Naturally, after a drawdown like the crypto markets have endured, this is the part of the cycle where everyone tries to call a bottom. Of course, we don't need to discuss the dangers of this treacherous journey of bottom-calling where many traders eventually meet their fate.
There is perhaps no worse setup for active traders than in environments like these.
Times like these are when volatility is rampant, emotions are elevated, and bad decisions are made.
But, there are two antidotes:
Don't trade, be patient, and buy when upward momentum returns.
Dollar cost-average in the value zones.
For the most part, we continue to hammer down the first point. Going back to December, we've been preaching patience and high cash positions.
But today, we want to address the potential credence in the notion of Bitcoin dollar-cost-averaging in the context of this recent selloff.
It can be hard for traditional investors to gain appropriate exposure to crypto. There are many hurdles to jump and hoops to clear.
The Bitcoin futures ETF, launched late last year, is a step in the right direction. But isn't a perfect solution. Over time, futures ETFs are incredibly expensive, as the fund provider has to constantly roll over the contracts.
In an ideal world, US investors would have a Bitcoin spot ETF, which, of course, does not yet exist.
Another possibility is to skip the Bitcoin/cryptocurrency exposure and invest in crypto-related companies. That's certainly a viable solution.
From our work, we've found MicroStrategy $MSTR is, by far, the most fitting vehicle for those looking to gain exposure to Bitcoin via a traditional stock.
Other stocks, like mining and banking names, have their own idiosyncratic risks and drivers beyond crypto trends, making them less-than-ideal solutions for those seeking exposure solely to cryptocurrencies.
I'm not sure about you, but these last few weeks have further reinforced my love and passion for crypto.
You know this crypto selloff has been severe when even the media outlets and evening news programs in tiny, old New Zealand are covering it.
Even after years of being with the All Star Charts crew, my family still has no idea what I do every day. Charts? Technical analysis? Cryptocurrencies? You write research? For who?
These are the questions I'm constantly asked. It's pretty hilarious.
So when I try and explain the headlines they're reading behind Luna, Ethereum crashing, or who this Do Kwon dude is, I'm often met with blank stares.
Spending my days obsessive and immersed in crypto feels like a video game. This whole industry and community are on an entire other planet.
There's no hiding the fact that we've had little to discuss in the way of tactical trading opportunities.
To avoid repeating ourselves, we're continuing our patient approach. You can read yesterday's note or last week's for more detail.
Speaking anecdotally, crypto traders specifically seem incredibly susceptible to a subconscious bias that they always have to be positioned. Everyone's trying to bottom-tick the market to fuel their ego.
It's a rookie's mistake, and the reality is far from the truth.
Maintaining the ability to sit out is not only a necessity in markets like these, but I'd argue should be the default option for traders.
The old saying is that there's only a handful of periods every year to make money. You're being patient for the rest of the year, waiting for the setup to form.
In last week's letter, Keeping Out of the Waters, we continued to argue the case for neutrality in the near term.
There's been so little to discuss in the way of actionable trade ideas in this messy, choppy environment. Assessing the price action over the weekend, it seems this patient approach has paid off.
We were stopped out of our starter Bitcoin $BTC long and a few positions in crypto-associated equities at a small loss. As Bitcoin hit our stop in the upper 20,000s, we sold any exposure we had and moved straight back into cash.
Following this volatility, we are not interested in calling a bottom.
Patience has been and continues to be the strategy in this tape.
It's no secret that long-duration assets have been hit the hardest in this bear market, with interest rates on the rise.
Think about growth stocks and the tech junk that peaked in February 2021 -- it's been a painful bleed lower ever since.
But, in recent weeks, even the worst stocks have stopped going down.
And, what's more, they're finding footing at notable levels of interest, whether it's their pre-pandemic highs, their pandemic lows, or their 2018 lows.
I lived on 55th Street on the East side of Manhattan for a while.
To get some exercise I would often run along the East River and many times I'd run across the 59th Street Bridge over to Queens Blvd, and back.
It wasn't a long run, but it got me going and would get me away from my screens for a bit.
Exercise was part of my "support" system during some of those rougher years.
On the way out to Queens you go over Roosevelt Island (which is a really weird place btw). And then you have Queensbridge over to your left directly north of the 59th St. Bridge.
For those unfamiliar, Queensbridge is the largest housing project in North America.
It's where Nas is from, arguably the greatest rapper of all time. I personally don't make that argument, but I can see how you could (he's in my top 5).
There's a famous diss track that Nas titled "Ether".
To this day that word is synonymous with ruthlessness and dominating opponents.
Crypto markets appear to be stabilizing in the aftermath of the Terra $LUNA crash, with Bitcoin $BTC slowly progressing to the low 30,000s. Many altcoins are pressing down on critical support levels.
As we'll cover in tomorrow's note, many are well-defined for long-taking opportunities if the conditions arise.
But looks can often be deceiving.
We're still placing a high weighting that near-term price action will involve a high concentration of whipsaws. This appears to be a "fade the breakouts" type of environment.
This is all taking place within the context of Bitcoin resting on macro support of around 30,000.
All in all, we have a neutral bias for the weeks ahead. But, zooming out, this would be a logical area to see Bitcoin and the others bounce over longer time frames.
