By Matt Weller CFA, CMT
Translation: Blockchain in Vernacular
1. BTC/USD and ETH/USD key points
Kamala Harris’ economic agenda is seen as potentially inflationary, a trend that could benefit crypto assets at the expense of the U.S. dollar if she is elected.
Last week’s data highlighted a shift in market focus from inflation to labor markets and consumer health. BTC/USD remains range-bound, but the technical outlook for ETH/USD remains bleak after breaking below key support levels.
2. Crypto asset market news
The application for Bitcoin spot ETF options is finally gaining attention again. Many expect ETF options to be available by November. Swiss National Bank discloses holdings of 466,000 MicroStrategy shares. Goldman Sachs also discloses holdings of $418 million worth of Bitcoin ETFs. The U.S. government moved 10,000 "Silk Road" Bitcoins worth $590 million from one wallet to another, which may be a precursor to another round of long-term untouched supply sell-offs.
While not strictly crypto news, U.S. Democratic presidential candidate Kamala Harris unveiled her economic agenda last week. Many of her priorities are considered "populist," including eliminating medical debt for millions of Americans, banning food price gouging, capping prescription drug prices, providing a $25,000 subsidy for first-time homebuyers, and expanding the child tax credit. Many observers believe these priorities could spark inflation, a development that could benefit crypto assets at the expense of the U.S. dollar if Harris is elected.
3. Macroeconomic Background
Last week’s economic data highlighted a key narrative shift that readers who have been following these articles regularly should have already been “ahead of the curve.” On the surface, the most impactful economic release was Wednesday’s U.S. Consumer Price Index (CPI) report, which provided an early update on how price pressures in the world’s largest economy have changed in July. The report’s year-over-year increase of about 2.9% (3.2% core) was roughly in line with expectations, and the market reaction was relatively muted as traders moved away from viewing inflation as the biggest risk to the economy and Fed policy.
Instead, the market is now more focused on the labor market and consumer health. As a result, Thursday's better-than-expected retail sales report (and the simultaneous release of strong earnings from retail giant Walmart) eased concerns about an impending economic slowdown and sharply reduced the number of rate cuts expected by the Federal Reserve this year to less than 100 basis points (or 1%). All else being equal, these developments should be supportive for risk assets such as Bitcoin and Ethereum, but last week's prices clearly disappointed the bulls (see below for more).
4. Sentiment and capital flows
Our closely watched sentiment indicator, the Crypto Fear and Greed Index, fell to 27 last week. Overall, it is close to the 1-year low set earlier this month and could form a contrarian bullish signal if there are any positive developments in the coming weeks:
Source: Alternative.me
Another way to gauge sentiment is to look at flows into crypto asset investment vehicles on exchanges, which remained tepid last week. At the time of writing, with some time until Friday’s data is released, Bitcoin exchange traded funds (ETFs) have seen slight outflows over the past four days, at -$3.5 million. In the long term, inflows from “traditional finance” investors provide incremental demand for Bitcoin and help support prices.
Source: Farside Investors
Meanwhile, outflows from Ethereum exchange-traded funds, especially high-fee legacy Grayscale products (ETHE), are starting to slow slightly. These outflows, which have reached nearly 30% of the fund in just 3 weeks, are likely to continue in the coming weeks until a more appropriate asset level is reached based on its fee structure.
5. Bitcoin technical analysis: BTC/USD daily chart
Source: StoneX, TradingView
Despite an impressive recovery in U.S. stock indices and other risk assets such as gold, Bitcoin struggled to get going last week. BTC/USD also saw a “death cross” with the 50-day exponential moving average (EMA) falling below the 200-day simple moving average (MA), suggesting a possible bearish shift in the long-term trend.
These cryptocurrencies have been consolidating in a wide range since March. Currently, they look neutral in the short term, but in the long term, gains are likely ahead. However, a drop below 53K is possible, which could cast doubt on this bullish view.
6. Ethereum technical analysis: ETH/USD daily chart
Source: StoneX, TradingView
Like Bitcoin, Ethereum was relatively weak last week. ETH/USD also saw its own “death cross”, with prices below the previous Q2 range, and the technical outlook for the second-largest crypto asset is decidedly less bullish. ETH/USD is trading well below its 200-day moving average, as well as previous support-turned-resistance at $2,875, and currently maintains a short-term downside bias.
