A Step Back to Leap Higher
After crossing the ATH (All-Time-High) with a lot of strength, Bitcoin retraced around 13% and went below the $70k levels. As of writing, we are still trading below those levels. However, there is a lot of reason to think that this dip is healthy, especially after the strong price action of the past weeks. Adding to that the fact that ATH are difficult barriers to break and often require multiple trials. When looking at price actions close to past ATH, we see that, for now, we are completely aligned.
Moreover, another positive aspect of this dip is that the funding market has reset a bit and is now back into more healthy territory. This is shown by a decrease in funding rates APR (Annual Percentage Rate), from Orange to Green as Bitcoin price decreased.
Is the dip over? And what can we expect for the weeks in crypto land? Those are hard questions to answer. But one thing is for sure, even if Bitcoin dips a bit further or consolidates around those levels, this does not put into question our view that the bull market still has room to grow.
The state of liquidity in the system
If you’ve been following our work for some time, you’ll understand that we believe that the state of liquidity in the system plays a huge role in how we view crypto land. In general, crypto is positively correlated to liquidity, which means that if liquidity conditions are easing, this tends to be bullish for crypto and vice versa.
While “liquidity” is kind of an obscure concept with many different ways to measure it, and many different schools of thought around that, we can overcome this by trying to use different ways to assess whether or not we are in a liquidity restrictive or easing path.
First, using a chart from Fidelity which measures overall liquidity as Fed Balance Sheet - RRP (Reverse Repo) - TGA (Treasury General Accounts), we note that it has been rising since mid-2023, together with crypto.
Looking into each component in more detail, we see that much of this move can be attributed to the depletion of RRP that has completely offset the balance sheet contractions .
Now if we look at another metric, Goldman Sachs Financial Conditions Index, which is defined as a weighted average of riskless interest rates, the exchange rate, equity valuations, and credit spreads, we note that financial conditions have eased (which implies that the index goes down) substantially since the middle of 2023.
Furthermore, the M2 money supply which was in a downtrend from the middle of 2022 and into 2023 has now stopped falling completely .
The TL;DR for this is simple: Different measures of liquidity point towards easing conditions. Those environments tend to be bullish for crypto.
An important event this week - The FOMC meeting
The Federal Open Market Committee (FOMC) is an important event to monitor. This is when the Fed makes decisions regarding monetary policy, specifically with regard to short term interest rates so that their dual mandate of price stability (inflation at 2%) and economic growth is respected.
The next FOMC meeting is taking place on the 19-20th March and while the market expects that rate will stay unchanged, it would be important to monitor the speech of Powell as this could be a short term driver of price actions.
Solana - The rebirth is real
Solana has been wild in recent weeks and SOL has crossed the $200 levels for the first time since the end of 2021, and this while the majority of the crypto market experienced sideways actions in the last week.
Now, looking at the SOL/ETH chart, we see that SOL is currently a lot stronger than ETH and seems to be breaking out of big consolidation.
Moreover, new daily active addresses hit an ATH on Solana. We believe that this can partly be attributed to the current meme coin mania that attracts a lot of retail traders into the chain.
TVL (Total Value Locked) is also continuing its strong uptrend and currently stood at $4.3 billion, up from $210 million back in the beginning. Indeed, the rebirth of Solana is real and at this pace, Solana should rapidly break its previous TVL ATH value of $10 billion.
Our Long-Term in-House View
- We are in a bull market and we expect to see BTC > $100k, ETH > $10k and SOL > $500 as new ATH in the next leg of the cycle.
- A dovish stance is starting to appear on central banks sides and global liquidity is in positive territory. Long term, this is bullish for crypto assets.
- We believe in ETH as the superior asset to Bitcoin for the next decade. Further, our view is that SOL has the biggest potential for consumer app adoption.
- Our favourite altcoins thematics for the next upleg are Socialfi, Gamefi, DePIN, AIfi & Infrastructure for scalability.
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