Kvarn X Pro weekly report: Week 52

The past week in the cryptocurrency market saw sideways movement without a clear trend. The price of the largest cryptocurrency, Bitcoin, rose by about two percent, while the price of the second-largest cryptocurrency, Ether, increased by about four percent. The total value of the rest of the cryptocurrency market (excluding the largest stablecoins) increased by approximately three percent.

As Bitcoin's price performed slightly weaker than the broader market, Bitcoin dominance fell by about two percent (approximately 1.3 percentage points). Meanwhile, Ether's price outperformed the broader market, pushing the ETH/BTC ratio up by about three percent.

Among the tokens traded on the Kvarn X trading platform, the biggest weekly gainers were CRV (+30%), BONK (+21%), and LDO (+20%). One of the few losers during the generally bullish week was Aptos's APT token (-14%).

Market Commentary

At the time of writing last week's Kvarn X weekly report, Bitcoin's price had just risen to $108,000, and we hypothesized that this might signal the start of a new upward price movement. However, this hypothesis quickly proved incorrect as statements made by the U.S. Federal Reserve during the FOMC meeting were interpreted as notably "hawkish." The recalibration of expectations for interest rate cuts to only two 0.25 percentage point reductions during 2025 sent markets sharply downward—a decline that has not yet convincingly reversed.

On the positive side, the $92,000 level, which previously served as support in November-December, has once again provided a base. On the other hand, since the Fed meeting, the $100,000 level has proven too difficult to reclaim. The resolution of the approximately week-long sideways movement, either above or below these levels, is likely to provide a clear signal about the market's next direction.

The risk reduction triggered by the Fed's statements hit altcoins the hardest, with many seeing price drops of several tens of percent within just a few days. However, over the past week, the OTHERS/BTC ratio has clearly recovered, which may suggest that the worst of the altcoin declines could be over for now.

When we look at the stock market, which typically correlates strongly with the cryptocurrency market, we see that the S&P 500 index has nearly recovered from the sharp drop caused by the Fed meeting.

The stock market's rapid recovery builds confidence in the cryptocurrency market's return to an upward trajectory. However, we are not yet declaring a new upward trend. The coming week will likely indicate whether the S&P 500 index hits a new high or if the past week's rise forms a "lower high." The latter would warrant some caution, as the cryptocurrency market rarely reaches new highs without the stock market.

Additional clues about the development of market risk appetite can be sought in the Russell 2000 index (RUT), which represents smaller companies. The RUT turned sharply downward in late November, falling about ten percent from its peak. In recent days, it has started to recover, and continued improvement in this index would suggest favorable conditions for the cryptocurrency market as well.

In summary, we see conditions in the market conducive to positive price development during the first weeks of January 2025. Bitcoin prices observed over the past few days, between $92,000 and $95,000, may prove to be excellent buying opportunities. Just below $100,000, it may be useful to consider whether to open new positions there or wait for a clearer confirmation of the end of the past week's sideways movement.

Is SOL Bottoming?

In the last two Kvarn X Pro weekly reports, we hypothesized that Solana's SOL token, which has underperformed relative to the broader market over the past month, might be reaching a bottom in its relative weakness and could soon begin strengthening again. If this hypothesis proves correct, such a turnaround could present an attractive opportunity to allocate to SOL or other tokens within the Solana ecosystem, given their relatively low valuations.

Observations from the past week provide a basis to continue monitoring this hypothesis. Compared to its obvious rival, ether, SOL formed a higher low, albeit narrowly. Until the 0.058 level is surpassed, the turnaround should not yet be declared, but at least SOL's weakening against ether seems to have temporarily halted.

Against Bitcoin, the largest cryptocurrency, SOL has also shown tentative signs of reversing its downward trend.

We thus observe early indications that SOL's relative decline could be ending. We will continue to monitor the situation and revisit it in upcoming Kvarn X Pro weekly reports.

We consider tracking SOL's relative strength useful not only for its allocation opportunities but also as a tool for monitoring overall sentiment in the cryptocurrency market. We find it unlikely that SOL would strengthen against Bitcoin and Ether without dollar-denominated cryptocurrency prices also moving upward. Previously, Solana's relative strength within the crypto market has been closely linked to market optimism and risk appetite. We believe it is likely that, once again, SOL's movements could provide supporting signals for interpreting dollar price trends.

The material contained in this newsletter  is produced solely for the purpose of marketing communication. Any information conveyed through this newsletter should not be construed as an offer or an invitation to make any purchase or sale decisions, or as an encouragement to make investment decisions about any investment object. Copying or borrowing the content of the newsletter without Kvarn's express permission is prohibited. The information presented in the newsletter pertains to the situation prevailing at the time of writing, and the information may or may not have changed. Kvarn Capital Oy does not guarantee the accuracy or completeness of the information contained in the newsletter or referred to in the newsletter.