This week I had a chance to chat with my old pal Phil Pearlman, who's the Chief Behavioral Officer at Osprey Funds.
Phil and I have been talking markets regularly for over a decade, both behind the scenes and on YouTube.
Never in our wildest dreams did we think we would be here today discussing on-chain analysis of crypto currencies. But here we are!
In today's video we discuss two of my favorite gauges of sentiment, the exchange balances and the dormancy rates. We also touch on the current breadth in crypto markets as the percentage of coins breaking out to new 30 day highs continues to expand.
Crypto just once again pierced a whopping $2T market cap.
It seems now more than ever that the entire space is heating up to unseen levels.
The entire asset class has ballooned to nearly 10,000 coins and tokens, all with their own individual whitepapers, goals, and communities.
Activity on the blockchain has never been higher, smart contracts and DeFi are in full swing, and now the world is beginning to pick up what NFTs are all about.
But it wasn't always like this.
All of this activity flourishing before our very own eyes stands on the shoulders of failed projects, countless crashes, and the destruction of wealth in now dead tokens.
If this asset class has taught us anything, it's to manage your damn risk.
It doesn't matter how unique the whitepaper is or the fundamental use case of the token if the market's truly coming off.
It was hilarious to see everyone talk about the fundamentals of their altcoins when things were great earlier in the year, but tried becoming technicians on the way down.
As we laid out in yesterday's call, if Bitcoin is in the 50,000's, we need to be aggressively long crypto.
There's just no way around it.
Above 47,000, the bias is clearly higher toward the first half highs:
The projected move into the 60,000's roughly represents a 30% move. If we know anything about the altcoins, it's that many of them are a double, if not a triple in that environment...
We're already seeing that leadership emerge under the surface, with the altcoins reasserting their former leadership at their pre-covid highs on a relative basis:
One great thing about Technical Analysis is that we don't have to pretend to be experts on every subject. Heck, I'm completely clueless on most things.
I know a lot about Baseball, a decent amount about Wine, and I can tell you the direction a chart is currently heading in. Outside of that, I'm mediocre at best on most topics.
So when we laid out the Cardano trade earlier this month, it was purely based on price. The idea was to go long $ADAUSD if it was above 1.40, which represented around $35-$40B in market cap at the time.
What are the things we look for most when trying to identify leadership?
First, it’s all relative. When the market is selling indiscriminately, this becomes more challenging. You’re literally looking for the assets that get hit the least. It's not until the volatility subsides that we start looking for those that rebound out of it the strongest.
In today’s post, we’ll use the recent selloff and rebound in crypto as a case study for how we pick winners out of a loser's market.
Here are two of our favorite ways to find future outperformers:
Relative resilience during selling pressure.
Relative momentum and strength - both into the peak and off the lows.
With the former, we can use tools like relative strength - or, rather, the absence of weakness - in addition to chart characteristics like bullish divergences and momentum not hitting oversold.
With the latter, we’re again looking at relative strength. Who were the biggest gainers since the market bottomed? Who are the first to take out their AVWAP from the highs and/or other key levels?
If you're not long Crypto Currencies in one capacity or another, you're essentially short the space.
There is that much alpha being left on the table if you're not involved.
We can get into what's happening with all these protocols and platforms, or you can just focus on price. Fortunately, the latter happens to be our area of expertise.
The bottom line is this: If the Bitcoin vs S&P500 ratio is above 7.0, you HAVE to be long. Period.
In the world of crypto, there's one overarching relative theme that governs the entire asset class.
That is, Bitcoin vs everything else.
Over the years, this simple trend has dominated the asset class for so long. Due to the sheer size of Bitcoin compared to the others, when it's in a leadership position, it scoops up so much capital that most of the other coins are forced to wait for their turn.
Could this change?
It would only make sense, especially as the market-caps of the other altcoins grow.
