12/21 - Macro for Humans

Market Overview

Headline

Dollar Weakness Sparks Crypto Curiosity as Stock Market Climbs

Summary

The US dollar is showing signs of weakness, potentially boosting crypto appeal. Meanwhile, the stock market is gaining momentum, creating a mixed bag of opportunities and risks for crypto traders.

Mood

Cautiously optimistic, like a hiker seeing a break in the clouds but still wary of sudden weather changes

What Changed Recently

The dollar's decline has accelerated, while stocks have picked up steam. Bitcoin, however, is facing some headwinds despite the generally favorable macro environment.

Comparative Market Analysis

Vs 7 Days Ago

Stocks

The S&P 500 has gained bullish momentum over the past week, crossing above key moving averages. This improved risk appetite could spill over into crypto, especially for more established projects.

Dollar

The dollar has weakened significantly in the past 7 days, approaching oversold territory. This typically creates a more favorable environment for crypto as investors seek alternative stores of value.

Interest Rates

Bond yields have stabilized over the past week, suggesting a pause in interest rate concerns. This neutral stance could allow crypto to trade more on its own merits rather than macro fears.

Bitcoin Dominance

Bitcoin dominance has remained relatively stable over the past week, indicating no major shift in capital between Bitcoin and altcoins. This suggests a balanced market without strong rotational trends.

Vs 14 Days Ago

Stocks

The stock market's bullish turn is even more pronounced over a two-week timeframe, with a clear trend reversal. This broader risk-on sentiment could start attracting more traditional investors to crypto.

Dollar

The dollar's decline is part of a two-week trend, representing a significant shift in the forex landscape. This persistent weakness could lead to increased interest in crypto as a dollar hedge.

Interest Rates

Interest rates have shown a slight downward trend over two weeks, easing some pressure on risk assets. This creates a more supportive backdrop for crypto growth compared to the higher-rate environment of recent months.

Bitcoin Dominance

Bitcoin dominance has seen a slight uptick over two weeks, but the move isn't decisive. This suggests a gradual shift towards Bitcoin but not a full-blown 'Bitcoin season' yet.

Crypto Specific Trends

Current State

Bitcoin Vs Alts

Money seems to be cautiously favoring Bitcoin over altcoins, likely due to its perceived safety in uncertain times. However, the trend isn't strong enough to call it a definitive shift.

Hot Sectors

DeFi and Layer-2 scaling solutions are seeing renewed interest as traders anticipate potential benefits from increased mainstream crypto adoption.

Volume And Activity

Trading volume is below average, suggesting a lack of strong conviction in either direction. This could indicate a period of accumulation before a larger move.

Key Shifts

Week Over Week

Bitcoin has underperformed relative to improving macro conditions, breaking from its usual correlation with dollar weakness. This divergence is worth watching closely.

Two Week Trend

There's been a gradual increase in interest around 'real-world' blockchain applications, moving beyond pure speculation. This could signal a maturing market.

Notable Reversals

Several major altcoins that were trending down have shown signs of bottoming out, potentially offering oversold bounce opportunities.

What This Means For Traders

If Youre Bullish

• Look for oversold altcoins with strong fundamentals that could benefit from increased risk appetite
• Wait for Bitcoin to show signs of following the broader risk-on trend before entering long positions
• Consider scaling into positions rather than going all-in, as the bullish case isn't fully confirmed yet

If Youre Bearish

• Focus on shorting assets that are lagging behind in the current recovery
• Watch for any signs of the dollar reversing its downtrend, which could quickly sour crypto sentiment
• Keep stops tight, as the overall market environment is becoming less favorable for bearish positions

If Youre Uncertain

• Consider balanced strategies like cash-secured puts or covered calls to generate income while waiting for clearer direction
• Pay close attention to the $90,000 level on Bitcoin as a potential pivot point
• Look for a decisive break in Bitcoin dominance above 60% or below 59% to indicate the next likely trend

Evolving Trading Guidance

What Changed

From 7d Ago

A week ago, defensive positions were favored. Now, there's room for cautious optimism, especially in oversold quality projects.

From 14d Ago

Two weeks ago, the focus was on capital preservation. The environment has shifted to allow for more calculated risk-taking, particularly in Bitcoin and blue-chip altcoins.

Current Best Opportunities

Look for high-quality altcoins that have lagged behind in the recent market improvements. They may offer good risk/reward as they catch up to the changing sentiment.

Approaches To Avoid

Avoid heavily leveraged positions or chasing pumps in low-cap assets. The market isn't stable enough yet for such high-risk approaches.

Timing Considerations

This may be a good time for swing trades with a 1-2 week horizon, allowing positions to benefit from the shifting macro landscape.

Key Levels To Watch

Critical Thresholds

Bitcoin $90,000 and Ethereum $5,000 are key psychological and technical levels that could trigger significant momentum shifts if breached.

Recent Breakouts

The S&P 500 breaking above its 50-day moving average is a bullish sign that could have positive knock-on effects for crypto.

Approaching Tests

The dollar index (DXY) is approaching its 200-day moving average around 97.50. A break below could accelerate dollar weakness and potentially boost crypto.

Final Advice

Main Takeaway

Stay alert but optimistic. The macro environment is improving for crypto, but Bitcoin's lag suggests caution is still warranted.

Biggest Change

The dollar's persistent weakness is the most significant shift, creating a more supportive backdrop for crypto than we've seen in months.

Risk Reminder

While conditions are improving, remember that crypto remains highly volatile. Always size your positions appropriately and never risk more than you can afford to lose.