Analysts Share Catalysts for $BTC, $ETH Breakouts

• The total crypto market cap has crossed $2 trillion as major tokens surged despite macro headwinds.
• Crypto analysts break down the bullish catalysts that have fueled recent price actions. 
• They also share why ethereum’s merge could lead to an “inevitable speculative bounce in price.”

Global financial markets have been mired in bearish sentiment amid geopolitical uncertainty, stagflationary pressures, and tightening financial conditions, but major cryptocurrencies bucked the trend in the past week with a relief rally.

Bitcoin and ethereum have each surged about 10{5376dfc28cf0a7990a1dde1ec4d231557d3d9e6448247a9e5e61bb9e48b1de73} over the last week to trade at around $44,600 and $3,100, lifting the total value of all cryptocurrencies to more than $2 trillion, as of midday Friday, according to CoinMarketCap. 

The buoyancy in the crypto market has been fueled by an eventful week during which Goldman Sachs and Cowen became the latest Wall Street players to announce their crypto efforts, while BlackRock CEO Larry Fink said the firm is studying “digital currencies, stablecoins, and the underlying technologies.”

Within the crypto industry, Terraform Labs CEO Do Kwon said Luna Foundation Guard, a non-profit launched to grow the terra blockchain ecosystem, is ready to buy $3 billion worth of bitcoin to boost its reserves for the TerraUSD stablecoin. Meanwhile, Yuga Labs, the creator of the Bored Ape Yacht Club NFT collection, raised $450 million at a $4 billion valuation. Former Andreessen Horowitz partner Katie Haun also raised $1.5 billion for two new crypto-focused venture capital funds. 

Bitcoin on the verge of a ‘major breakout’

The “positive developments” in crypto adoption and market fundamentals could translate into a “major breakout” for bitcoin as the token tests the strong resistance level of $45,000, according to Yuya Hasegawa, a crypto market analyst at Tokyo-based crypto exchange Bitbank. 

“Bitcoin’s gain on Thursday was accompanied by a rise in open interests amongst major futures exchanges while average funding rate plunged into negative territory, meaning short sellers have accumulated their positions,” he said in a Friday research note. “The accumulated short positions could result in a cascade of short covering in case of breakout, which, in turn, could push up the price significantly.”

If bitcoin successfully breaks above $45,000, Hasegawa expects the token to land between $48,000 and $50,000 in the short term. However, if the price fails to test the $45,000 resistance, the token could correct further and decline to $42,000.

The recent surge in the largest cryptocurrency could also be linked to its potential to serve as a petro asset, noted Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock. The “petro bitcoin” narrative emerged from the news about oil giant Exxon Mobil’s plan to expand a program where it turns excess gas into energy for bitcoin miners. Exxon reportedly has been piloting the program since January 2021, according to Bloomberg. 

“The fact the fourth-largest oil company in the world is integrating bitcoin into its operations is also a very bullish signal,” Sotiriou said in a Friday research note. “More importantly though, this integration allows bitcoin to be mined in a more environmentally friendly manner, which is a major concern for institutions.”

Aside from the narrative-driven catalysts, seasonal trends are also suggesting a positive outlook for bitcoin in the next two months, according to Sean Farrell, head of digital assets at Fundstrat Global Advisors. 

Based on monthly returns data from the previous five years, Farrell found that April and May have historically been a period of outperformance for both bitcoin and ethereum, as illustrated by the charts below. 

While there could be various factors contributing to the seasonal outperformance, Farrell believes that the increased fund inflows into crypto could have resulted from the resolution of tax liabilities and returns.

“Many anticipate that investors will be hit with unsuspecting tax bills for

capital gains

realized in 2022. But from our experience, those who have remarkable capital gains typically have the foresight to have the

liquidity

to pay taxes on them,” he said in a Thursday research note. “We think the resolution of tax season may give retail investors better clarity over how much capital they can deploy and possibly leads to favorable price action.”

Ethereum’s Kiln testnet merge to fuel boom in staking and price 

Last week, ethereum merged on the Kiln testnet, the last testnet merge before the blockchain network’s long-awaited conversion to proof-of-stake from proof-of-work. 

The merge has boosted the demand for ethereum staking, which refers to the act of “locking up” your crypto holdings to help validate transactions on proof-of-stake blockchains in exchange for rewards in the form of tokens.

So far, more than 10 million ether tokens or 8.3{5376dfc28cf0a7990a1dde1ec4d231557d3d9e6448247a9e5e61bb9e48b1de73} of all ether in circulation have been staked, according to on-chain analytics firm IntoTheBlock. 

“The completion of the Kiln Testnet merge was a likely catalyst for many to start to stake their ETH, thus reducing the liquidity of the ETH supply on exchanges,” Farrell said. “Thus far, we have seen the highest monthly growth in new ETH staked since the launch of the Beacon Chain. Should the network maintain this level of momentum, we could see an intense squeeze on ETH supply at some point in 2022 as investors rush to stake their ETH.”

Farrell also expects to see “an inevitable speculative bounce” in ether’s price leading up to and following the eventual merge given the limited number of ether tokens that will be in circulation. 

“These stakers cannot liquidate their ETH due to the current locking mechanism which prevents existing stakers from achieving liquidity on day one post-merge,” he said. “Thus, any earnings that they collect will not enter the market until the protocol is updated to allow for this.”