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.
If you're a trader, you don't need to pretend to understand the underlying.
Money flow is the only thing that moves markets. Everything else is just noise.
We pride ourselves on always adjusting our thesis to new data and never being dogmatic in our approach.
In the case of cryptocurrencies, it's been made out that gold and Bitcoin are sworn enemies.
Bitcoin is the "better store of value," they argue.
This black-and-white mentality does considerably more harm than good to investors.
If you're a trader, your only job is to follow money flow, not to assert your views on the market.
We bring this up because, when it comes to gold, there are early but constructive signs developing, with the shiny metal beginning to work its way out of an 18-month downtrend.
In recent weeks, we've been making a point about the importance of the derivative markets. When leverage and open interest is as elevated as it currently is, futures markets tend to govern short-term price action.
One of the most effective metrics to gauge this data is through funding rates.
Not only do we use this data to get a read of the positioning of speculators to help shape our macro crypto thesis. We can also use it on a case-by-case scenario to find high-conviction short and long setups within the alts.
Let's start by addressing the question of what is a funding rate.
In yesterday's note, we outlined our patient approach in the face of this messy tape.
For the most part, we're sitting on the sidelines waiting for an uptick in investor demand to drag the market out of this correction.
Current price action is being heavily driven by the futures market, which will only serve to increase the probabilities of whipsaws and fake-outs that can wear on traders' emotional as well as their financial capital.
Additionally, when evaluating the altcoins, there isn't any edge in being positioned aggressively long.
As we'll explore in today's post, many names look vulnerable for further near-term downside, and even most of the leading alts have lost much of their bullish momentum over the last few days.
In last week's report, we outlined how we're viewing this recent dip as yet another low-conviction dip-buy, and why we anticipate messy and whipsaw-prone price action before a tradable bottom is found.
There's little to update on since that report.
Spot flows have been neither bullish nor bearish, but neutral. We need to see demand come in from investors to form a tradable bottom. The market appears to be in oversold conditions, making this a logical place for this to happen.
Elevated leverage in the derivative markets has made futures the dominant force on price action. There are early signs of a short squeeze developing, but we need to see investor demand support it.
Apart from a few exceptions, we're sitting out most of the action in the alts for now.
While most cryptocurrencies themselves have done well since the summer, many of the most prominent crypto stocks and miners have been painful underperformers.
But, given that many of the biggest coins are in the process of forming potential tradable bottoms, there are early signs of this changing.
Many crypto stocks are also in a process of testing critical levels of support, and the risk versus reward is currently more in favor of the bulls over bears.
Before we dive into individual names, here's a look at the sector as a whole.
In Monday's report, we outlined how conditions haven't fully developed for a high-conviction dip-buy. We're anticipating a high concentration of whipsaws before these assets find a tradable bottom.
At the same time, from a risk-versus-reward perspective, the recent pivot lows are proving to be important levels of interest right now.
In a weekend note, we'd asked whether this was simply a retest of the crash low -- or whether it was still crashing.
Fast-forward today, and the market is respecting this level -- certainly an important one to be watching.
