Mixed Signals Suggest More Mess

Louis Sykes
March 14, 2022

We've been overly obnoxious with our tone of mostly staying out of the Crypto market and playing defense.

There's been so little to discuss and so few actionable trades that our priority right now is waiting for reliable signals to suggest a resolution from this trading range.

Price action in most crypto assets is still range-bound. It appears 46,000 is the critical level for bulls to reclaim.

There are many mixed signals, so we have no read on current price action as of the writing of this report.

Price Action Remains Range-Bound

There remains little edge in pushing longs while Bitcoin $BTC is trapped in this range.

The upper-level resistance of this range is 46,000.

We'll be swiftly rotating out of stables if we see strength above there.

On the other hand, the lower 30,000s looks to be strong support for dip-buying.

To further reinforce the significance of 46,000, it also coincides with the cost basis of coins held by short-term holders.

This has a tendency to act as support in bull markets and resistance during bear markets.

This confluence around 46,000 reinforces the significance of this level.

Mixed Signals

We don't have a read on price action. Simply, there's too much bifurcation to find a reliable trend among the metrics we evaluate.

Here's a summary:

  • Whales (entities that hold over 1,000 BTC) are selling spot.
  • Savvy traders are also selling via calendar futures.
  • Meanwhile, HODLers have been seen buying recently. These are entities with little selling history.

First, here's the recent sell-down in whale holdings.

Here's the selling pressure in futures visualized.

The chart below represents the yield one could get by longing Bitcoin spot and shorting the calendar future expiring in three months.

Savvy traders go to cash by taking advantage of this cash-and-carry yield as opposed to selling spot without the added benefit of yield.

Meanwhile, HODLers have been buying notably over the last few days.

These are defined as illiquid entities that buy with little history of selling, compared to the speculators' holdings.Collectively, there are some signs of demand beginning to reemerge, though futures and whales are still selling.

With these mixed signals, we have little read on price action.

Bitcoin > Alts

With so few actionable trade ideas out there, we've leaned on a handful of market-neutral trades to take advantage of.

We've been discussing the current trade shorting FTX Altcoin Index $ALTPERP and going long Bitcoin perpetual futures.

Here's a visual representation of this trade:

We're mindful of the fact that ALTPERP isn't readily available to clients outside the US. So, if this ratio is below its July lows, generally shorting weak alts and longing Bitcoin is a strategy that's in our favor.

Further, the ETHBTC supply shock (in blue), which tracks the relative buying of Ethereum over Bitcoin from investors, is beginning to roll over.

Much of the alt/Bitcoin trade is driven by ETHBTC, which could provide a further tailwind behind our market-neutral trades.

What If It's Messier for Longer?

There's a ton of mixed signals out there -- if anything, this would reflect the neutral bias for price action in the coming weeks.

At the same time, the options market is beginning to take the other side of the bet by pricing in volatility expansion from this current trading range.

Bitcoin one- and three-month implied volatility is at new year-to-date highs.

Particularly when this goes against the macro weight of the evidence -- which is neutral -- we want to fade the actions of these options traders.

So, messier for longer?

It's what it seems like to us.

In Brief

  • We're still positioned defensively. There's not a whole lot of point of trading much in this messy tape, it's whipsaw city out there.
  • 46,000 is the level to watch for an upside breakout. Above there and it's all go.
  • There's strong support in the lower 30,000s.
  • We have no read on price action. There's a ton of mixed signals.
    • Whales are selling.
    • Savvy traders are selling via futures.
    • HODLers, meanwhile, have been buying.
  • We continue to like the short alt/long Bitcoin trade. The bias is lower for ETHBTC, which could act as a tailwind for this trade.
  • Options traders are pricing in volatility expansion. We think this further supports our case for messier for longer.

Stay patient out there.

The stars still haven't aligned for aggressive positions.

Be sure to let us know if you have any questions about today's note.

Allstarcharts Team

 

 

 

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