Derivative speculators are bearish, while long-term spot investors are continuing their accumulation. These are fertile grounds for a powerful disbelief rally that can trap bears.
We've seen this play out over the last few weeks, and yesterday's action only confirmed our suspicions, where there was a notable short squeeze that drove a $3,000 move in the space of a few minutes.
In markets, there are certain groups we want to completely avoid.
Permabears, gold bugs, and the "doom and gloomers" are great examples of what not to be.
These are people who project their political and philosophical views onto the market rather than using the market as a way to make money.
When we're dealing with cryptocurrencies, deciding who we listen to is incredibly important. Cults like the laser eye people, religious followings of altcoins, and of course, the dreaded Bitcoin maxi are all in the business of fueling their internal confirmation biases.
For those unfamiliar with the nomenclature, Bitcoin maximalists believe that Bitcoin is the only cryptocurrency that matters, while everything else is worthless. Similar to the gold and silver crowd, these people will only buy Bitcoin and nothing else.
I find it hilarious that Maxi's will criticize those in traditional markets for missing out on alpha, but they won't buy a single altcoin, which is ironic because Bitcoin's share of the asset class has dwindled lower and lower over the years.
Before you put on your first trade or buy any asset, there's one question every investor needs to ask themselves:
What's my objective?
For most investors, the answer is pretty simple. It comes down to maximizing returns and minimizing losses in a way that fits within each individual's unique preferences.
Despite this, you'd be surprised with the number of people who use the market as an outlet to express their political views rather than as a way to make money.
We're raising this today as a reminder to stay objective and always follow the money flow, rather than the opinion of journalists or analysts.
One field that crypto investors are particularly susceptible to these biases is within the decentralized finance sector.
There aren’t many coins breaking out to all-time highs right now, but AXS is one of them.
We just had to break the rules with this one – it’s currently trading at a tiny market cap of $750M, so it’s $250M shy of joining our Crypto universe. So keep in mind that this one is much smaller than what we typically deal with.
To visualize these developments, we've primarily used all the on-chain metrics at our disposal. Another way to go about doing this is by going directly to the order book.
Using heatmaps of all the limit orders on crypto exchanges, we can get an idea of where traders are accumulating and where they're selling into strength. The more yellow the heatmap, the bigger the size of the orders.
Cryptocurrencies are every technical analyst's dream.
No gaps.
24/7 markets.
No circuit breakers.
Countless technical tools.
No arbitrary fundamental models.
No government intervention.
Pure supply and demand at work.
Without getting too philosophical, there's a trend in traditional markets toward the democratization of financial information. Nowadays, people have almost the same access to data and platforms as the bigger guys. There are projects like Koyfin that are leveling the playing field and giving the small guy opportunities they didn't have just a few decades ago.
This could be the single most important chart in the world right now.
We cannot overstate this development.
We finally got a major resolution in the US 10-year yield, which has reclaimed that critical 1.40% level this week. This begs the question as to what a rising rate environment might mean for investor portfolios. The important implication for stock investors is the renewed tailwind for cyclicals. When rates are rising, sectors like financials, industrials, materials, and energy are all typically outperforming, which is exactly what we’ve started to see in the last week.
And of all these groups, the most direct beneficiary is the regional banks, which are back above their 2018 highs. An overwhelming proportion of their bottom line is tied to lending, so higher yields and widening spreads are a significant tailwind.
There's some clear demand at 40,000, with buyers continuing to defend this floor.
We've been vocal that this has the characteristics of a bear trap as on-chain accumulation heats up, sentiment is in the dumps, and prices are at a logical level to dig in and find support, which is what is taking place.
But in that same breath, we've also been anticipating choppy action in the near term as this demand gradually absorbs all this overhead supply. There's nothing wrong with waiting for a higher conviction entry back above the 46,000-47,000 resistance band knowing that things are well on their way higher. It all comes down to your timeframe and market plan.
