When to Strike

Market Update

The two hot shots were dueling.

Today’s stage was a grueling series of climbs to the 2,800m high peak in the Alps.

Nothing for the faint of heart. And the leaders of the three week long race considered today’s stage one of survival.

Going all out meant squeezing every ounce of energy out of one’s quads. Making the week that followed like cycling purgatory as you force shot legs to piston through a week of daily 160km rides.

But here the two were. Making move after move up the mountainside.

The winner would make a name for themselves and be crowned the king of the mountain.

It’s what made every grimaced thrust worth it.

And as they closed in on the ribbon stretch out across checkered asphalt, you knew their tanks were empty.

If anything, the finish was shaping up as one where whoever could merely cross the mark atop their carbon fibered precision engineered instruments would be victorious.

They were young… hungry… and yet, inexperienced.

Their lack of wisdom was apparent. The energy wasted in the duel is what led to what happened next.

A thirty-four year old veteran racer swung to the outside of the young thoroughbreds…

And as he positioned himself alongside the two, he stood up on the bike and smashed down on his pedals. He accelerated ahead of the gased racers… and as he glanced towards the finish line the stubbly salt and peppered face flashed a smile with 100 meters to go.

Patience and wisdom received the crown that day.

The strategy of the veteran was simple. Sit back and watch as the eager racers lose sight of the big picture.

It’s a tip we can lean on as we see the choppiness of the market unfold this week.

Longs, shorts, and buyers of calls and puts… This was the dueling against price action that took place, wearing out any impatience trader. And their capital along with it.

It’s what we cautioned when we said on May 24th the market was entering No Man’s Land. That was ten days ago. And believe it or not, we haven’t received much certainty since.

It’s in part why a lot of the way we view the market is how that patient cyclist viewed the race. Meaning it’s more about tracking the price and knowing what to watch for in order to know when to strike.

Right now, we’re watching two regions in particular. You can see them in the on-chain support/resistance Feeding Grounds Whalemaps chart below for bitcoin.

The white area is near $50k and its where we saw some massive unloading in the selloff from two weeks ago.

The green arrows is where we witnessed some heavy buying, but not as much as was sold before. This area is near $35k.

Which means if we continue tracking sideways, another sweep of $35k is likely. That’s because the activity you would expect to see if we are going to re-enter the range above $50k has simply not taken place.

The activity we’re referring to is really centered around whales and some market dynamics.

In terms of market movers, our onchain signals have not shown any bullish or bearish alerts for days now. Completely silent.

And in general, BTC inflows and outflows are also silent. Which is telling us no major players are looking to dictate direction or generate momentum. Yet another sign market movers are just patiently waiting on the sidelines to strike.

In terms of market dynamics…

USDt liquidity moving into exchanges is drying up. With less than 2 billion of Tether available on exchanges in contrast to the 60 billion market of Tether, this is a bit concerning.

In fact, we even saw Tether burn around 2 billion USDt a few days back after the chain swapping. This highlights a lack of demand in the market. It’s the first time we’ve seen this in about six months. This is clearly not a bullish sign.

And it might fly in the face of what you’ve likely read online over the last few days…

One example is a metric alluding to stablecoins being bullish. And if you read anybody touting a metric called Stablecoin Supply Ratio (SSR), they are falling victim to recency bias.

Let me explain…

The Stablecoin Supply Ratio (SSR) is the ratio between Bitcoin supply and the supply of stablecoins.

When the SSR is low, the current stablecoin supply has more "buying power" to purchase BTC.

Here’s what it looks like right now…

The main issue here is in 2017 and the first half of 2018, any coin outside of BTC, ETH, and LTC getting a stablecoin pairing was considered a big deal.

Meaning stablecoins weren’t very active prior to the second half of 2018.

But since then stablecoin pairings have popped up nearly everywhere in crypto. It’s in part why stablecoin market caps have risen so much.

But that’s not the only factor.

DeFi’s boom in mid-2020 and the desire for yields on stablecoins became increasingly popular. Which created even more demand for these coins.

And once you account for these two nuances, the ratio lacks any helpfulness in acting as a signal.

But continuing on about market dynamics… and stepping down from my soapbox…

Implied volatility (IV) is still coming down. Times of high volatility are always followed by periods of low volatility while periods of low volatility are followed by high volatility. We’re currently transitioning from high to low right now, and it’ll take a bit longer for this IV to com down (I’ll admit, it’s coming down faster than I’ve seen historically).

So what does this all mean?

Well, when there is a lack of momentum and a lack of market movers taking one side of a trade over the other, we get no man’s land.

The lack of clarity for us means any sweep of the $35k range needs to hold. If it doesn’t, we go lower.

I know, I know, you’re probably saying to yourself, really? If something doesn’t hold, it falls?

But what I’m saying here is that price area is the line in the sand, similar to a last line of defense.

On the flip side, if we get a breakout to the upside out of the current range, there needs to be onchain activity that follows suit. Otherwise, we will get a rejection of the price range near $50k for bitcoin.

The latter scenario is one that the market looks to be excited about right now. In fact, it’s best seen in the ETH chart below. It’s a clean series of higher lows butting up against $2900-3,000 resistance.

It’s a pattern currently seen in many altcoins. And it’s a promising pattern for higher prices.

We very well might get it. It we do, again, we want to see how onchain flows react closer to the higher previous range. Otherwise this breakout will lack strength.

For bitcoin the $2,900-$3,000 comparative is the white box in the Feeding Grounds chart seen earlier near $50k.

The $50k and $35k areas are the two areas we are watching in order to determine if it’s time to strike. Until then, we will use patience in making any moves with size.

In the meantime, I’m hoping for a break higher here. Perhaps it’s enough to lure some market movers back into the game.

Because to be honest, the activity on social media, our chat rooms, user questions, and everything else around crypto has come to an abrupt halt.

Price tends to change that up.

So enjoy the weekend, remain like the salt and peppered bearded rider exuding patience, and let’s hope for some bullishness in the coming days.

Until next time…

Your Pulse on Crypto,

Ben Lilly