40,000 Bitcoins and Counting

Bitcoin Spot ETF Inflows Experience Deceleration, Yet Maintain Substantial Gains

Last week witnessed a short-lived downturn in the Bitcoin Spot Exchange Traded Funds (ETFs) market, signalling a significant shift since their launch on January 11, 2024. The decline was spearheaded by Grayscale, a prominent Cryptocurrency Investment house, and provider of the GBTC fund, which experienced continued outflows persisting from the previous week. In contrast, other leading investment companies' ETFs, such as Blackrock’s IBIT and Fidelity’s FBTC, observed a slowdown in their inflows.

Excluding Grayscale, total ETF inflows remained positive the preceding week. However, the downturn in the other nine ETFs marked the first instance of negative overall inflows on Wednesday, a noteworthy occurrence since the Securities Exchange Commission (SEC) approved the ETF Funds. The collective inflows for the entire Bitcoin Spot ETF market up to Friday were reported at $824 million, reflecting an addition of nearly 20,000 Bitcoins. Grayscale's decline significantly impacted the Spot ETF market, resulting in an official market-wide contraction by mid-week.

As of January 24, 2024, the total net outflows for all 10 Bitcoin Spot ETFs reached $158 million, with the cumulative Bitcoin holdings across these ETFs dwindling to approximately 649,000, witnessing an 11,000-unit decline from the previous week. BlackRock and Fidelity emerged as frontrunners in current holdings, each securing over 40,000 Bitcoins and nearing $2 billion in assets under management. Although inflows decelerated, the market's overall health remained relatively stable, with the negative trend reversing by the end of the week.

Close Call: Polygon Almost Overtakes Ethereum in 2023 User Surge

Polygon's ascent over the past year has been remarkable, positioning itself as a formidable Layer-2 blockchain scaling solution that nearly surpassed Ethereum in acquired users for 2023. According to blockchain analytics firm Flipside, Polygon, powered by its native token Matic, secured an impressive 15.24 million users, trailing just 160,000 behind Ethereum's 15.4 million. An acquired user is defined as a participant engaging in at least two transactions, with one occurring in 2023.

While Polygon led Ethereum in user acquisition during the year's first half, it faced a slowdown in the latter half. January marked its most significant achievement, contributing 40% of its annual user base. Bitcoin claimed the third position in the user acquisition list. The report, encompassing eight blockchains, revealed a total of 62 million acquired users.

Following Bitcoin were Solana, Arbitrum, Optimism, Avalanche, and Base. Notably, Base experienced a strong start but tapered off towards the end of the year. The revelation positions Polygon favourably within the cryptocurrency space, especially as it prepares to launch its highly anticipated Agglayer next month. This innovative solution aims to aggregate zero-knowledge proofs (ZK-proofs), connecting layer 1 and 2 blockchains seamlessly without the need for bridging. Flipside's robust user numbers underscore Polygon's strong adoption and contribute to the broader success of cryptocurrencies in the evolving landscape.

Car Titan: Tesla Fails To Capitalise On Bitcoin Bull Run

Tesla, the leading electric car manufacturer globally, has reportedly foregone a substantial $300 million in potential profit due to its strategic decision to divest 70% of its Bitcoin holdings. The company, headed by business tycoon Elon Musk, made headlines in February 2021 when it invested $1.5 billion in Bitcoin, significantly influencing the cryptocurrency's value, which stood at $36,000 during the purchase.

In subsequent moves, Tesla opted to liquidate portions of its Bitcoin holdings, selling 10% in March 2021 and progressively offloading 75% in the second quarter of 2022. The rationale provided was the need to fortify the company's balance sheets amid financially uncertain times. While Tesla had previously embraced Bitcoin for vehicle purchases, it reversed this decision citing environmental concerns.

Elon Musk hinted in October 2023 that Tesla might reconsider accepting Bitcoin for car sales, but no confirmation has emerged since then. However, the company presently allows certain merchandise purchases using Dogecoin. Despite the substantial Bitcoin divestments, Tesla still retains a significant holding of approximately 9,720 of the digital assets.

Tesla's decision to sell Bitcoin coincided with periods of weaker free cash flows, supporting their argument that the funds were utilised to bolster the company during financial downturns. Nevertheless, the recent report of a robust free cash flow of $2.1 billion in the fourth quarter of 2023 raises questions about the necessity of further Bitcoin divestments, suggesting that Musk might not need to liquidate additional holdings in the foreseeable future.

TECHNICAL ANALYSIS

Bitcoin (BTC)

Bitcoin experienced a bullish week, with a potential low identified at $38,555. The price almost reached the support on the lower blue horizontal line at $38,431, and it successfully climbed back above the 50-day exponential moving average (EMA). Notably, it reclaimed the first horizontal blue support line at $41,253, which had transformed into new resistance. The breakthrough of this resistance signals a bullish prospect, possibly indicating a fakeout orchestrated by institutions and larger players (whales). These entities often seek liquidity from sellers, wait for the price to drop below a specific support level (in this case, the top blue horizontal line), and utilize that liquidity to buy back into the market, triggering short sellers' stop-outs.

The chart indicates that the current status is at short-term resistance, with the digital asset's price spiking at the 0.382 Fibonacci level of the most recent major weekly swing from January at $48,969 to the swing low earlier in the week at $38,555. A move above the halfway point (50%) at $43,762 would be a positive sign, and a daily close above the 0.618 Fibonacci level at $44,991 would improve the odds of retesting January's high. The daily Relative Strength Index (RSI) is mid-ranging, suggesting there is still room for movement in either direction.

Turning attention to the weekly chart, a bullish hammer candle is forming. This candlestick pattern begins with the price at the top of the candle and encounters sellers driving the price down, only to see buyers stepping in to bring the price back up to the top of the range. This price action aligns with reclaiming the daily resistance level mentioned at the start of the analysis. All factors considered, the overall picture looks brighter compared to the previous week, and there is a growing inclination to believe that the bearish price action may have concluded, with last Tuesday's witnessed low potentially marking the bottom, although it is not guaranteed. A clearer bullish case would require a close above the weekly 0.618 Fibonacci level. Bitcoin will be monitored on a weekly basis.

Total Cryptocurrency Chart (TOTAL)

This week, my focus turns to the Total chart as I delve into whether capital is flowing back into the entire cryptocurrency space following a substantial sell-off. This downturn resulted in a more than 12% decline from the highs witnessed in January.

Examining the daily chart reveals similarities to the Bitcoin chart. It has successfully reclaimed the 50-day EMA and reinstated the previous strong blue support line at $1.505T, as indicated by the orange arrows. A notable spike occurs at a convergence of daily resistance and the 0.382 Fibonacci level from the January swing high to low, standing at $1.589T (marked with green &  blue arrows). The RSI is mid-ranging, showing the price has room to move to the up and downside.

Transitioning to the weekly chart, a bullish hammer candle is forming after bouncing off the significant weekly 0.382 Fibonacci level. This level is derived from the September 2023 swing low of $978.422B to the early January swing high of $1.808, a couple of weeks ago, settling at $1.491T.

Considering all the information, a daily close above the 0.382 level of the previously mentioned daily swing would pose a substantial challenge to overcome. However, such an achievement would cautiously tilt the chart towards a bullish outlook. The fakeout of the blue resistant line lends support to this scenario.

Ripple (XRP)

This week's spotlight falls on XRP, a cryptocurrency facing a pivotal moment. Positioned at a critical juncture, the price is sitting just below a significant support and resistance zone, vividly illustrated by the black horizontal line, red arrows, and the encompassing green rectangular pattern. Notably, this area has proven resistant to breaking below since August of the previous year, consistently attracting buyers around the $0.50 mark.

Crucially, the support extends down to the $0.47 level, demarcated by the steadfast blue horizontal line and blue arrows. In the bearish scenario, the formation of lower lows and lower highs persists, lacking any decisive shift in structure towards the upside. Despite a potential double bottom formation, indicated by the 1 and 2 markers on the daily chart, a retest of the lows looms on the horizon.

Examining the Relative Strength Index (RSI), the momentum indicator suggests that the asset is not yet oversold. This implies room for further downward movement. Furthermore, there are no signs of divergence in the RSI, and the price remains below a downward-sloping 10-day Exponential Moving Average (EMA), an unmistakably bearish signal. As we navigate this critical phase, these technical indicators provide valuable insights into the potential trajectory of XRP shortly.

Examining the weekly chart, it becomes evident that the price has been tracing a path within an upward trend channel. A notable exception occurred in July of the previous year when the price briefly broke above the channel, only to swiftly retreat within its confines. Remarkably, for a complete year, the price has dutifully followed the trajectory defined by this channel.

As of the present moment, we find ourselves positioned just below the lower trendline. Despite the current proximity to this level, the potential for a reversal exists. The price could soon pivot and ascend above the lower trendline once again. Such a reversal might signal the initiation of a renewed upward trajectory, with the possibility of further movement to the upside within the established channel, although at the time of writing, the price has indeed closed below the line.

In summary, the dynamics of the trend channel offer a compelling narrative. They suggest the likelihood of a bullish resurgence in the immediate market outlook if the price of XRP can close back inside the channel, adding an intriguing dimension to the ongoing analysis of the price movements.

Assessing whether XRP is establishing a permanent low poses a significant challenge. However, the price's adherence to a year-long chart pattern tilts the odds in favour of an ongoing bottoming process. This could involve another move to retest the current lows, potentially followed by a bullish divergence on a momentum indicator like the RSI or stochastic.

As the scenario unfolds, close observation becomes crucial. Monitoring for any break in the established structure or notable upward moves, especially accompanied by above-average volume, will be key. These potential indicators could offer valuable insights into the evolving market dynamics and provide clues about the future direction of XRP. Caution and vigilance are paramount in navigating this intricate phase of price action.

IN SUMMARY

Following three weeks of persistent downward pressure, there's a potential shift in the cryptocurrency markets, hinting at a plausible low. This assessment is influenced by a possible fakeout to the downside. However, the validity of this optimistic outlook hinges on the absence of a return below critical support levels. Should such a return occur, it could likely propel us back to recent lows, initiating a further retracement within the bull market that has been underway since the November 2022 lows.

The current juncture demands scrutiny as market dynamics continue to evolve. The delicate balance between a potential market recovery and the risk of revisiting recent lows underscores the uncertainty. Staying attuned to key support levels and closely monitoring price movements will be essential in gauging the authenticity of recent market developments and anticipating the next phase in this intricate journey.