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Bitcoin And Ethereum Coming In From The Cold (Technical Analysis)

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Disclaimer: This memo is intended for US recipients only, and is not specifically directed to or intended to be relied upon by UK recipients. The information or analysis contained in this note is not an offer to sell. Solicitation of offers to purchase securities. The contents of this memo are not intended to be investment advice, nor should they be relied upon to make an investment decision. Cestrian Capital Research, Inc., its employees, agents, affiliates (including the authors of this note), or persons concerned have positions in stocks, securities, or financial instruments referenced in this note. There is a possibility. Opinions, analyzes or possibilities expressed in this note are those of the author as of the date of publication of the note and are subject to change without notice. Companies referenced in this memo, or their employees or affiliates, may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values ​​both its independence and transparency and does not believe this presents a material potential conflict of interest or affects the content of this publication. its research or publications.

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For much of 2020 and 2021, cryptocurrencies were easy to come by. In fact, it was two kinds of easy money. It was easy money to trade in, and easy money if everyone, including grandparents, was paid to advertise it as something to trade.

And like all easy money-making, it came to a disgraceful end.

from now:

Crypto Bros buys property

Crypto Bros Buys Property (NY Post)

to this:

crypto bankruptcy

Crypto Bankruptcies (Tokenist)

The Wild West era of hopping on coins that was in vogue that week could have ended as a reliable way to make money (don’t laugh – for many it was was A reliable way to make money for a while).

All risk assets sold in 2022

Even two major cryptocurrency names have experienced big selloffs since their peak in 2021. Do you think the S&P heavy 401k hurts? Is your high beta tech portfolio causing you pain and worry? .

S&P 500, Nasdaq-100, BTC-USD Cross, ETH-USD Cross, ARK Innovation ETF (arc) displayed as the percentage drop from the high for that period over the last 12 months.

% Off Highs Chart

% Off Highs Charts (

The S&P hurts, the Nasdaq hurts more. crypto and ARKK all clustered with a 2/3 decline. Oh.

Of course, this has brought a certain level of fear to cryptocurrencies.

Crypto Fear vs. Greed Index

Crypto Fear vs. Greed Index (

Now, the theme of our work is that in the stock market always opposite daySo when something is completely wrecked and FinTwit decides it’s dead and permanently buried, our interest is heightened.

We expect certain crypto assets to grow in strength

We believe that crypto has undergone forks and transformations. We believe his two major systems, Bitcoin and Ether, will pull away from the altcoin pack. We believe that these two systems will be professionalized and institutionalized. That they actually, and perhaps in principle, and legally over time, become like securities. I expect this is all to the chagrin of both the “make your code free” math types and the crowd of “Wen Rambo” crypto buddies. But it will be to the benefit of institutional investors and those who choose to invest in an institutional way.

Our single stock analysis utilizes the concept of the “Wyckoff Cycle”. This, as you know, is an ideal form of how a large accounthis player can generate and realize profits only from the trading activity itself and not from the underlying essentials. worth. I have written extensively about this elsewhere. here.

We believe that Wyckoff-type institutional accumulation has already started for both Bitcoin and Ether.

We track both daily stock indices and major stock indices. Initially, we tracked it as a kind of coal mine canary early indicator of risk appetite. Few financial products have as high a beta as cryptocurrencies. Bitcoin and Ether are the most liquid cryptocurrencies. Therefore, we thought it could be used as advance warning of what might happen daily or weekly at the S&P or Nasdaq. After all, it’s not a bad tool. Not perfect, of course, but not bad.

It was after the stock index hit June lows that it got really interesting. As you know, there was a hard rally to the August highs and a similarly hard selloff to his October lows. under A double test of June lows for the S&P, Nasdaq, Dow, and the same lows for Russell. And cryptocurrencies are high beta, which means they’re overreacting to changes to what the S&P says. A similar pattern is expected along with some amplification. right?

Wrong. look. This is the S&P. Incidentally, the Nasdaq and the Dow follow suit.

SPY June and October 2022 Lows

SPY June and October 2022 Lows (TrendSpider, Sestorian Analysis)

Then look at BTC.

BTC June Low

BTC June Low (TradingView, Sestrian Analysis)

And with ETH.

ETH June Low

ETH June Low (TradingView, Sestrian Analysis)

At first glance, this already looks interesting. Why did two very scary assets hold up above his June lows when the major stock market indices didn’t rise?

In our view, there are two reasons that are not mutually exclusive.

Derivatives first. The Index and its ETFs are under tremendous pressure from the huge wall of capital flying in the options market. In fact, if you look at the S&P’s major reversals through the lens of the options market, you can see the power of option flows. Reversals tend to occur on expiry dates for large amounts of options, after which market makers rebalance hedges back to a delta-neutral position. Again, S&P. (Underlying analysis includes work by SpotGamma.)

S&P - Option Expiration Impact

S&P – Option Expiration Impact (SpotGamma, Cestrian Analysis, TrendSpider)

Cryptocurrencies do not have this level of pressure from the derivatives market. As such, we do not believe that option maturities explain the strength of cryptocurrencies, but we believe that the weakness in stock indices in September and October was due to the wall of puts purchased by investors. can be fully explained.

No, the second reason is that we believe Bitcoin and Ether are currently being quietly accumulated by institutional investors. We believe that price and volume movements support this theory.

Let’s look at Ether first, because in our view there is more compelling evidence than Bitcoin.

ETHUSD - Volume Analysis by Price

ETHUSD – Price Analysis by Volume (TradingView, Sestrian Analysis)

The blue/yellow bars on the right side of the chart show the trading volume at each price level. The chart will start in July 2021, as will volume by price indicator. The largest purchases have been made in the range of approximately $1050 to $1725.

Zooming out, we can see that this price range corresponds broadly to the retracement levels of a typical “second wave” (shock and awe selling!).

ETHUSD Fibonacci Retracement Analysis

ETHUSD Fibonacci Retracement Analysis (TradingView, Sestrian Analysis)

In our view, it is no coincidence. The reason we see this level of shock and awe selling and support for deep retracement speeds (second wave in Elliott Wave terminology) is that this level of dumping is not the same as current retail cryptocurrencies (or retail because it drives the despair seen in e-commerce. Such). Institutions that are not prone to despair have long known to buy fear and embrace renunciation. And we believe this is happening on Ether right now.

As we zoom in, we see i, ii, and iii rise from June lows, and a larger 3rd wave (which could reach at least a new high above $4880 if the pattern is right) begins to take shape. You can see the like this:

Smaller wave pattern than ETHUSD

ETHUSD Minor Order Wave Pattern (TradingView, Sestrian Analysis)

As a result, we are bullish on Ether. The bullish thesis will be further confirmed if the ETH-USD pushes him above $2,035 soon.

Turning next to Bitcoin, a less attractive chart in our opinion, the same second wave retracement zone that fell from the first wave hit from the 2020 lows, again a massive There are still signs of volume build-up due to price action reaching trading volumes of . Up to 2021 high.

BTCUSD Volume x 786 Price at Retrace

BTCUSD Volume x Price at 786 Retrace (TradingView, Sestrian Analysis)

Why is it less convincing than Ether? This is because the characteristic 1-up, 2-down, 3-up pattern of the new bull phase has yet to take shape. But you can see the buildup with your own eyes.

We are bullish on Bitcoin, but not as bullish on Ether.

Cestrian Capital Research, Inc. – October 31, 2022.

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