We hate sounding like such a broken record about this level, but we really need to be downright obnoxious about its importance.
Though we think Bitcoin will eventually breakout, we wanted to dive deeper into the near-term risks associated with the leverage that speculators have recently adopted that elevates the risk of another potential long squeeze in the coming weeks.
In this chart, we're looking at Bitcoin's total open interest as well as the open interest held exclusively in perpetual future contracts. Since Bitcoin bottomed at the end of September, we've seen OI jump by a notable $11B in just 3-weeks.
Now, patience is warranted as demand begins to absorb the looming supply around these levels.
It'd be prudent to raise cash and take some profits off the table while Bitcoin is below 65,000. Below there, the downside risks remain elevated for now.
Over the last few months, we've focused on names trading above their spring highs.
Along with this simple message, we've included this chart featuring four prominent names right at their highs from earlier in the year:
We're putting so much effort into this setup for two reasons:
All-time highs are achieved in the strongest of assets.
Buying new highs allows us to define our risk.
First, bases take time to build.
Bases of this magnitude are formed by accumulation from people with a lot of money that needs to be put to work. Institutions -- or, in the case of crypto, whales -- need liquidity to enter long-term spot positions. They don't have the luxuries of more nimble traders who are able to enter and exit at will and start long-term positions when momentum heats up on a breakout.
Scouring our charts this morning, we couldn't help see that a lot of coins are getting tight out there.
With this volatility contraction, a big move could be on the cards, in either direction...
Big names like Cardano and Avalanche are wedged in contracting consolidation patterns. The resolution from these will likely set the stage for the coming weeks ahead.
And when we look to Bitcoin, prices have been in a very tight range, and this morning seems to be breaking higher.
Compressions like these tend to proceed quick and violent moves, just like the volatility contraction that we were writing about at the end of July before Bitcoin's monster rally off its lows.
Derivative speculators are bearish, while long-term spot investors are continuing their accumulation. These are fertile grounds for a powerful disbelief rally that can trap bears.
We've seen this play out over the last few weeks, and yesterday's action only confirmed our suspicions, where there was a notable short squeeze that drove a $3,000 move in the space of a few minutes.
Before you put on your first trade or buy any asset, there's one question every investor needs to ask themselves:
What's my objective?
For most investors, the answer is pretty simple. It comes down to maximizing returns and minimizing losses in a way that fits within each individual's unique preferences.
Despite this, you'd be surprised with the number of people who use the market as an outlet to express their political views rather than as a way to make money.
We're raising this today as a reminder to stay objective and always follow the money flow, rather than the opinion of journalists or analysts.
One field that crypto investors are particularly susceptible to these biases is within the decentralized finance sector.