All Star Charts Crypto Articles

This is the video recording of our January 7, 2022, All Star Charts Crypto Weekly Strategy Session.

Over the last week, we've been outlining how the market looks set to unwind out of this trading range.

High open interest combined with diminishing implied volatility, increased price stability, and thin futures volume all contribute to a scenario where the probabilities of a long/short squeeze are elevated.

We're still in elevated cash positions and, for the most part, still sitting on the sidelines.

In yesterday's note, we pointed to the growing leverage in derivative markets, explaining that we anticipate it unwinding in coming weeks.

Since we published it, we've seen an aggressive "sell" wall placed on FTX, the world's third-largest derivatives exchange by open value.

This caused Bitcoin to sell off and created a clear zone of supply.

On the other hand, Bitfinex, one of the most prominent spot exchanges, has a monster "buy" wall placed just under current market prices.

FTX and Bitfinex are experiencing significant order book activity, and there are now monster walls placed on either side of market prices.

Additionally, we've seen yet another uptick in open interest to all-time highs in a context where price stability is at a local peak and Deribit implied volatility is progressing down to its lowest value since April....

Last week, we outlined how the recent recovery in leverage in the derivative markets combined with thin end-of-year liquidity would exacerbate volatility. This same message continues to ring true.

Open interest is elevated, and the market has become susceptible to an unwind via a long/short squeeze in the coming weeks. Even a small supply-and-demand catalyst has the potential to cause a big shift given these current market conditions.

We want to dedicate this week's report to describing how we're approaching this period and defining the probabilities we're weighing with each scenario.

This is the video recording of our December 29, 2021, All Star Charts Crypto Weekly Strategy Session.

Our general approach following Bitcoin's correction is to sit on the sidelines while the market grinds sideways.

We've seen this play out, with most crypto assets trading under contracting price action.

The case continues to be if we're below the 53,000 to 54,000 zone, we want to remain patient before deploying cash into more aggressive long positions.

There have been a few exceptions that we'll discuss in today's report. But patience continues to be the prudent approach for the vast majority of names out there for now.

This week's biggest development is a dramatic rise in speculative activity, exacerbating volatility and the probability of a long/short squeeze.

This is the video recording of our December 22, 2021, All Star Charts Crypto Weekly Strategy Session.

Two weeks ago, we detailed why we're sitting on the sidelines with an expectation of sideways price action to close the year.

Fast-forward to today, and the same diagnosis applies for Bitcoin and the broader crypto asset class. The macro risk environment is beginning to favor the bear camp, and it's certainly not a time to be aggressively pushing longs.

Meanwhile, the spot flows seen on-chain continue to diverge from price action, suggesting that once this consolidation phase is complete, an upward break appears to be the higher likelihood scenario.

We're watching for Bitcoin to reclaim 53,000 before we put our elevated cash back to work in positions.

Until then, we're avoiding a good majority of trading action in this low-conviction tape where whipsaws have become commonplace.

This is the video recording of our December 17, 2021, All Star Charts Crypto Weekly Strategy Session.

We've seen a lot of chatter from the Twitterati about the Crypto Fear & Greed Index in recent weeks.

We've already made our thoughts pretty clear on the traditional CNN Fear & Greed Index and how it likely does more harm than good to investors. So, we thought we'd compare the construction of the two indexes, focusing on why the updated Crypto Fear & Greed Index does a better job quantifying investor sentiment than the CNN equivalent in the stock market.

We've already broken down the CNN Fear & Greed Index in a previous post. Here's a quick summary of how it's constructed:

• Stock Price Momentum: The S&P 500 Index (SPX) versus its 125-day moving average.
• Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange.
• Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining.
• Put and Call Options: The put/call ratio, which compares the trading volume of bullish call options...

The simple fact of the matter is these last few weeks have been an environment of low liquidity where we've had little to no conviction in maintaining aggressive long crypto positions.

There's zero edge in trading right now, on either the long or the short side. Sitting out this messy price action is the prudent strategy, in our view.

Bitcoin is still below 53,000 and likely needs to contract and build out a base for at least another few weeks. We're more than happy to pay a higher price for an entry with greater conviction. This has been the case for the last two weeks, and there's nothing to provide updates on.

In last Monday's note, we outlined our multiple time frame approach in the aftermath of Bitcoin's liquidity crunch at the beginning of December.

The bottom line is we're in elevated cash positions looking for a higher-conviction entry.

The most probable outcome is that we see a contraction of volatility in Bitcoin while it ranges for the remainder of 2021. If this is the case, whipsaws are likely to be highly concentrated, and there'll be no edge in trading lower time frames or maintaining highly aggressive long positions.

But, as far as the structural picture is concerned, there's little to suggest that much damage has been inflicted on the HODLers, and spot flows continue to paint a bullish picture for 2022.

In today's report, we'll outline why this recent selloff doesn't have the characteristics leading to a deeper correction similar to what took place in May.