Bitcoin and Crypto Market Updates (December 5th)

Really… Really Bad Signs.

Just thought I’d hit you with some grim analysis on your Saturday. On Friday I put out a piece called ‘’Something’s brewing’’ and the action from Friday kind of solidified those feelings.

I’ll share some insights now but just for the record, I think we get a really nasty nuke in markets soon. Very soon - maybe as soon as the next couple of weeks so gets ready for it.

There’s really one dominant theme that emerged this week: The market seems to be positioning for recession and I’ll evidence that here.

In addition to this is also worth noting after this week crypto plebs are out in full force on social media calling for outrageous upside in BTC / ETH prices over the next few weeks. 1.5k ETH, 19/20k BTC etc etc.

I mean if we do that before this epic drop I think we're about to get then Jesus Christ god help us all… Because that would be insane.

I keep hearing ‘’Fed is cooling the hikes’’ ‘’soft landing’’ ‘’USD is going down SO RISK ON’’ ‘’2023 is going to be a bullish year for crypto’’ blah blah blah blah blah.

Another one is ‘’Fed pivot will be bullish’’ - Naive, pure amateur thinking.

Anyway, onto some of the charts:

Smart and Dumb Money

Smart Vs Dumb money Indicator - Showing we’re hitting ‘’toppy conditions’’ - The indicator tracks options flows for small/large traders. It's been really accurate at calling tops this year and we’re hitting extremes.

SPY Fund Flows

Showing large outflows this week - In the current bear market, a print of -5k has ALWAYS been met with a downside either immediately or shortly after to various degrees.

TLT Treasury Bonds

Caught a HUGE inflow this week - The 3rd largest EVER. Worth noting the 2nd largest was this year also. Then you have to go back to 2019. Long-duration bonds like TLT become attractive to hold over USD and risk on stocks in recession environments.

XLY Discretionary stocks

This ETF tracks Consumer Discretionary stocks (Things you don’t NEED, like the latest iPhone or MacBook). Simply put anyway. This has had its BIGGEST outflow this year. Worth noting

XLP Consumer Staples

This ETF tracks consumer staples (things you generally need/buy regularly) like toothpaste, shampoo, toilet paper… Coca-Cola - Yeah weird but I guess for some people? Biggest inflow in 3 months… Nothing huge yet but noteworthy

USDT Dominance

An underrated chart, is giving me some interesting looks here. We’ve either double topped OR we’re forming a massive Cup and Handle pattern – I’ll add weight to the double top scenario below 6.76 (Greenline) – But for now I favour the C+H formation and should this play out it would be pretty devastating for the crypto market and would likely give us our ‘’Final leg down’’ – For the Alt space in particular.

VIX Volatility Index

And finally this fractal I found on Twitter for the VIX - Funny and kinda scary.

This is all happening as denial hits after the feds' ‘’more dovish’’ stance and we’re approaching key resistance levels on the SPX.

Be aware we have limited macro data from now into FOMC next week… so, for now, the bulls have this on their side along with Key levels not being broken on SPX so I wouldn’t be shocked to see it drift higher or consolidate around here this week… But make no mistake… I wouldn’t want to be long-risk assets here / next week.

Ankr Hacked

Decentralised Web3 infrastructure project Ankr was exploited and lost at least $ 5.5 million from BNB chain liquidity pools. The attacker was able to mint 60 trillion aBNBc across 6 transactions in an exploit which then saw the thief use the minted tokens to drain liquidity from decentralised exchanges on the BNB chain. One such exchange Hello Protocol saw their native stablecoin $HAY be drained forever $ 16 million before the stolen funds were swapped into BUSD. DeFi is still very fragile and these hacks or nothing new - security improvements are needed in the space.

NFTs on Uniswap

Uniswap have now launched NFTs on their DEX and will act as an aggregator to trade NFTs across all major marketplaces including Opensea, X2Y2, Sudoswap, LooksRare and others. Uniswap will now have more listings than any other platform whether centralised or decentralised - at the cheapest aggregated prices. Uniswap claims they will have 15% cheaper gas fees than the competition, and also be the first NFT platform to have open-sourced all their front-end code. Works very smoothly and looks great - good to see the Uniswap team building.

FTX CEO Samuel Bankman-Fried 

Disgraced former CEO of FTX and Alameda Research, Samuel Bankman-Fried has been giving some formal and informal interviews over the last week or so, likely in order to improve his image. SBF spoke to formal news outlets who gave him a criminally easy ride for much of the interview, with one host even asking the crowd to give him a round of applause. SBF has also spoken on a few spaces calls, but the one common theme is that he is claiming ignorance and that it was all unknowing mistakes.

Stripe enables Crypto

Global payments giant, Stripe is launching its fiat-to-crypto on-ramp allowing customers to exchange dollars for cryptocurrencies and vice versa. The new service offered will be similar to a customisable widget that can be embedded directly with DeFi platforms. One of the core issues with mainstream adoption is the difficulty in getting users on-chain, as having to go through CEX and withdrawing to self-custody wallets is a poor UX currently. Stripes solution hopes to onboard many more people into crypto much easier.

