In last Monday's note, we discussed a variety of data points suggesting Bitcoin was in the beginning phases of carving out a tradable bottom.
We also mentioned that we anticipate a few weeks of sideways price action ahead of further upward price discovery. Since then, we've seen a handful of developments paint a more neutral picture.
Unlike spot prices, futures never flipped to buying and are still in a fairly strong regime of selling via calendar futures.
There's also been a gentle deleveraging of open interest and an increase in defensive positioning, as investors have been withdrawing capital off the back of geopolitical volatility.
Meanwhile, legacy markets continue to act as a headwind. Bitcoin and equity trading correlations remain high, and it's yet to be seen whether Bitcoin can front-run equity weakness, like what took place in October last year.
This all takes place as Bitcoin remains above our risk level of 41,000.
If you've been involved with crypto, chances are you've encountered a headline like this:
Crypto investors seem to appreciate these statistics. But most likely aren't aware that the mechanism of forced selling can provide an incredible wealth of information.
Believe it or not, we can use this data to manage risk, find future support and resistance zones, and even help piece together a macro directional bias.
In last week's report, we outlined a handful of bullish developments appearing as we waited for price action to respond.
We discussed the fact that the institutional money that left in October is flowing back, exchanges are seeing modest outflows, and traditional markets are looking prime for a tactical bounce.
Since then, we've seen Bitcoin rally to our inflection point between 41,000 and 42,000.
With momentum turning back in the favor of the bulls, the highest-likelihood scenario looks to be a few weeks of sideways price action ahead of further upside follow-through.
One of your close friends asks you about technical analysis. What do technicians do? "What even is technical analysis?" they ask.
Your first instinct is to dive down the rabbit hole of charts, indicators, and intermarket analysis. After your rambling, your friend is even more confused than before they asked.
That's the common mistake, one of the primary reasons why technical analysis often gets such a bad rap.
In the same way you wouldn't describe geography as the study of seismometers or biology as the field of microscopes, you'd be selling technical analysis short by arguing it's the study of indicators.
There's been little change in our approach since the publication of our previous Monday report, but we have seen a handful of data points in favor of the bulls.
As we'll cover in today's report, the institutional capital that left in October is starting to come back in, and exchanges have seen a moderate outflow over the last week.
Moreover, traditional markets seem set up for a tactical bounce. What has been a headwind could be turning into a tailwind.
These are great first stepping stones toward a more constructive picture for the crypto market, but one of our two criteria for more aggressive long positions has not been met as of yet. That is:
In yesterday's note, we outlined how we're approaching the market in the aftermath of this volatility.
Bitcoin remains stuck between strong support in the low 30,000s and resistance around 42,000.
Unless we're buying dips to the lower end of the range or a break above this resistance zone, there's not a whole lot to do in terms of trading either Bitcoin itself or most of the individual alts.
This message most certainly remains relevant despite yesterday's recovery.
But in evaluating the names leading this recent bounce, relative strength has been concentrated in names we've been pointing to in recent weeks.
Names like Cosmos $ATOM, Terra $LUNA, and Fantom $FTM all held up reasonably well in relative terms and have also been leading this recent recovery bounce.
These are three of the best-looking names in the entire asset class from a relative strength perspective.
We anticipate that if the market continues this bounce, these three names will lead the recovery higher.
Given the lack of demand observed on-chain combined with the growing macro uncertainty, the dip back to the low 40,000s appeared to be a low-conviction buy.
Since publication of those two notes, Bitcoin's subsequently lost a critical level of support and now hangs in a no man's land.
The same themes we've discussed over the last two weeks remain intact, so this report will serve as an interim update.