The Weekly Recap: Week 1 & 2

Welcome to the first weekly recap of 2021! Here are the major takeaways of the intense, almost nail-biting first week of 2021.

  • The price of Bitcoin experienced massive correction over the weekend, which spilled over to Monday and sank the price further to its last defence line at $32,500
  • Newly-surfaced regulatory directions might have placed stablecoins under the spotlight

Bitcoin 

Bitcoin kickstarted the new year with yet another strong week, breaking through resistance levels one after another, and setting multiple all-time highs. For the first time, Bitcoin broke through the $30k level and subsequently flirted with the $42k level. Bitcoin, which kicked off the new year at $28,955, garnered a 45% increase before plunging below $35k as part of a massive correction. The market dominance of Bitcoin rose to 69.23%. 

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Source: Bybit

Here is a market dominance breakdown of major cryptocurrencies. 

BTC ETH BCH LTCXRP LINK
Market Share 69.23%13.29%0.98%1.02%1.40%0.62%
Weekly Change +0.46%+2.14%+0.28%-0.17%+0.27%-0.01%

Ethereum

Bitcoin’s bull momentum last month has spilled over to the altcoin space and may have become the harbinger of another altcoin season with ETH taking the lead. Ether broke through the $1k mark for the first time since February 2018. It has hit a new ATH at $1,341 on Jan. 10. Soon after, ETH, which has been moving in tandem with BTC, experienced a major correction and dropped below $1k. 

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Source: Bybit

On-Chain Analysis  

Mining activities indicate that immense selling pressure might be behind the recent massive correction. According to CryptoQuant, the Miner’s Position Index (MPI) measures the ratio of BTC leaving all miner wallets to its 1-year moving average. When MPI is above 2, it indicates that most miners are selling. Since the start of the year, MPI has been consistently above 2, pointing to immense selling pressure from miners. 

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Source: CryptoQuant

If we expand the horizon, we can observe that miners have been aggressively selling since December last year. However, the aggressive entry of institutional investors in December could have offset the selling pressure and, in turn, propelled BTC price to break through major resistance levels. According to data from Chainalysis, whale wallets, which hold more than 1,000 BTC, absorbed one third of exchange withdrawals in December 2020. 

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Source: Chainalysis

Currently, demand from large buyers chasing a limited supply has relatively dwindled. The effect of skyrocketing selling pressure becomes more overwhelming, which has triggered a correction of more than 20% over the weekend. 

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Source: CryptoQuant

Another reason for the correction could be attributed to the attempt to remove excess leverage in the market, as funding rates across major exchanges have remained in the upper region since last week. Pullbacks of this sort, which could go as high as 40%, could shake off some of the overleveraged investors, leaving the market healthier and more balanced. 

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Source: Skew

Similarly, the implied volatility in the options markets offers another gauge of the overhyped market sentiment. The 1-week IV spiked on Jan. 8, and has been hovering around 150%, confirming our observation that there is heavy upside betting. 

Source: Skew

The Fear and Greed Index has been persistently stable in the upper “Extreme Greed” region, indicating potential market euphoria. 

Source: Alternative.me

However, where fundamentals are concerned, the number of addresses holding more than 1 bitcoin has increased by at least 1% since December last year. The number of new addresses has hit a staggering 4 million, signifying growing retail acceptance. 

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Source: Glassnode

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Source: Glassnode

What to Expect 

There were huge strides accomplished on the regulatory front. The OCC has decided to allow banks to transact with stablecoins and operate blockchain nodes to store and validate payments. The imminent convergence between traditional financial sectors and the crypto markets appears to be a net positive for the crypto industry.