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.
In yesterday's note, we exercised caution given that Bitcoin achieved our upside target and the growing leverage in the derivative markets.
The strategy for the coming days/weeks is that if Bitcoin is below 65,000, the bias is sideways to lower in the near term.
But when we look out longer-term, the skies could not be any bluer for the asset class.
We're in the camp that Bitcoin will eventually resolve higher, and when it does, it would be irresponsible to NOT be positioned aggressively long crypto.
We're not just talking Bitcoin, but also the altcoins, and even the crypto stocks.
So let's zoom out and identify the backdrop of accumulation that has and continues to take place on-chain.
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.
One of the first things you learn in Technical Analysis is that markets are fractal.
That means that you'll find the same human behaviors (i.e. price patterns) whether you're looking at daily timeframes, weekly time frames or even intraday (e.g. 10-min or 30-min candles).
This is a concept that Brian Shannon has done an amazing job of highlighting throughout his career. Brian has been an inspiration to me since about 2005, which is pretty unbelievable to think about. Since then we've become friends and go skiing together and all that. It's pretty cool how life works sometimes.
Anyway, the idea behind "Multiple Timeframes", which is literally part of the title of Brian's book (go buy it), is to use this reality of "markets being fractal" to our advantage.
That can mean a lot of different things to different people.
For us, in what we do here at All Star Charts is, we start with Weekly and Monthly time horizons. That's where it all begins.
