Prepare Now

Market Update

This is my favorite moment in the market.

Emotions are a hard game to master. I struggle with this just as everybody else does.

But when it comes to the market there are moments in time where everybody is throwing mud. Nothing is peachy. And the sentiment is overwhelmingly bearish with thoughts of cascading selloffs being imminent.

Yet, it never comes.

That was the situation when we last spoke on September 29th.

In that essay we discussed that if we could make FUD a perpetual market, the demand for short positions would be so extreme that they would be paying long positions to hold their position open.

It would be a negative funding rate environment… Which is exactly what we saw at that time in the actual bitcoin perpetual futures market.

The market was overly bearish.

Meanwhile, fresh waves of China FUD were hitting headlines and Mr. Gensler fired off another few shotgun rounds at the industry. But price wasn’t doing a whole heck of a lot.

In fact what we saw unfold was the bid side of the orderbook began to outweigh asks. And a flurry of options calls were coming in.

The structure of the market was shifting.

A type of shift like this means any bit of demand would push prices higher.

Sure enough it came.

Most thought it would be a short lived rally. Nothing sustainable.

So how could you tell the rally was actually sustainable?

Remember this chart from “Party Like it’s October 2017”?

At the time I said the chart was a “bit of a downer”. We needed to see this momentum hit 1.25% before paying attention.

Well, it didn’t take long…

Here is that chart now.

I highlighted the area where it hit 1.25% to show you how quickly price was responding to this demand.

The market structure shifted while the sentiment was overly bearish, and demand delivered a punch.

This is the disbelief rally. It is the hardest emotion to grapple with.

If you are wrong at this moment do you have the ability to flip your sentiment without worrying that you might be a flip-flopper being suckered in to a trap?

It is hair ripping out of your head frustration and its these thoughts that leave traders tossing and turning in the middle of the night. Frankly it is why I advocate to newcomers to not trade, simply hold spot. I hate seeing newcomers get beaten up here.

And I also hate receiving 3am texts with four letter words.

Because the honest truth is nobody is an expert at controlling their emotion here. It is in part why this is my favorite part of any rally. It literally separates the winners from the losers.

It can begin a trend.

We know this because during this sustained period of demand we are still seeing negative funding rates come in through our data feed.

This is fuel.

And what I find fascinating here is how is it possible that a market so eager for fresh all-time highs is fueling the rally that can lead to such an event of fresh all-time highs?

It is the most wild case study of human emotions. And is why I enjoy markets in general. Each day it tests you and forces yourself to better understand your own instincts.

But enough about what happened. I’m sure you are all wondering about what I am going to say about where we are going.

To be frank, our team feels good about the current structure.

Do you remember this chart from our September 8th piece “Mining the Data”…

At the time we felt pretty confident that a close below the bull/bear divide would smash any hope of 2021 rally.

And the lack of strength we saw after a test of the 200d MA was a bit concerning as well. It left us confident that a test of the divide was in the cards.

Here is that chart today.

We never closed below that divide. This is great in our minds.

What is more is the market gathered strength to pull above the 200d MA with authority.

And finally, we re-entered our prior trading range. Three bullish moves in a row.

Next up is the test of the all-time high trading range. It is a bit early to tell if we will do it on the first go.

Many times for a strong break we want to see a consolidation happen. But just as often as we get those consolidations we witness bitcoin just rip right through without slowing down.

We are in favor of the consolidation play, which if it unfolds it can look like this high resolution and professionally crafted chart from Benjamin.

Need to cut Benjamin some slack here, the man is working 14-16 hour days right now.

Anyways, in the feeding grounds chart you can see prior areas of activity of whales. These areas will likely be defending.

This horizontal white line to us is a floor of a potential consolidation.

Any movement lower is inviting $43k into the cards, which right now we are labeling the absolute floor, which lines up with the top of our bull/bear divide.

In the meantime we will continue to track demand.

We will also keep track of the most recent new HODL cohort.

These were the buyers of the April 2021 market euphoria. They are about to come into profit or near profit. If they continue to hold their newly acquired bags then this rally will prove to unfold fast.

Here is the HODL wave chart. The red line furtherest to the right is the newest HODL cohort.

Remember, the demographics of smart sellers… The 1yr-3yr demographic - the guys who tend to buy the market bottoms and sell the market top - have mostly sold.

It is creating a situation that is best described as when an object begins to enter the first areas of space, an area where friction lessens. It moves higher with less needed force.

It is the type of situation that lets price just rip.

And if we were to get a strong narrative simultaneously…

Something like a Bitcoin ETF and/or Eth2.0 merge event, then this price action will be a reality.

There is no shortage of bullish narratives that can stick with a bullish movement in price.

In fact, just in the large caps we see Polkadot getting ready for its first parachain auction, Cosmos and its interoperability of blockchains getting closer to becoming a reality, and various bridges opening each day.

And as each one of these new ecosystems make their respective token holders as wealthy as ETH holders and SOL holders, their respective ecosystems will explode higher as well.

Making now the time to be involved.

Now is the time to find new projects to dive into. Why?

What we have now is the moment in time where you stuff your bag full of what you think will be the biggest winners in the coming few months. Outside of bitcoin it will likely be the largest layer one projectsand maybe some large cap DeFi.

After they run we will see capital flow out on the risk curve towards smaller cap DeFi / gaming / metaverse / NFT platforms and anything else that is new since it will have no price history.

The key to understanding this movement of capital is the bitcoin dominance chart.

We’ve been saying BTC.d looked ready for a reversal. We see it happening now.

Now what we want to do is see when BTC.d looks to reverse lower.

As soon as it does be in your large cap plays…

The plays that you should be planning today.

Then when your large caps have their day in the sun and BTC.D looks to test new lows it is time to move further out on the risk curve. And again, have those plays written down so you don’t make an off the cuff move. Make a methodical one.

Because when things get wild and you have a string of winners you will lose judgement. You will have hubris.

It is the part I hate… Because it is when people lose insane amounts of capital through the latest and greatest things.

If you write it down now and do the research now, you won’t become a victim. And as soon as BTC.d looks to be slowing down again, it means last call at the bar is near.

You don’t want to be standing there with a full drink in hand as the lights come on.

Because at that point you will likely have sold your pants - nothing good happens after midnight.

Now, I mention this because if this rally does end up taking out the ATH of $65k, the market will run hot.

Things will unfold quickly and it is why you do the work now. Preparing now can result in major improvements on performance when it counts.

Another reason why now is my favorite time in the market.

Stay focused on the demand here, buy dips, and if this continues… get ready to hold on tight.

Your Pulse on Crypto,

Ben Lilly