Top Level Summary
If you never experienced the 2017/18 crypto bull run and ultimate debacle, all I have to say is ‘congratulations’, you just got baptized in an asset class that exhibits volatility like no other. It wasn’t just about BTC this time, the entire crypto went through a historical liquidation. In my opinion, while hard to stomach such a large amount of unrealized gains disappear, I don’t think this is the ultimate top in BTC/USDT this year. In this report I will explain my thinking process in detail…
A breakdown of my thoughts
The rapid decline in BTC/USDT has finally undermined the broad market sentiment with signs of capitulation nearing if not already here.
There are certainly on-chain signs of capitulation/July 2017 parallels (Exchange net flow, SOPR, UTXOs in profit, NUPL).
Besides, we’ve seen the mother of all liquidations, only matched by April 18, although at the time, the margin calls were mostly concentrated in the BTC/USDT market, whereas this time, it’s much more distributed across a wider spectrum of assets.
Let’s not forget that top-notch Alts with strong fundamentals went at one point as low as 50% if not more! The same projects have bounced back to the tune of 1/2 this dramatic fall in most instances, suggesting that dip bargain-type buying is well and alive.
What’s most likely to happen heading into the near-term future? First, a big fat disclaimer out of the way. Don’t apply a linear and/or fix view to your thesis. Be constantly adaptive, especially in an asset class as savage in its volatility swings as blockchain-based instruments.
So, again. Where is the next bottom likely to occur? Let’s step out into the weekly.
The magenta area (range amplitude of 5k) is where I perceive the threshold of maximum pain for weak hands before the likely pressure to resume a re-accumulation. Remember that long-term on-chain fundamentals are intact so this scenario is well within the realm of possibilities and what I assign the highest % probability. This is what we’ve seen so far…
As one can observe, we’ve fully penetrated the area, consuming a large amount of the available demand. However, the weekly so far shows that 50% of the drop has been absorbed by what I speculate to be accounts re-accumulating BTCs at big discounted prices.
Let me make one point absolutely crystal clear. This magenta area must hold, period. If we end the week with a close below the outer red line within the magenta area around 32k, it will quickly escalate from bad to worse on the technical front.
Sellers might still find a big hurdle around the 30k, but to me a close below the red line is sufficient revealing of the bearish market intentions. Why? Because it is this the line of defense the market respected on a weekly closing basis so it carries psychological credence.
If this close below 32k were to occur, the previous ATH registered back in 2017 around 20k will no longer be a distant prospect. In other words, a weekly close below 32k warrants taking the red pill and truly re-assess misplaced expectations for this year.
Note, however, I will be very surprised of the above playing out as it will truly defy in a big way the long-term bullish logic. If we were to get a pullback this deep (from 64k top down to 20k) it’d represent too harsh a correction and deem the bull market narrative truly over this year.
I therefore still place the greatest odds that the next move is a relief rally back up, which is likely to fail on a retest of 47-50k. Why? Plain and simply, a perfect combination of technical way too compromised to expect a V-shaped + psychology of masses (recycling into USDs).
With sentiment in rapid decay and market structure truly compromised, this is what I assign the highest probability, that the first push up will fade. A retest back down into the magenta area in a few weeks to a month from now will be the real test.
Are we going to see buyers re-emerging? Or will sellers keep control? I still cling on to the idea that this big 12k_+ daily candle is the ultimate blow-off bottom. It has signs of it based on the volatility exhibited, liquidation levels, but wait, there is more…
As of late, I’ve been hard at work looking to incorporate a fascinating tool to make my reads of the market even more robust. I am referring to the power of dynamic time-based cycle analysis. Credit goes to Lars Von Thienen, the founder of the Cycle Scanner software.
As illustrated below, there are strong signs of convergence for BTC/USDT to soon find a bottom. The magenta line (composite cycle overlay) tracks with a high rate of accuracy which cycle we are in based off length, amplitude, and duration of the last high and low of a data series.
This capitulation is happening, literally, the day that the cycle is about to turn bullish on BTC/USDT for the remainder of the year!