Bitcoin and Crypto Market Updates (January 16th)

Starting with the chart – Blew through my expected targets with this beast of a move. Now testing the mid of this larger TF range. Would really like to see some consolidation/pullback here or a full-back test of this range before moving higher.

Looking at what happened here there are a few noteworthy observations. After the FTX drop, we entered a larger period of negative funding.

Right before the recent rally, Open Interest was building while long/short account ratios were going down + we then had a brief period of negative funding. On the way up from 17k to around 20k the rally was shorted quite heavily so this added additional fuel to the rise.

So in summary the market got a little overly bearish… shorted the rally and that gave us the fuel to move high very quickly.

Where does this leave us now?

90% of the short liquidation fuel has been decimated and you can see that in the heatmaps. Not a whole lot of short liquidation levels above… and now we have a build-up of longs below.

We have had a large spike in positive funding (the largest in over 12 months) – This could be due to the liquidation of shorts now skewing the data so take this on balance.

Smart Vs Dumb money index is hitting extreme levels – Throughout this bear, this has been a really nice indicator to derisk/start shorting the market.

Summary / Personal thoughts – Risk reward doesn’t add up to add or go long here. Want to see a good period of consolidation / a decent pullback to consider going long.

Hell of a show though!  

Crypto Bull Market

Since March, Bitcoin had its strongest week of price action as crypto markets pumped hard. Total crypto market caps once again rises above the $1 Trillion mark and altcoins have gone crazy once again. Much of the crypto market has risen 20%+ in the last weeks, with renewed interest and the age-old question “was that the bottom?”. The price action seems to be a combination of bulls regaining power and the liquidations of short traders - since January 11th there have been over $300 Million in short liquidations which have certainly squeezed prices much higher. How long will the rally last? Time will tell…

Amazon Blockchain

Amazon Web Services (AWS) customers will be able to launch Avalanche blockchain nodes in the future to help support the ecosystem's dapp development. The partnership between Amazon and Avalanche is geared towards enterprises and institutions which are eager to work within blockchains. AWS will expose Avalanche to more than 100,000 partners in 150 countries as part of the Amazon network. The Avalanche blockchain native token AVAX rose more than 28% after the announcement was made - although the token itself is still down more than 80% over the last 12 months. The bear market still has its clutches on crypto but news like this is massively promising for blockchain adoption in the future.

Ethereum Shanghai Upgrade

The Ethereum Shanghai Upgrade is currently targeted for March. This will finally enable staking withdrawals for the first time since people began staking ETH onto the network in 2020. With much of the staked ETH being committed at much higher prices in 2020-2021, when the ETH is unstaked will users dump a massive amount of Ethereum on the market or will stakers double down on the PoS mechanism? In anticipation of the hard fork in March many of the top liquid staking products for Ethereum such as Lido DAO and RocketPool have seen considerable rallies in anticipation of the unlock.

BNY Mellon bullish on crypto

BNY Mellon, the New York based investment bank with $43 Trillion in Assets Under Custody, is reportedly bullish on the future of crypto and digital assets. CEO Robin Vince spoke on an earnings call last week and had some interesting things to say on digital assets on their future as BNY Mellon. He said: "We do think it's important for us to participate in the broader digital asset space" and also compared ignoring digital assets to "being the custodian of 50 years ago and sticking with paper and not adopting a computer ... That's not going to be us".

CBDC in UK

The UK is set for a year of financial transformation with a CBDC consultation on the horizon. Economic Secretary to the Treasury, Andrew Griffith gave an update on the progress around a possible CBDC for the UK stating a consultation would begin in the coming weeks. With many concerns around how governments may use CBDCs to infringe on people’s financial sovereignty, the minister stated that a digital pound would be “[used as a] platform model that wouldn’t allow the government to know individual transaction data”. Also stating that “But given public policy considerations for a digital pound, a wholesale, private fiat-backed stablecoin would probably get there first”. Opening the door for private crypto-based stablecoins to receive regulation before a CBDC could be successfully integrated.

Risk Management

Trading and investing can be a great way to build wealth, but it's important to remember that it's not without risks. To be a successful trader or investor, it's important to understand how to manage risk and protect your portfolio. Let’s have a look at some key concepts and tools to help with that!

What is Risk Management?

Risk management is identifying, assessing, and mitigating potential risks to minimise their impact on an investment or trade. This can include everything from diversifying your portfolio to using stop-loss orders to limit your potential losses.

Why is Risk Management Important?

Risk management is important because it helps you to minimise the potential for losses and maximise the potential for gains. By identifying and mitigating potential risks, you can reduce the likelihood of a negative outcome and increase your chances of success.

How can I apply Risk Management?

Risk management is not rocket science but will require your attention and some discipline. Let’s see how it’s done:

• Understand the Risks: The first step in managing risk is to understand the risks involved. Different investments come with different levels of risk, and it's important to understand the potential risks and rewards of each investment before you make it. For example, stocks may be considered less risky than options trading, while crypto investments may be considered riskier than traditional investments. Understanding the risks involved will help you make better investment decisions and protect your portfolio.

• Diversify Your Portfolio: One of the most important aspects of risk management is diversifying your portfolio. Diversifying your portfolio means spreading your investments across multiple assets, sectors, and geographic regions. This will ensure that you're not too heavily invested in any one asset and minimise the risk of losing your entire portfolio.

• Use Risk Management Tools: There are several risk management tools available to traders and investors. Some of the most important tools include stop-loss orders, position sizing, and risk-reward ratios. Stop-loss orders are designed to limit your losses by exiting your position before the price goes too far in the opposite direction. Position sizing helps you determine the appropriate amount of money to invest in each trade or investment, which should be calculated to match the money you can lose if you take a loss. Risk-reward ratios help you determine the potential risk and reward of a trade or investment.

• Manage Your Leverage: Leverage is the use of borrowed money to increase the potential returns on investment. While leverage can be a powerful tool, it also increases the potential for losses. It's important to manage your leverage and only use as much as you can afford to lose.

• Monitor Your Portfolio: It's also important to monitor your portfolio regularly. Keeping an eye on your investments will help you identify potential problems early on and make necessary adjustments. This can include monitoring the performance of your investments, keeping an eye on the news, and regularly reviewing your portfolio to make sure it's still in line with your investment goals.

In conclusion, risk management is an essential part of trading and investing any type of asset. Using the above you should minimise the potential for losses and that usually translates into an increase in the potential for gains. Remember, even with a solid risk management strategy in place, there's always the possibility of a loss, which is why it’s important to invest only what you can afford to lose and have some tools to limit the magnitude of it.