Cryptocurrencies are one step closer to the price abyss?

The end of the week brings a sell-off in the cryptocurrency market, which reacts with declines in the face of risk aversion ahead of Jerome Powell's speech at the Jackson Hole conference. Digital assets again show a correlation with contracts on US indices, where a weakening of sentiment is visible before the opening of the session: 

• Bitcoin rebounded from the levels of $21,800, the bulls failed to pull quotes above $22,000. Ethereum is slipping below $1,630, yesterday the token was already trading above $1,700;
• The price of the 'king of cryptocurrencies' is still below the 200-session moving average at $22,800. Bitcoin unexpectedly fell below the average last week causing a cascading sell-off and liquidation of bullish positions worth more than $500 million. Demand has clearly weakened, the bulls are clearly having trouble attacking above the average again, which from support has become resistance again;
• Also of concern is the decline of the major cryptocurrency below key on-chain levels, i.e. below the so-called Realized Price, which determines the average purchase price of a cryptocurrency on the blockchain. This means that the vast majority of the market is now at a loss. While in the long term dips below these levels have historically supported the demand side, in the short term they have often been associated with a weakening of sentiment and an impending wave of panic;
• Ethereum identified two significant bugs prior to 'The Merge', with up to a $1 million reward from the Ethereum Foundation for identifying them and other significant issues in the Ethereum code. Speculation has circulated in the markets that developers, faced with the bugs, may still postpone the merge at the last minute, however, these reports have not been confirmed by ETH developers, so they should only be treated as still unsupported speculation;
• The capitulation of Bitcoin miners has historically indicated late stages of a bull market, causing Charles Edwards founder of the Capriole fund in 2019 to create a 'hash ribbons' indicator to identify cryptocurrency buying opportunities. When the 30-day moving average for hash ribbons (the so-called death cross) falls below the 60-day one, capitulations of miners are usually observed. Thus, Edwards reversed the indicator and suggests to watch for a possible intersection of the 30-day average over the 60-day average which heralds the return of miners to the market and potentially gain exposure to the 'cheap' but returning to favor of Bitcoin;
• Some analysts remain bullish on Bitcoin's long-term valuation due to the observed capitulation of miners. The 'hash ribbons' indicator is showing weakness. Since May 30, the 30-day average for Hash Ribbons has fallen from 7 to as much as 10%, confirming the decline in Bitcoin's network power due to the mining suspension;
• It seems that a short-term improvement in crypto market sentiment could be triggered by Powell's surprisingly 'dovish' speech, while it is not a likely scenario at the moment, as the market is currently pricing in. Expectations for a September rate hike have risen to 75 bps, until recently the market was pricing 50 bps as more likely.

Bitcoin's average blockchain purchase price (Realized Price) currently runs in the vicinity of $21,700, Bitcoin has not been able to stay above this level which has historically heralded weakness. It is worth noting the so-called Price Delta, which calculates the deviation between the Realized Price and the historical average price of Bitcoin. Currently, the Price Delta runs at the levels of $13,700, which may turn out to be the bottom of the current bull market also due to strong technical supports running at these levels (including the 2019 bull market peak). In the past, bull markets have often braked declines only after touching the price 'delta'. Source: Glassnode

Investors in the Bitcoin market are willing to realize net losses despite the cryptocurrency's massive sell-off this year, which illustrates the market's continued dismal sentiment toward risky assets and vulnerability to external risk factors. Following the 90-day moving average, we can see that the cryptocurrency's quotations tended to unwind only when the number of sellers turned out to be low, now the selling is still continuing as confirmed by the liquidation on August 21. The market is dominated by short-term investors with a lower level of conviction and susceptibility to market volatility. Source: GlassnodeThe 'Fear and greed Index' indicates fear, but the extreme levels are still relatively far away which, in the face of further declines, gives plenty of room for the weakening of sentiment to continue. Source: alternative.me

Bitcoin chart, H4 interval. The major cryptocurrency has fallen below a key support level, and weakening RSI and Fibonacci levels indicate the potential for a move south. Source: xStation5