Coca Cola Fifa NFTs

The NFTs will be created from the heatmaps used in tournament matches. Whether this be attacks, tackles, winning goals and moments of history from the tournament… not quite sure how they will get 10,000 of these ‘moments’. The collection will be developed and hosted by crypto.com and will be a direct partnership between them and Coca-Cola. Renowned digital artist GMUNK will be designing the art for the collection.

Telegram Crypto Services

Telegram is building a set of decentralised tools including a non-custodial wallet and decentralised exchange to allow for their users and the wider communities to trade and store cryptocurrencies securely. The founder of Telegram took to Twitter insinuating the move was in response to the issues we have seen recently with centralised entities such as the FTX debacle. Pavel Durov, Telegram CEO said, “The time when the inefficiencies of legacy platforms justified centralization should be long gone.”

How to Use Leverage

Leverage trading is a high-risk trading technique that has been around long before cryptocurrency was invented. 

There is a good amount of controversy surrounding crypto leverage trading, most exchanges offer this feature to traders. While crypto leverage trading has its uses, people must fully grasp the pros and cons associated with this strategy before diving in.

What is leverage?

Regardless of the market or platform, a trader is involved in, leverage trading always means borrowing extra funds to increase a position’s size. Think of leverage as a loan issued by an exchange that instantly adds funds to your account. 

The amount of leverage you can take out is often expressed as a ratio, for example, 1:10 leverage would multiply a position size x10. Some crypto exchanges offer leverage positions of x100 or higher!

To open a leveraged trade, you first need to deposit funds into your trading account. This initial capital is known as collateral or margin.

The margin requirements are different between platforms, but the concept is the same; to open and maintain an active leveraged position you need to have enough collateral. When the margin requirement doesn't meet the agreed-upon terms during the trade, the crypto exchange can legally collect your collateral (or liquidation). 

What are the risks with leverage?

Although any cryptocurrency can go to zero, leverage traders can lose all their funds if a token moves just a few percentage points. 

Remember, crypto liquidation means that the crypto exchange collects your collateral if you don't have the required margin in your account. This is generally called a margin call. 

Leverage isn't designed for people only interested in holding tokens (investing) for the long haul, this simple disclaimer would have avoided most people to lose serious money, in some cases all their capital while using leverage. Spot trading is more suitable for investing and holding.

The use of leverage requires the use of some tools and practices to protect your capital that make it less straightforward than spot trading or investing.

How to Leverage?

Although crypto leverage trading is inherently risky, there are tools traders use to assess how much they can lose. Using a risk management strategy is always important when involved in the markets (any), but crucial when using leverage. 

People trading cryptocurrency with leverage should calculate their risk/reward ratio (R:R). In other words, know how much you hope to gain and are willing to lose with a leveraged position. Also, factor in your margin requirement to determine what price would trigger a liquidation. 

After that set stop-loss and take-profit limit orders on their trading accounts. Both of these orders automatically sell their leverage position at a predetermined price. The only difference is that a stop-loss sells position at a loss, while a take-profit order sells for a gain. 

Stop-loss orders save traders from facing liquidation. Instead of losing 100% of their capital in a bad trade, a stop-loss guarantees they’ll only lose as much as they’re comfortable with. In a good risk management strategy, that would equal 1R, which means you maxed your loss to one risk and nothing more than that.

Keeping leveraged positions open requires a maintenance fee that is different in each platform, consider it when placing trades too.

Why Use Leverage?

Going back to the concept, leverage is a tool that allows you to increase your size.

With the ability to have available more capital and an increased size, you DON’T have to take more risk. This is a common mistake when using leverage. Don’t get blind by looking at the potential gains x100 bigger. 

Instead, keep risking the same, (whatever amount your risk management strategy allows you to risk per trade). If you used x10 leverage you should have a normal-sized position open using just 10% of your trading capital. That allows you to have the other 90% of your capital available for other opportunities or financial instruments.

PRO TIP: Always add up your capital exposed (at risk) if you have multiple positions running, and keep track of the total and don’t exceed what your risk management strategy allows you to lose.

Leveraged trading is usually related to futures or perpetual contracts that allows you to short. Shorting makes it possible to make money when the prices drop, being the inverse of longing. Spot trading does not give this opportunity, and you can only make money when buying low and selling higher.

We saw how leverage trading increases or adds some risks,  but for me, the most important advantage of using leverage is the ability to reduce counterparty risk. Yes, you saw that correctly, leverage is a great tool to reduce the capital you are leaving in exchange platforms.

Recently we have seen it with the FTX collapse, but there have been many more examples in the past of how leaving large amounts in exchanges can be a great risk.

The ability to achieve normal position size with a fraction of the capital using leverage, allows you to keep very little funds on an exchange.IE: If your average position is $100-200K in size. You can keep a max of 30K on the exchange, and use x10-20 leverage on positions. That will even give you some reserve if you want to have additional bids. Doing so you will avoid leaving 6-7 figures on exchange.

I hope this article has helped you to better understand the risks of leverage trading, how to control them and also how to take advantage of its use.

If you have some questions, come to our DISCORD (it’s free!) and ask around. Many experienced traders and investors are engaging with novices and also a team of analysts at your disposal.

See you at the next one!