSD technicals, as we zoom out we are in the midst of a very nice bounce off a bullish divergence with a strong "W" price action formation. There's some resistance at 3500 levels with some kumo clouds in the way, but should BTC continue to behave plus BTC dominance continues to grind lower we expect ETH to head higher towards the summer off the ETH 2.0 narrative.

Lastly we've also learned that the notorious Arthur Hayes has posted this in allegiance to support ETH. Given his track record of tanking the market whenever he posts his monthly digests, let's hope this post won't jinx ETH this time!

Disclaimer: The content of this blog is not an investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product.

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