Major event warning
- ⭑⭑ Jobless claims
- ⭑⭑ US GDP
- ⭑⭑⭑ Treasury Secretary Yellen speaks
- ⭑⭑⭑ China Manufacturing and Non-Manufacturing PMI
- ⭑⭑ Fed William’s Speak
- ⭑⭑ Chicago PMI
- ⭑⭑⭑ EUR CPI inflation numbers (Mar)
- ⭑⭑ PCE inflation numbers (Feb)
Viewers of our Pionex live stream 2 weeks ago got an early indication of where to buy Bitcoin, and those who followed our advice caught this historic rally. Bitcoin ran 37% in the past week, one of those rare instances that have only been surpassed 10 times in the past and none in the past 2 years. So as this crazy month ends, let’s look back and evaluate the drivers of this rally and determine the risks of a pullback. With this, we can determine whether this rally will continue and what price would be a strong support area to enter a position.
Year-to-Date (YTD), the SPY500 is up 3%, Nasdaq is up 12.5%, Gold is up 8%, and Bitcoin is up 68.5%. Bitcoin has been performing great in the past 2 weeks with the failure of American regional banks and Swiss banking giant Credit Suisse, stablecoin issues with BUSD and USDC, and the fear of other cryptocurrencies being labeled as securities. These issues together have boosted the price and demand for Bitcoin.
Below there is also a quick summary of how to research Alt-coins! Get a step ahead of 90% of traders by actually doing research. Be a leader, not a follower.
FOMC and Rate Expectations
With the conclusion of the FOMC meeting this week, the market has priced in rate cuts, the earliest being Q4 of 2023 towards November – December or Q1 of 2024. While Powell said they would keep rates flat and not cut until 2024, the market does not believe him.
With the fall of regional banks and credit crunch happening, the lack of lending is a positive force in battling inflation. However, this will also mean less spending for the economy and more layoffs. But let’s also put this into perspective the market has been consistently wrong when predicting Fed policy decisions. The bond market was pricing in 2% inflation and a 30 BP hike in 2021 before the hiking cycle, which obviously proved to be horrendously off target. We think this bond rally (decline in treasury yields) is driven by people seeking places to put their money as the confidence in banks drops. We believe this, together with the negative outlook on the economy, will be able to fight off further inflation concerns. However, we also believe Powell is saying that they will not cut rates before the end of this year. Powell has not changed his stance recently and followed through with what he had said in the previous meetings, and the market has always fought him on it. We believe the Fed will not cut rates before 2024 and over-tighten the economy by keeping rates elevated for too long. We see only two scenarios where they could cut rates early: 1. Due to contagion from the banks to prevent further bank collapses or 2. to save the economy if the effects of the previous rate hikes are too much for the economy to handle.
Bitcoin Rally Drivers
The data above shows that Bitcoin was driven up from the pullback to $20,000, mostly during U.S. hours (8 am – 8 pm EST). One thing that might explain this is the banking failure that started with Silicon Valley Bank, which reminded us that our money in banks is not fully insured above $250,000. US banks operate on fractional reserves meaning if everyone wants their money at once, there likely will not be enough liquidity for the number of outflows, meaning you lose your money. Of course, when Bitcoin was created, the point was that we could store our own money and not need to rely on banks that don’t insure our full deposits and are based on our trust in them. So it makes sense that the U.S. drove this rally as the risk and loss of trust in banks push people to Bitcoin, the thing created that is created to function as a trustless way to store value.
Second, the U.S. has the largest investment firms in the world, and they seem to be interested in diversifying into Bitcoin this year. With Bitcoin down 80% in the previous year, which coincides with similarly large % drawdowns of previous bear markets, investors likely think we are near a bottom. We can also see the increase in interest through an increase in volume traded on the CME BTC futures.
Another partial reason is related to the Fed erasing the effects of Quantitative Tightening that have been going on for the past year. It took the Fed 8 months to let 600 Billion treasuries roll off their balance sheet, and 2/3rds of that has been erased in the last 2 weeks. Around 100 Billion has been drawn from the BTFP, the Fed’s new credit facility for banks in trouble. Off course, this is Quantitative Easing and adds liquidity into the markets, which helps drives up the price of risk assets such as Bitcoin.
Dollar and Bitcoin
We often see a negative correlation between the Dollar (DXY) and Bitcoin. This makes sense because as the dollar gets stronger, usually that is correlated with higher yields or increased risk of global financial conditions worsening. Both events represent the movement of liquidity into the dollar, the world’s reserve currency. So as we see DXY ticking up, this represents Bitcoin will get a dip if DXY continues showing strength into the next week.
5 steps to research an altcoin project
Most people rely too much on Youtube videos and researchers’ educational threads on Twitter. To find the next 10x altcoin before anyone else, they should conduct in-depth research to support their trading ideas.
