It's fair to say that bulls scored some points in the last few days, with Bitcoin moving back up to the upper 30,000's.
Throughout this recent rally, it was pretty clear that there was a lot of squeeze-action going on, as over $900M in Bitcoin shorts were liquidated in the last 24-hours...
What was once peanuts, the total market cap of this asset class achieved the $2T milestone at its peak earlier this year.
It's hard to believe, but there are literally several thousands of individual coins and tokens, and the list keeps growing every day.
Not only can we express our opinions in the coins themselves, but there's an expanding list of pure-play stocks, ETFs, and funds being offered to investors, too.
So today, we'll dive into some of these offerings, what sets them apart, and ultimately, how we're approaching these vehicles in the coming weeks and months.
The strongest of assets will not only do well on an absolute basis, but they also tend to outperform their alternatives. In the case of Bitcoin, not only are we pressing against new absolute lows, but we're seeing lower lows relative to other non-crypto-related assets.
Relative strength is one of our primary tools as technicians.
The easiest way to go about doing this analysis is through relative ratio price charts.
Simply put, it's a measure of a security's performance relative to another. For this example, that's displayed as being long Bitcoin in the numerator, and short an equivalent amount of US Dollars in the denominator.
When the ratio is rising, the numerator is outperforming the denominator. And when the ratio is falling, the numerator is underperforming the denominator.
Not only does this type of analysis allow us to evaluate the risk appetite of investors, but it also ensures we're always positioned in the right areas.
You often hear in the stock market that "Cash is King."
Of course, in the world of Crypto and DeFi, it could be said that "Tether is King".
There's a lot of big players in other asset classes, that as part of their mandate, can't sit in cash. The majority of investors, particularly in this space, do have that option. So why not use it?
You’re going to see a lot of the crypto community advise against cash. “Market sell-offs are an opportunity to buy more at lower levels”, they say. “You’re not disciplined or smart enough to get back in”, they preach. "Just HODL and diamond hands, bro".
It’s all based on this meme that the market always goes up. I guess if you trust data based on the tiny sample sizes that we have in this young asset class, you’ll believe anything.
But ultimately, the point of the matter is that there's no real directional bias right now.
Many of the names we've been taking shots on the long side have fallen back below their risk level, to then aimlessly meander. Neither breakouts nor breakdowns are following through. It's ultimate indecision at play...
This is such a prevailing theme right now in the near term that even though we've been hitting on it a lot recently, we want to be downright obnoxious about it.
Until Bitcoin can pick a direction, buying any Altcoins on the long or short side becomes infinitely more complex.
Just take a look at how few outliers there have been from this mess recently. More or less every coin (above $1B in market-cap), is being heavily anchored down by this messy action in the major coins:
But one way it's recently caught our attention is that we can see flows of capital BEFORE they show up in price. These are called on-chain metrics.
The blockchain is a public ledger.
We can see how many users are transacting on the network, how old these addresses are, how many coins they have, the profit and losses of these transactions, and the flows into exchanges before they hit the market.
If you're not incorporating these metrics into your analysis, we think you're missing out.
Markets operate under the constant influence of greed and pessimism. This is especially true in Crypto where we don't have CEO's, earnings, or arbitrary discounted cash flow models.
It's pure supply, demand, and human emotion at work.
We can apply our technical tools to these markets because that same human element often has a funny way of repeating.
These last few months are just a testament to this entire school of thought...
Technical analysts often say, "From compression comes expansion."
In other words, as markets become more coiled, buyers or sellers are ultimately forced to front up. This period of shrinking volatility is often met with violent unwinds - in either direction.
So when we see these periods of notable reductions in volatility, pay attention because the resolution often sets the tone for weeks and months to come.
Just take a look at how tight the Bollinger Bands have become in Bitcoin:
Through this measure, volatility is at its lowest point since October last year...
