The Crypto Comms #23
A lot of time is spent trying to predict what will happen, instead of understanding the nuances of what is currently happening. As such, I’ll endeavour to explain the Bitcoin situation as best I can, and the market will do it’s thing.
Let’s dig in.
originally published on Revue (20/09/2022)
In this issue:
- Directionless consolidation
- Volume flows
- Capitulation 2x
- Bitcoin leads
- Immediate technicals
- The irrational market
- Latest happenings
- Listening material
Technically speaking
Bitcoin analysis
Directionless consolidation
Moment after hitting send on last week’s newsletter, Bitcoin/Dollar started to drop precipitously — losing 9% in a single 4-hour candle.
The days that followed pushed Bitcoin lower as bulls ceded all ground without a fight. The $20,800 level offered no support and Bitcoin/Dollar ultimately fell 20% from peak to trough.
Both legacy (SPX) and crypto markets were in disarray. The Dollar index continued to strengthen, and US10-yr bonds soared too as markets unloaded risk-assets.
On balance volume indicates the downtrend is over
The strong downtrend present since June has officially ended, per volume flow data on Coinbase. Coinbase is one of the largest crypto exchanges with robust retail volumes (spot buying). As such, it is indicative of natural market expansion and contraction more so than short term derivative trading.
OBV is a predictive indicator which tends to precede price-action. Once a trend is broken, the market is in the process of taking a new direction.
This is happening as we speak. Buyers (with some foresight) are beginning to realise these highly discounted prices will not last much longer.
Capitulation happened twice
In May and mid-June, BTC/USD witnessed major drawdowns to the tune of -26% and -35%, respectively. Liquidations were astronomically high and indicative of major capitulation events. As you know, bear markets tend to end with insolvencies, and crypto has had plenty of those.
And Bitcoin experienced not one, but two capitulation events. This leads me to believe that the vast majority of the bear market is over.
Bitcoin leads, alts follow?
There are only so many ways to describe a ranging environment. Just as the merge hype went into turbo mode, Bitcoin took the market in its own direction, as usual. Ethereum exhausted its ‘merge hype’ momentum, and it remains to be seen how the market will value this asset as new revelations about PoS vs PoW emerge.
My 2c on the matter are in this post.
Regardless, Bitcoin is back in the limelight. Its market cap stands at $370 billion, while Ethereum lags at $164 billion at the time of writing.
Interestingly enough, Bitfinex CTO Paolo Ardonio released a not-so-subtle statement on Monday underlining that ETH cannot compete with BTC as a form of money now that it has transitioned to PoS.
In other words, the writing is on the wall. Even if ETH ‘flippens’ BTC, it will likely be fleeting because proof-of-stake is not the monetary innovation (partly because it doesn’t adequately deal with regulatory capture), but proof-of-work is.
The altcoin market is in the process of partitioning itself into securities and commodities. As this gets sorted out over the years, capital will tend to flow in the direction of large assets with a demonstrable track-record and robust adoption like BTC, LTC and ETH.
As ever, Bitcoin leads and alts follow. This is especially true when downtrends threaten new lows as the market flees to safety. In my mind, a new Bitcoin bull cycle will materialise when:
- the market realises the Fed is not in control.
- the market prices in future money printing policy.
- legacy finance moves capital into the crypto economy.
Immediate technicals
In terms of current technical data, BTC must hold $18,300 on a daily closing basis to maintain the range, and potentially break to the upside. If the level is lost, we could see fantasy dirt-cheap prices below $16,000.
Such a scenario is by no means guaranteed and despite all the doom porn and bear salivation at the prospect of buying your sell orders, Bitcoin is still holding the lows.
On the other hand, BTC/USD faces immediate resistance at $21,700-$22,000. Once this order block is taken out on a daily-closing basis, the runway is clear for $30,000.
The irrational market
The market is wrong to wait on the Federal Reserve to dictate what it can and cannot do — how it should and shouldn’t react to pointless rate-hike policies.
The Fed has demonstrated that it’s lost control over inflation and now threatens to cause a financial depression after over-heating the money printer during the scamdemic of 2020–2021.
In a 60-minute interview, US president Biden actually compared month-on-month inflation, presumably to draw attention away from the 4-decade high inflation rates.
Does anyone really take these people seriously?
Bears are way in over their heads — overconfident, overzealous and utterly disconnected from reality. The money is rotten, so how does one seriously expect central bankers to tame inflation with a soft-landing?
The path of least resistance is to let inflation run and pause rates indefinitely while slamming the breaks on the DXY to help US allies. Europe is heading the way of emerging economies — adding liquidity buffers without solving the actual supply-side energy crisis (it created with bad green-energy policy).
Whatever happens, rate hikes are just a delaying action, which can only work until the cost-of-living crisis reaches homes in Europe and the UK this fall.
Latest happenings
- Americans Get Crypto Risks, but Regulations Make Little Sense, survey finds.
- JPMorgan Underlines Tether’s Importance Following Binance USDC Axing.
- Historical Litecoin Data Indicate Robust Growth Trends, Despite Price Downturn.
Listening material
Dear readers,
The purpose of this newsletter analysis is to provide context to current events and cryptocurrency markets. It is released every Monday and Wednesday. I am not perfect and this is not a science — nor is this newsletter a signals service or financial advice. While I cannot promise perfection I do my best to be honest and transparent.
Thank you for reading.
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