Market Musings - Quiet and Rangebound Market with Weak Narratives
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Another week has passed, and the crypto markets continue to trade within a tight range, lacking a significant catalyst to break out.
Let's dive into the current market dynamics.
Low Ethereum Gas Fees = Ultrasound Money?
One indicator of the relatively low on-chain activity is the gas fees on Ethereum, which have been consistently below 6 gwei.
During prime North American trading hours, we're seeing gas fees as low as 4 gwei – a level reminiscent of the depths of the bear market.
Of course, the lack of gas fees is also throwing a wrench into the ETH as ultrasound money meme.
As MontrealDAO OG community member Marius rightly calls out -
“cheap gas means not enough transaction volume, not enough transaction volume means eth burning mechanism is not deflationary, not deflationary means ETH doesnt gain more intrinsic value from the burning mechanism.”
In addition, competing L1s (and even L2s) like Solana have also captured a considerable portion of on-chain activity, as degens and NFT enthusiasts have flocked to these cheaper alternatives.
The anticipated meta of Ethereum being the go-to platform for high-value assets with robust provenance has yet to materialize fully.
Trading Opportunities Amid the Range
Despite the range-bound conditions, opportunities for active trading have presented themselves, as highlighted in the previous Market Musings - Mid-week update:
“Personally, I'm looking for any kind of washout that could present a buyable opportunity.
BTCUSD is trading in momo-down on the daily chart, so I'm closely monitoring for any signs of late sellers getting trapped, which might mark a local bottom.”
The following session saw a momo-down reversal, offering a potential +2R base hit on a daily signal for those who capitalized on it.
For those inclined to trade lower timeframes, the 4-hour chart provided ample entries to piggyback off the broader daily signal.
The Importance of Timeframe Analysis
That being said a lot of my personal trading is informed by understanding timeframes.
From a purely price action perspective, as long as the price continues to trade FTFA 🔴, the bias should remain on the downside.
For active traders, you might try buying flushes, but until the timeframe alignment changes, strength should be faded.”
On Monday we saw Bitcoin start the trading week creating a higher high, only to reverse back through the prior day’s high, the daily open, and weekly monthly, and flipping the timeframe alignment back to full timeframe alignment (FTFA) 🔴.
This caught many market participants who don’t pay attention to TFA off-guard, as evidenced by the significant long liquidations in the following days.
If you take any lesson from this I hope you understand the value of tracking how price trades in relation to the open of the major timeframes (daily, weekly, monthly, and quarterly).
Price Action Update
Bitcoin: Sandwiched Between Key Levels
BTCUSD is currently sandwiched between the weekly open (purple line) and monthly open (orange line), resulting in range-bound price action.
While buyers have defended the monthly open, the daily momo-down condition suggests maintaining a bearish bias until we see a price reversal (i.e., taking out a prior day's high).
For now, we can expect more ping-pong-type price action until A) we have established FTFA and B) break out of the range that we have been trading in since early April.
Ethereum: Consolidation Continues
ETHUSD is trading inside a broadening formation that stretches back to early April.
Like Bitcoin, it is also displaying a daily momo-down condition. A daily reversal and a return to 🟢 on the monthly timeframe could trigger a bullish reaction (short covering) similar to what we saw in Bitcoin last week.
ETHUSD continues to squarely trade inside month and inside quarter so there’s a high probability that we remain rangebound for the next month, or even possibly until the new quarter.
Solana: Rangebound Until Next Quarter
SOLUSD is also trading inside the monthly and quarterly timeframes, indicating consolidation and a low probability of a significant move in either direction until the new quarter.
Wrap Up
Barring any major unexpected events or catalysts, we are clearly trading within a range. Until this range is resolved, it's crucial not to become overly bullish or bearish.
Personally, I am positioned long on many cryptocurrencies with stops below recent swing lows, and trading opportunistically by fading periods of weakness or strength.
The next significant macro news item is the US CPI release scheduled for 8:30 AM EST next Wednesday. Until then, trade safe and avoid getting over your skis.
If there are any specific assets you'd like me to include in the analysis moving forward, please let me know in the comments below.