After some work and many days of cleaning data, we're happy to introduce some great new metrics we're working up to supplement our cryptocurrency research.
Before we dive in, we want to set a brief framework.
It’s important we lay down a foundation before analyzing this data; there’s little point dedicating the man hours to the research if we don’t know why and how to apply it.
While we have seen an expansion in new highs, the majority of coins find themselves right below overhead supply. The same can be said for the major averages, which have bounced nicely into tactical levels of resistance.
The primary trend is still down, and repairs after bear markets like these often take months and quarters, not weeks.
Having said that, we can never be dogmatic in our approach. If we don't account for new data as it comes in, we're no longer doing our job as technical analysts.
We often like to make Monday's letter a little more lengthy and detailed, but this week we're taking the opposite approach.
That is, we're outlining four simple developments that'd make us flip more on the bullish side.
Today, we're addressing yet another popular tool among technical analysts: market breadth. Put simply, this type of analysis lets us gauge the strength of underlying securities that compose an index or other broad group of assets.
The most common is the advance-decline line, which is used by investors to measure the number of individual stocks participating in a market trend. Using this data, analysts can get a heads-up on potential turning points in market rallies, as well as gain conviction through confirmation.
But breadth indicators can (and should) get a lot funkier.
We do a lot of market breadth analysis here at All Star Charts, primarily in the equities markets but also in foreign exchange and commodities. In crypto markets, our breadth coverage has been rather light.
In the arsenal of every trader and technical analyst lies a countless number of indicators, metrics, and tools.
Everyone in the business is aware of the classic indicators: moving averages, Fibonacci extensions, momentum oscillators... the list goes on.
Perhaps one of the most valuable tools is the AVWAP. This is merely a representation of the average price by volume anchored to a specific time.
The AVWAP works because it takes advantage of human psychology. It's universally accepted within the scientific community that humans are driven by a slew of biases. Ask any trader, and they'll attest.
An incredibly common heuristic that drives much of the financial industry is the age-old anchoring bias. Many traders irrationally make decisions solely based on the price they paid for a stock.
In this sense, the market is driven by these participants responding to supply/demand dynamics within the context of their personal anchoring.
These last few months have been rather lackluster if you're a crypto trader.
But that's perfectly fine.
The market should never be your dopamine fix. The ability to sit on the sidelines for long periods of time -- as difficult as it may be -- is often the differentiating factor separating mediocre traders from good ones.
Even in the face of this recent strength, there's still not a whole lot to discuss.
Cryptocurrencies have completed multi-year distribution patterns and are now retesting their breakdown levels from the underside.
There are most definitely mean-reversion trade opportunities out there. But they're low-conviction, counter-trend in nature, and messy.
Meanwhile, Ethereum and many other names have bounced nicely back into supply zones following their respective rallies.
If this tape has reflected anything, it's to be very aggressive in taking any profits. This is particularly true considering the countless whipsaws we've seen over the recent months.
In high school, I wasn't into sports, drinking, or other normal teenage shenanigans.
As strange as it may seem, I was super passionate about technical analysis. I would use my English periods and lunch times learning fixated on what these charts meant, reading countless blogs, and spending hours learning what technical analysis was on Investopedia.
It's hilarious looking back on it now, but I vividly remember my 16th birthday. I convinced my Dad to buy me a flight to Auckland, so I could go to an investing seminar held by a well-known Kiwi entrepreneur, Jamie Beaton.
What teenager wants tickets for an investing seminar for their 16th birthday?
One story you'll hear often from technicians is that technical analysis opened up finance to them in an intuitive way. No longer were they basing their decisions on arbitrary discounted cash flow models or unreliable accounting figures.
Instead, they were following the only driver that moves markets -- money flow.
As I've grown over the years, I've come to a similar conclusion.
There's no denying the fact that it's been a rough time being a crypto investor lately.
From our work, crypto market participants are closely approaching their maximum pain thresholds.
In real terms, losses realized on-chain reached their highest values going back to 2011. In nominal terms, Bitcoin holders realized the most amount of losses in USD terms in crypto's entire history.
We've gone from 95% of all market participants holding unrealized profits to a measly 50% in the space of a few short quarters.
This is, by most measures, one of the most severe bear markets by loss realization, capital leaving the ecosystem, and contagion among even the largest and most sophisticated of players.
Despite this destruction of wealth, it's important to be grateful for our losses.
And, just like that, any residual strength in crypto has once again dwindled.
Guys, we like to keep it honest and real with you.
At a certain point, we feel obnoxious about being so repetitive. But we're not going to tell you anything other than what's happening -- it's just our job as technicians to follow the money flow.
In yesterday's note, we outlined how we were taking a small, low-conviction long if Bitcoin $BTC was above 22,000. Just one day after we put the position on, Bitcoin's fallen back into its range:
