Should you take this as a dead cat bounce and throw in the towel on your crypto?
Before I did this research I only made one trade, I sold ETH to buy more XOR, but more on that later…
TLDR:
No, I don’t think so. The longer-term trend line on ETH is still intact, and this was a vertical and temporary break of the trend. It can be caused by market manipulation — market makers that want to force liquidate leveraged positions. It is also exacerbated by traders who see this as a clear trade to make as liquidations are imminent, but ultimately ETH and BTC and the entire crypto space remains the best asset class to own, and are still massively undervalued. So far, the evidence shows it’s a dip worth buying.
That being said, the market is showing concerns with ETH gas fees which are annoyingly high and that is the reason behind the BNB massive run up. Traders are going back inside centralized exchanges (CEXs) to avoid gas fees. That is really the biggest question on my mind is when is Ethereum going to get this fixed. Will other coins migrate away from Ethereum before they do?
No, I don’t think so. Here is what the biggest protocols are doing…
But as I write this article I’ll be doing the full research and recording my thoughts as I look at the various asset classes: bonds, stocks, commodities, fiat currencies, as well as market hype from social media and talking heads Elon Musk and Janet Yellen.
What is my criteria for a trend reversal?
- Prices must move horizontally through the trend line to be considered a real reversal.
- They must consolidate (a few candles) on the right side of the trend line.
Conclusion:
So right now, we are still in an uptrend, the candle that broke the trend has already been bought back up and prices are above the longer term pink line.
Could this turn into more and turn into a trend reversal? Sure. As it stands now it’s a “hanging man” candle which is a bearish sign and BTC produced a lot of these candles around 40k before it broke horizontally through its trend then tried to form another uptrend line and then broke to the right of that and then finally sold off from 40k to 28k. That is probably what needs to happen here still too, because most of the world feels bad about how they did not buy crypto yet.
Exogenous Macro Economic Research
However, I should check the other markets to see if there may be an exogenous (outside) factor, meaning what happened in other markets?
Bonds
What happened in bonds is always my first question. Bonds lead stocks and stocks lead crypto. Although many claim they (stocks and crypto) are uncorrelated they certainly are correlated.
My Lightly Held Speculation
However, I believe this correlation will end with a massive bear market in everything. This is not now, just a step that will happen that breaks the correlation. Crypto will be hit with a steep sell off like stocks when it does come, but then crypto will emerge with commodities especially gold and silver to be the only asset classes that do well, but my theory is that bonds will not be demanded anymore because the debt is bad debt. When the IRS can’t forcibly tax its citizens because of crypto and as a result the US debt service can’t be maintained through money printing it will cause bonds to be a sour asset (bond prices drop and yields rise), that is when the worst depression we have ever seen will be upon us. We are not there yet though, that’s my thought.
As bond yields rise (since July 2020) 10yr Treasuries have been selling off. We’ve been printing money and buying bonds on the open market to drive down rates to stimulate the economy, but still yields are not staying down. Bond prices are falling. Today was not a huge move here, and important to note BTC has been super strong even in the face of rising yields, so this isn’t going to take down crypto until a major event happens, like a treasury bond offering that completely fails.
Let’s put this chart in a longer term view…
U.S. stocks fell on Monday as a continuous rise in bond yields dented the appetite for risk assets, particularly growth technology stocks.
What this article doesn’t say is that what this actually means is that BOND prices fell. This means both bonds and stocks fell. Crypto also fell with ETH selling down 25% from 2000 to 1500 at its current recent bottom, but quickly bounced and sitting at 1730 as I write this.
What caused rising yields? Perhaps lack of demand for US Bonds… or is it that we are supplying so many bonds? Perhaps people are selling their bonds to buy crypto or just de-risk and go to cash. I don’t have answers yet, just know that I need to assess supply and demand for the bond markets to really see the market accurately. The news media is painting the story the way Yellen and the Fed wants it to seem.
“I don’t think that bitcoin … is widely used as a transaction mechanism,” she told CNBC’s Andrew Ross Sorkin at a New York Times DealBook conference. “To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
I wanted to read Mati Greenspan to see what he thinks of the bonds…
Let me see if I can dig up the old charts I was seeing last month on the stock market that caused me some concern. Here are the currencies first…
Currencies
The charts below are old screenshots I took from Jan 21.
The USD has broken its downtrend line if I were to draw one. The pic below is from today.
The USD seems to be forming a head and shoulders top after having broken its down trend. Let’s take a look at that one.
Let’s look at the currencies vs. each other…
What does all this mean? It appears the USD is the weaker currency and the British Pound is the stronger currency, and BTC is the strongest.
STOCKS
I took the following screenshot and wrote the pink analysis on Jan 16…
Now this is the updated chart from today…
I took these pics of the biggest tech stocks on Jan 16th… what I am showing is they are all at resistance (highs they can’t seem to get past).
Let me check them again, now… Feb 22. Yes, they are all still struggling to break new highs except MSFT briefly did but is selling off hard today.
So stocks showing months of resistance at current highs, but the uptrends are not broken.
News Headlines
As I’m researching I’m seeing these headlines from Bloomberg.
#1 — Weakening USD and move to Chinese currency is a big topic. I didn’t buy the article, but it’s worth noting.
#2 — Yes, this is common Econ 101, commodities will maintain their real value while the USD and fiat money printing try to stimulate the economy. This is better played in crypto in my opinion, but when the real crash comes it will probably be safest in USD for a short time then gold then rotate that to devastated Alt coins for risk on trade.
#3 — I believe this is explained by a strengthening BTC stealing market share.
Social Media Trending Sentiment
My twitter followed (those I follow) are bullish and asking what others are buying on this dip. This is correct mindset short-term, I agree, which is why I bought more XOR here at $500 (correction from $700 yesterday), yes 10x higher than I originally bought it, but the rally in XOR just started a few days ago. I believe in what Nick says about it — $3,000 per coin.
I think it’s healthy to always be open-minded that at any given time we could be witnessing the top of a crypto bull market, but at the same time experience has taught me that often I’ve sold on what turn out to be corrections / healthy dips in the market, so I bought here on this one. Until ETH consolidates outside its trend line, my short-term outlook is bullish. My long-term outlook will always be bullish. That being said, in the scope of what all the markets are doing, we have some signs that are a bit concerning. That is the reason for the dip, and also because traders will always take profits.
For now, we have to see what happens once prices get back up to their resistance lines, and in the mean time I want to make sure my allocations are how I want as I research the bond market supply and demand.
