Bitcoin and Crypto Market Updates (January 30th)

This week should be WILD!

On Wednesday we have FOMC – I’ll do a separate write-up tomorrow on this but one thing is certain… Expect VOLATILITY.

Bitcoin Market update

BTC – Had a little lift over the weekend – The chart remains massively overbought… divergences are all over the place. But we have broken out of the range on the short-term timeframe… so I’ll be looking for this range to hold in the immediate term.

The upside target remains 25k… The downside target remains around 20- 21k… The heatmap has shifted over the weekend with heavy shorting coming into effect and this does bolster the case for 25k before we fall again. As you can see here we have a lot of short liquidation levels above the MM could take… on the downside, there’s not too much incentive.

Ethereum Market Update

ETH – Fairly similar to BTC however we don’t have those juicy liquidation levels above and we are still firmly in a short-term range. Outside of some positive market event, I don’t see a reason for ETH to break the range unless BTC drags everything higher… The downside target remains around 1400 / 1450 for ETH.

I still feel the only trade that makes sense to me here is a short at 25k levels to hedge FOMC this week… If you’re playing with a spot stack then I see plenty of reasons to take some profit’s around these levels and above.

My main reasoning for this (outside the technicals showing overbought conditions… hitting the top of range… negative divergence etc) comes down to sentiment indicators and market positioning going into FOMC – 99.4% of the market expecting 25 hike, CPI coming down but as I have said many times this is mainly due to energy and just classic overly bullish sentiment going into a critical risk event. We’ve been here SO MANY TIMES last year.

Sentiment Update

The sentiment indicators I’m looking at have flashed warning signs at EVERY SINGLE bear market rally… with 100% accuracy. 100%... not 99… not 98… 100.

I’m specifically talking about the smart vs dumb money confidence index and put call ratios. Every time we have reached extreme levels of confidence from dumb money with smart money down we have reached a local top and the markets reversed.

Put-call ratios and using this with the SVD index every time we have hit around these levels on the put-call ratio the market has reversed.

Look… this time might be different, Powell may come out Dovish and the market screams higher. I don’t know with certainty I just look at the data and spit you the facts and yeah fact is we’re heading into a key risk event with reversal indicators flashing RED.

Let's see what we get. 

When Does Amazon NFT Launches?

Amazon, the world's largest retailer has been on the fringes of Web3 for some time now. Sources have reported that Amazon is launching a digital assets enterprise, with an expected NFT initiative to launch in spring 2023. It is reported that Amazon would focus on crypto games and NFTs which would be playable and redeemable by their customers. The end goal for what Amazon is looking to achieve within blockchain, crypto and NFTs is still unclear but what cannot be underestimated would be their impact should they take a prominent role in the sector. With the reach Amazon has, could we eventually see them compete with the likes of Opensea and Rarible as NFT Marketplaces? Or possibly develop games in the future with their massive resources?

Has Tesla sold Bitcoins?

Tesla confirmed they had not sold any more of their Bitcoin holdings as of Q4 2022. Having sold off 75% of their Bitcoin position in Q2 2022, the car manufacturer has held their position of an estimated 9,720 BTC to date. Documents show that Tesla still owns around $184 million in digital assets which is down around 15% from the $218 million in Bitcoin they held in the financial quarter prior. Tesla have not sold or bought any more Bitcoin during that time

Ethereum Shanghai Upgrade

The Ethereum shanghai mainnet shadow fork goes live. The upgrade which will allow users to withdraw staked ETH is on track to be delivered in March. Once live, over $26 billion worth of staked ETH will become accessible for stakers. The shadow fork is allowing developers to test the upgrade capabilities allowing for any flaws and tweaks to be made ahead of the official fork. Shanghai will be the first major network upgrade since ‘The Merge’ last year, where the network transitioned into a proof-of-stake network. The upgrade could see a new era of staking for many platforms including staking pools such as LIDO and RocketPool as well as the big centralised exchanges such as Coinbase.

SBF witness testimony 

It is being reported that federal prosecutors have filed a document to the U.S. District Courts claiming that Samuel Bankman-Fried had been in contact with former employees of FTX and Alameda Research asking to reconnect and “vet things with each other”. This has resulted in the DOJ requesting a Communications Ban between SBF and any former employees to prevent any influence over witness testimonies.

USDT supply

The supply of stablecoin Tether has been on the rise after clawing back recent losses in the market downturn, reclaiming two-month highs on the USDT supply. USDT witnessed a 3.8% increase in market capitalisation up to $67.8 Billion. Historically similar increases in USDT supply have indicated continuation in market rallies as seen in 2019 and 2020, although the correlation is far from concrete. We have also seen declines in other stablecoin supplies such as BUSD and USDC in the same period.

Top-down analysis

Trading involves buying and selling financial instruments, such as stocks, bonds, currencies, commodities and crypto, with the goal of generating profits. One important aspect of trading is understanding the concept of the time frame bias.

The time frame bias refers to the tendency of traders to focus on a specific time frame when analysing a market’s chart. 

For example, a trader might focus on a 1-hour chart when making a trading decision. The problem with this is that the same market can look very different in different time frames. For example, Bitcoin might be in an uptrend on a daily chart but in a downtrend on a 4-hour chart.

As a simile, think of top-down analysis like what you do when you are playing darts: - You want to at least hit inside the dartboard.- Now you reduce your focus to the area of the dartboard that counts points- Then you narrow your focus even more by targeting a specific number’s area.- For top precision aim in the double or triple multiplier areas.

The importance of the high time frame bias lies in the fact that it provides a more comprehensive view of the market. By analysing the market on higher time frames, you can get a better understanding of the overall trend and potential market direction. This type of analysis is known as top-down analysis, where traders start by analysing the highest relevant time frame and work their way down to lower time frames to find entry and exit points.

Top-Down analysis is the trading approach where you start your analysis from the larger time frames “top” and then focus “down” into the shorter time frames. 

Going back to our darts simile, the wider picture was reduced for precision and focus into a very small area, once you have focused your attention on the objective and you throw expecting to hit it; your chances of just hitting the dartboard should be greatly higher, and the probabilities of you hitting your desired number are also increased after doing the top-down focus. The same is to be applied in trading when using top to down analysis.

When you are looking for trading setups, set your expectations in higher time frames and execute in the lower time frames. That should help to increase the probability of the trade playing out as you planned it.

One of the advantages of top-down analysis is that it helps you to avoid getting caught up in short-term noise and instead focuses on the bigger picture. It also helps to identify key levels of support and resistance and potential trend reversals.

Using the high time frame bias for direction is a powerful trading strategy. You can use the information gained from analysing the higher time frames to make informed decisions when executing trades on lower time frames.

For example, if a trader sees that the daily chart is in an uptrend, he/she might look for opportunities to buy/long on a 4-hour chart. On the other hand, if the daily chart is in a downtrend, the trader might look for opportunities to sell/short on a 4-hour chart.

It's important to note, however, that no trading strategy is foolproof and as traders we should always manage our risk by having clean invalidations, setting stop losses, using the right position size and controlling the overall risk exposure in every moment.

In conclusion, the high time frame bias and top-down analysis are important concepts for traders to understand and incorporate into their trading strategies. By taking a comprehensive view of the market, traders can improve their chances of making profitable trades and executing trades based on the high time frame bias can help reduce the risk of being caught in short-term market noise.