Happy Monday Cracking Cryptocurrency Community! The sovereign debt crisis is on the horizon and we may be in for a hell of a week.
The entire crypto market cap is on a slight advance today, up 1.6%. Applying technical analysis to the market cap of all crypto assets is a reliable way to determine what regime is dominating the market: bull, bear, crab. As we can see from the chart below, the crypto market cap beautifully resembles the Bitcoin (no surprise, BTC is 40% of the market cap) chart.
In other words, we are crabbing around with no clear direction. Range trading becomes the dominant strategy, or reversion to the mean if you prefer. Grid trading bots on 3Commas are a great addition to one's arsenal. Just make sure you take the time to set them up right.
Note that for now, we have made a higher low as far as total market cap is concerned. While a higher high at this point would be incredible to see, and quite bullish, we have to understand that macro economic factors are the key mover of money in the markets. Without a brighter outlook, it will be very difficult for crypto to summon the fresh capital and enthusiasm necessary to break out of the sideways trend and usher in a bull market.
For now, we are still in survival mode. This is a very important lesson to understand as a cryptocurrency investor. The potential upside is astounding, however, most will not survive long enough to see that upside materialize. Hold onto your assets, hedge your bets, don't be all in shitcoins in a bear market, and just survive until the next bull. That has been the consistent lesson I've learned from listening to those who have done very well in our market. Survive a bear, hold BTC, diversify when we're in a clear bull, and reap the rewards.
While markets are "grinding lower" as opposed to violently crashing (thanks FED for keeping rates higher longer rather than a surprise rate hike) there are many potential catalysts that could make volatility spike: China/Taiwan, Mid-term elections, Russia/Ukraine war, Bank of Japan rate decisions, etc.).
Fed officials are talking all morning today and tomorrow, and so far it seems they're walking back a bit of their rhetoric. Thus the positive response from markets. If PCE numbers come in as a surprise, we could see further upside with the volatility spike this week.
Bitcoin continues to trade sideways in a well defined range, visualized here in the chart with Visible Range Volume Profile with Developing Value Area enabled. As we can see, Bitcoin is at the bottom of it's range distribution, and therefore, long directional trades have the highest R/R value. Upside targets are clearly defined via High Volume Nodes, specifically at 19882, 21378, and finally 23122.
What will happen over the next few weeks will be enlightening. Note that Bitcoin is currently making lower lows, and lower highs ever since the bear market rally up to 24K. Although the upside in the long trade is obvious here, we must have caution, because a loss of our current level of support at 18700 would be a trigger for a breakdown trade (the opposite of a breakout trade) where we look to take Bitcoin down to at least 17K and potentially 13K.
Today we will introduce a new metric to improve your trading, and specifically for entering into Bitcoin trades. It is the BVOL metric, but with my twist on it. On TradingView there are two very useful charts, BVOL24H and BVOL7D. If you enter the following into your ticker bar - BVOL24H/BVOL7D you will get a beautiful chart that shows the ratio between 24 hour volatility against weekly volatility for Bitcoin.
While high volatility is profitable, it is also dangerous. A much better strategy is entering in your positions in periods of low volatility, and exiting during periods of high volatility. A nice range that I like to use is entering into positions when the ratio is less than 0.30, and exiting positions when the ratio is greater than 0.50. I also prefer NOT to enter into positions when volatility is above 0.50, to avoid whipsaw and frequent loss.
We can see that BVOL is in the zone at which I like to enter into positions. While I have determined my R/R to be to the upside, note that I have substantial downside protection in the form of puts. You can use any derivative product you like for protection and downside profit, be they perpetuals, futures, or options, just use care with your position sizing and time management.
Looking at the cash-settled CME Futures, note that BTC! has made lower lows on this movement downwards, compared to spot price's higher low. Spot demand is clearly higher than sentiment on the CME Futures, and that does not bode well for the future. Watch closely for the reaction from the CME's Point of Control, 19710 to see if we get acceptance above it (bullish) or rejection (bearish). A rejection would signal a good opportunity to open up protective shorts or buy more puts.
GBTC echoes the negative sentiment from cash-settled traders as well, with GBTC also making a lower low as compared to spot's higher low.
Analyzing price action on the lower time frames, we do not have any clear information. Note the rise in open interest during the mild downtrend over the weekend, and CVD on the decline, indicating that a lot of shorts were opening up in that range. However, the volatility today has wiped out most of those longs and current readings of CVD and OI are not indicating strength in any direction.
Price action wise it does look like we're moving towards a breakout, however I just don't find the commitment in this trade due to the OI reading. Since no plan of action seems clear or convincing to me, not entering into intraday positions on BTC currently, simply holding my downside options and long trade on BTC USDT ByBit.
While crypto is holding up well relative to equities, many looming dangers are ahead of us as talked about above. Surviving the bear market is of the most importance. Focus only on high conviction trades and automating LTF mean reversion/grid trading opportunities. With the current level of uncertainty, long portfolio plays are not recommended at this time.
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