Why We Buy Bases

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.

They need liquidity, and there's plenty of it when retail capitulates and sells their coins down in bear markets.

Unlike what university professors will argue, prices don't fall under a normal distribution, and they do have memory. A high concentration of coins are likely to have their cost basis established during this accumulation, meaning that if the breakout does fail, there is likely to be support not far off to stabilize prices. There isn't this same type of support when the market moves lower following an extended uptrend because fewer coins have their cost basis close to current market prices.

The second reason we love these bases is they allow us to enter into asymmetric risk-versus-reward positions.

If the market is above the breakout level, we own it.

If it's not, it's someone else's problem.

Using this, we can enter into long positions where the risk versus reward can be as high as 1-to-10, 1-to-20, even 1-to-30. Even if we make a dozen trades that go against us, one winning position can make us incredibly profitable.

So, with this as our backdrop, let's see this process in action.

Let's start with the single best example in all of crypto, the 2017 bull market.

This was our annotated chart back in March 2017. Hilarious to see our puny 1,600 price target, right?

This was a quote of ours about Bitcoin's base back in 2017:

Moving forward what do we want to see? Well, to me it’s simple: the former highs from late 2013. These were the early January highs before falling 25% and its an obvious former area of overhead supply (more sellers than buyers). The market exceeding those levels is evidence that this is now the opposite and there is more demand than supply near the 1075 level. Therefore, we want to be long Bitcoin if we are above the 1075 area that was resistance in 2013 and once again in early January this year:

This is a great example of how this setup allows us to participate with the momentum of the trend while managing our risk responsibly.

Solana is another testament showcasing how powerful buying these breakouts can be.

But what if the market goes against us?

The beauty of buying these bases is that we know when we're wrong quickly. The quicker we know we're wrong the better because it allows us to move to other opportunities.

We took a shot buying Monero earlier this year, and the trade immediately went against us.

We have no shame sharing trades like this; if anything, we pride ourselves on flipping our approach so quickly as new data came in.

Once Monero lost 480, we got completely out of the trade and it was someone else's problem.

So, when you hear us say "we're long above the highs," we apologize for sounding like a broken record. But we just have to be downright obnoxious about the importance of that statement.

Crypto members can download this week's chartbook below: