Monthly Macro Update (Sep 2022): When narratives don't follow through (yet)

Those who have been keeping up with our monthly newsletters probably would've noticed that we are a huge Green Day fan. That's also because lately their song titles fit so well with whats going on in today's cryptoverse.

September has always been historically bad for markets. Even though by now everyone knows crypto behaves no differently from legacy markets, we all had high hopes for ETH to pull us out of the wreckage with its much anticipated Merge event that happened on September 15th. After all, it also led the relief rally back in early July when it briefly broke the $1000 psychological support. However, all the crazy speculation on the miners' protest to revive ETH proof of work, plus the immediate effect of ETH post merge, at least from general consensus, was rather underwhelming.


Here you can see the gas prices actually haven't changed much post merge after many experts assured it will become lower, just like its carbon footprint. It appears that gas prices will only come lower after a few more upgrades which we will have to wait until 2023 to happen.

ETH gas fees pre vs post merge (in Gwei). Source: ycharts


Another "promise" that ETH maxis advocated was how ETH will become deflationary post merge, due to the network being highly active and ETH is actively spent on gas fees to execute transactions. Unfortunately after 2+ weeks post merge we're still seeing an increase in emissions:

Source: ultrasound.money


To be fair the emissions have drastically decreased versus ETH proof of work (estimated +0.18%/yr ETHpos vs +3.77%/yr ETHpow). The bigger issue is how the network activity on the biggest dappchain have decreased to the point not even the Merge could prevent ETH from having positive emissions - thanks to the bear market.

Every long-only investor would probably want to sleep through the month of September 2022. This month we saw legacy markets spin out of control as US CPI exceeded expectations, which led to the Fed continue to stay hawkish in taming inflation. The contagion effect has spilled over to two of the biggest G7 nations, Japan (JPY) and United Kingdom (GBP), where its currency being traded like a crypto in limbo, forcing BOJ and BOE to both step in and intervene to save it from death spiralling out of control.

What's more interesting was while the GBP and Euro was sliding there was a huge buying inflow on BTC using the aforementioned denominations - is Bitcoin's true narrative finally coming to life?

Source: Messari Research


Despite all the carnage in traditional financial markets, BTC remained rather calm with a low single digit drop month over month. This could probably be due to the fact that it has already dropped over 60% year to date; but moreover we're starting to see an accumulation phase that's building up from a technical perspective. Since Mid June, the corn has been stuck in a 18-24k range for the past 3.5 months. What's interesting is we spotted a bullish divergence that formed on the weekly close - the first in all of BTC's trading history:


From the chart above, we are also approaching a strong diagonal resistance drawn from the all time high ($65,600) as the price seems to be gravitating towards the barrier. A strong candle breakout out of this diagonal would signal a potential strong bear market rally, hopefully back to $28,000-$30,000.

While we're very excited to finally see this bullish pattern forming, we do feel that it is not a strong divergence pattern here, due to the weekly bars being closed below last cycle (Dec 2017) high which is below $19,900. It's also worth noting that multiple weekly bearish divergences were formed back in the bull run of Q1-Q2 2021 before price nuked from 60k back to 28k:


This means that given a weak(ish) bullish divergence pattern that was just formed, we could possibly see more lower lows being formed before we formally break out of this bear trend, which could be in line how legacy markets are still in turmoil and need slightly more time to consolidate and improve. After all, the market still anticipates another 75-125bps rate hikes over the next 2-3 meetings.

However the case may be, at the desk we believe however bad the markets are getting, we believe this is not the time to capitulate and sell, but rather start accumulating the coins at these levels, and perhaps average out the buy-ins should the market dip further. Given an asset class that has dropped closed to 70% from the highs plus a high time frame technical pattern showing an accumulation base, the risk reward favours more to the upside than downside. Given Bitcoin's strong technicals over its younger brother Ethereum, should we commence the rally we expect Bitcoin to be leading the charge this time around. [NOT FINANCIAL ADVICE]

Last but not least, while September has historically been bad for markets (including Bitcoin), October's historically has been more the opposite. September's over anon, time to wake up and pay attention.