What is in-depth research? It involves understanding new buzzwords in the blockchain industry, such as “Aptos is groundbreaking with its high speed and security,” “LayerZero has an edge with its cross-chain capabilities and big name funding,” “Cosmos is different with its modular blockchain approach,.” These buzzwords often emerge periodically in the blockchain industry, and you have probably heard them many times.
Although some may argue that the blockchain industry is driven by narrative and market speculation, it is actually a technology-driven industry. Indeed, narratives drive trading activities, but at the core, new technological innovations create new narratives that drive the market. Consider the tokens that had large price increases in the last few months, Lido, SSV, OP, and AI tokens. What are the similarities between the 4 categories? They were all driven by technological advancements.
When evaluating a new project, I typically follow 4 steps:
- Quickly browse the project’s website. The content on the website represents the most important information that the project team wants you to know.
- Quickly browse articles on various media platforms to absorb others’ knowledge and form a preliminary structure in your mind.
- Search the project’s keywords on Twitter to understand what people are discussing and the market’s sentiment.
- In-depth reading of the project’s whitepaper and all external links on the website. This step is time-consuming, but it is worth it. Most research reports you read are actually plagiarized machine-generated whitepapers based on keywords.
By following these 4 steps, you can understand a project from the surface to its core. And have a deeper understanding of the project than 90% of the market participants. In-depth research explains why Aptos, LayerZero, Cosmos, and other technological advancements are the future and what benefits they bring. It is a process that allows you to reject the tendency to simplify everything and blindly follow whichever hot topic is heavily discussed on Twitter and form your own trading ideas.
In the longer time frames, we have a bullish pattern forming. The monthly candle is about to close for the month of March, and it is forming a bullish breakout pattern. However, we can see that $29,000 is a level of resistance from the yearly low made in 2021. It will be interesting if we close right under $29,000. This would mean we could go both ways, up or down, and the market doesn’t like to give us any hint of direction.
Keep in mind that the monthly candle is showing a bullish breakout, and we should not go against the trend until the price shows us otherwise. When the monthly and weekly candles show us a breakout, it is worth taking seriously. Likewise, if we get a fake-out and retrace back into the range under $24,000, that would make a long-term failed break-out which would make it distinctively bearish.
On a shorter time frame, we saw prices quickly cut through the 28k resistance, where there was a large amount of supply. Because prices were able to reclaim that area on low volume, we think sellers are not really present in that zone. However, $28,500 is still holding up as resistance, and we have been rejected twice today. If prices are able to break over $28,500 and hold on to this low volume, I expect this breakout to continue with a target of $32,000. The order book also looks very sparse, with no concentrated limit orders placed at any key levels on the chart. The largest orders I can see are 229 BTC at $29,000 and 200 BTC at $26,500 and $27,000.
Structured Products | Medium Yield – Low-Risk
We expect high volatility moves once the market breaks out of this tight $26,500 – $28,500 range.
Due to this, we are looking to invest in Covered Gain and Buy-The-Dip products far from the strike price. I want to take a small risk for a small return due to the expected volatility once Bitcoin starts moving.
We are investing in the following
- $33,000 covered gain with 9 days to expiration, returning 13.7% APY.
- $25,000 buy-the-dip with 9 days to expiration, returning 17.67% APY.
Day / Swing Trading (Manual) | Hands-on Approach
None this week. Near a pivot level.
Risk-averse (Grid Bot) | 1 – 12 months: (Sample Portfolio $1,000)
(This is a sample portfolio. Same % gains on a $1,000 or $100,000 portfolio.)
Our running Grid Bots are up 10% in total in the past 2 weeks. Bringing our return on investment to 29%. We closed the Grid Bot started on December 29th for a 13% profit as BTC rose above our upper grid limit. So we are now left with 1 grid bot open with a 10% portfolio allocation. We will look to re-open the grid bot with 30% of our portfolio near $20,000 – $22,000 with a lower limit of $15,000, an upper limit of $40,000, and 80 grids. This reflects our view that the bottom has been put in and will not revisit the $15,000 level again.
Started on 9/6 $18,800. 10% of portfolio allocation.
Started on 12/29 $16,600. 10% of portfolio allocation.
Hodler (Moon Bot) | 1 – 3 year time frame
Current Plan: Start a BTC Moon Bot as prices return to $20,000. If we reach $20,000 or get buyers to show up near $22,000, I will start a Moon Bot with 40% of the portfolio. I believe the cycle low is in, and any retraces we get this year will be good entries to hold for the next 1 – 3 years. It’s okay to have missed the bear-market low not many people can catch it. Entering anywhere within 25% of the bear market low historically has resulted in great risk-adjusted returns.