Over the last week, we've seen momentum flow down the cap scale in crypto markets. Many altcoins have posted sizeable gains coming from historically skewed levels.
This is happening in the context of a tightening volatility regime, where price stability in Bitcoin, Ethereum, and most alts were at some of the highest levels in recent history.
When did the NYSE new highs list peak? When the dollar bottomed...
When did equities bottom? When the dollar rolled over...
It's not rocket science.
I don't care why it's the case because the correlations are so evident. It's a fundamental reality in this tape: A weak dollar is positive for stocks and crypto, while a strong dollar pressures those assets.
Now, consider: What have been the defensive assets in this market?
The Japanese yen? Nope.
Gold? Not until recently.
Bonds? Hell no.
Whenever shit's hit the fan, that money has flowed into the US dollar.
You literally had to do nothing, and you've outperformed some of the most sophisticated crypto trading firms on the planet.
By loss realization and institutional contagion, this is the single worst crypto bear market in history.
So, if you're still here with a few dollars to your name, take solace in the fact that you've done a better job at risk management than some of the most intelligent players in the space.
For us, our process has been incredibly simple.
The trend has been down, and we haven't wanted to buy rallies until some long-term bullish shape has been put in.
In recent months, we've been incredibly persistent with our cautious approach while most coins are below their June lows.
Take our equally weighted altcoin index. There's nothing to be done here:
The US dollar has been an incredible reflection of financial conditions this year. By extension, the correlations between the dollar and risk assets have held firm.
Equities and crypto were under pressure whenever the US dollar trended higher in 2022.
And when the dollar was correcting, equities and crypto were trending higher.
The strategy was simple: long Coinbase $COIN above the May lows while cutting our losses below there.
And, lo and behold, it took out those pivot lows. Like any responsible trader using good risk-management practices, we took the loss on the chin and got out of the position.
We were either plain wrong or got the timing off on the trade, so we stuck to our plan and obeyed the price action. We thought the stock was good for a bounce.
Don't let these drawdowns fool you; there is nothing stopping this market from getting worse. Over the last week, we've seen even more downside participation manifest, with many coins taking out their most recent November pivot lows.
In our Dec. 5 note, Hitting Resistance, we argued the case for continued caution.
With the S&P 500 $SPX testing its channel resistance, the US Dollar Index $DXY sitting on long-term support, and the correlations to legacy markets getting tighter, there was no conviction to be had in long positions.
In recent weeks, we've seen risk-off action persist, with the S&P closing the last two weeks down more than 5%. Further, altcoins have slumped, with many taking out their November lows.
This remains an incredibly sloppy tape, where high cash positions and patience provide the trading edge.
