Major events
11-30 Wednesday
- Fed Beige Book – reports on broad economic conditions and used by the Fed to make interest rate decisions
- MoM Pending home sales – shows the change in demand for the real estate market
- Fed Powell speaks at 1:30 PM EST
12-1 Thursday
- PCE inflation data
- Manufacturing PMI
- Initial jobless claims – number of new people who filed for unemployment
12-2 Friday
- Unemployment rate
- Nonfarm payrolls – the change in the number of workers compared to last month. A decrease in this data shows a slowing economy and a higher chance for the Fed to slow the path of rate hikes
12-14 Wednesday
- FOMC meeting – Major possible pivot point
Summary
- Bitcoin miners are shutting down machines, as seen through decreasing hash rate and downwards difficulty adjustment
- Genesis is at risk of being insolvent. Unable to raise 1 billion or 500 million in funding
- BTC is facing resistance as it runs up to $17,000, which coincides with the 21-day EMA
- Powell gave a dovish statement saying that the Fed might slow rate hikes as soon as next month (Dec meeting)
- BlockFi files for bankruptcy
FTX Contagion
FTX
Early last week, the courts released documents from the bankruptcy proceedings for FTX. Basically, FTX was taken over by John Ray III as restructuring CEO, and he said, “FTX is the worst case of fraud and corporate negligence he’s ever seen.” Now, this guy oversaw the bankruptcy of Enron, a publicly traded company worth 26.2 Billion which committed straight fraud on its accounting methods. At least FTX is the best at something… the worst-managed company to be worth billions of dollars. Some other notable things in the court filings were false and unreliable accounting, no HR practice, and all directions SBF gave were on an app set to delete messages (leaving no evidence).
The link is here if you want to see it for yourself https://t.co/bWqGWRGHCB.
BlockFI
BlockFi filed for bankruptcy Monday, but we probably all saw that coming as FTX was their savior, and they had already filed for bankruptcy. BlockFi had $355 Million on FTX and a $671 Million loan to Alameda that we can assume will be worth cents on the dollar when the bankruptcy proceedings are over.
DCG
Before Thanksgiving, we mentioned the contagion risk that could follow given the FTX collapse and highlighted that Genesis could be one of its victims. In the last couple of weeks, Genesis and its parent company Digital Currency Group (DCG), have come under fire, it’s highly unlikely for DCG to go bankrupt, but Genesis could be moving towards bankruptcy. DCG being in an okay position is positive for the industry as there won’t be a forced sale of Grayscales GBTC, which holds over half a million BTC. This would tank the price of BTC.
Genesis was looking for a $1 billion credit facility for its lending division. Last Monday, news broke that Genesis is on the path toward bankruptcy after failing to raise the cash. After failing to raise 1 billion, Genesis is now seeking $500 million. DCG sent a letter to their investors stating that DCG will be sticking around and building the future in crypto, but it seems like Genesis’s future is not so sure.
GBTC is DCG’s cash cow. GBTC is an exchange-traded trust that institutions and retail can buy if they want direct exposure to BTC without having to store it themselves. This trust charges a 2% management fee based on assets under management. One thing to note is that if you commit money into the trust, you cannot redeem them for Bitcoin (currently). So the only way to get your money back is to sell in the open market or if the trust dissolves. This is a pure sense of supply and demand because if there were no buyers, it doesn’t matter if your GBTC is backed by 1 Bitcoin you will only get what the highest bidder is willing to pay. Remember, this is one of the reasons for the collapse of 3AC. During the bull market, GBTC traded at a 10% premium vs BTC spot, so 3AC bought Bitcoin hand over fist with BORROWED money and used it to create GBTC shares to profit off the arbitrage. However, there was a 6 month waiting period. Soon the hype died down, and GBTC traded at a discount due to the supply and demand we just described. This led to massive losses, a collateral shortfall of $1.1 Billion owed to Genesis, and ultimately, the bankruptcy of 3AC.
Now getting back to Genesis. Genesis has an additional $200 Million hole left by the collapse of FTX. Now with everyone scrambling to withdraw their money Genesis is forced to halt withdrawals as they do not have enough liquidity to satisfy their liabilities. I don’t think DCG can afford to bail out Genesis again, or it might not be worth it? This is why they are so desperate to raise more capital. If Genesis, the biggest lender in the crypto space, is forced into bankruptcy, be ready for the next wave of capitulation.
All of this teaches us to emphasize due diligence and create more transparency within the Crypto space. If you don’t know where your coins are or where the profits come from, don’t invest in it! At Pionex, we have implemented a 100% reserve program, and you can check your balance through the Merkle Tree under your account at https://www.pionex.com/en/balance/reserve/overview.
Technicals
BTC
Bias: Long-term Bearish, Medium-term Neutral
We just had a clear double bottom put in this past week which is the first sign of bullishness we have had in the past month. The breakdown of $15,500 and subsequent close above it on the daily candle showed buyers at the YTD low and thought it was a good value zone. This happened alongside a divergence in the RSI, which shows that seller’s momentum is slowing down compared to the price. As prices were making new lows, the RSI was making higher lows which is often a sign of a reversal.
This $15,500 low that was put in makes it easier for us to differentiate bull/bear bias. Three clear scenarios can play out.
- If we get a daily close above $17,000, we are free to move towards $17,500 and then $18,500 resistance. We will likely be rejected there and have a leg below $15,500.
- If prices retest $15,500 and close below it, there is a high probability, I would say >80% of making a move lower into our $12,000 target.
- If we cannot get a daily close above $17,000, we just trade within a range between $15,500 – $17,000. This scenario would be best for grid trading bots and structured products.
ETH
Bias: Long-term Bearish, Medium-term Neutral
On the weekly ETH chart, we see a higher low put-in because, in the past weeks, we held the $1,100 support. ETH chart is similar to BTC’s but has obvious relative strength as it is holding above its June lows, whereas BTC is already 20% below. There is not much developing, and the most important point to keep on watch is for it to continue to hold its low at $1,100 and $1,000. Currently, we are testing the $1,300 resistance, which is also the anchored VWAP (average price of all holders) from the 2018 low. If we are able to have a daily close of over $1,300, the next level of resistance is $1,400, and this would make me short-term bullish on ETH.
SPY
Bias: Long-Term Bearish, Short-term Bearish
We were neutral on SPY for the past 2 weeks after the run-up following the positive CPI data release. However, today chairman Powell spoke on the economy and monetary policy, which led to a huge 3.75% gain on the day. Powell mentioned that rate hikes could slow as soon as next month, which is what the market has been waiting to hear for the last couple of months. This increased the probability of a 50 bp hike to 77%, a 10% increase from yesterday. But this also establishes the basis for the future slowing of rate hikes. However, from looking at the chart, I am still more biased to the downside than believing in this “pivot” story that has been touted over the past couple of months. As history shows, the market doesn’t rally on the Fed pivot but when the Fed is almost close to 0% rates. Let’s just say we are far from that; as Powell said, they are not even close to their terminal rate goals yet. We still likely have 3 or more rate hikes in the future, and the labor market is still tight.
Looking at the chart, we were able to reclaim the 200-day MA for the first time since April of this year, and we are also testing the downtrend line connecting all the higher lows from the ATH. We have also just reached the $405 – $410 target we outlined 1-month ago from the inverse head and shoulders pattern. Considering all these factors, I cannot recommend being bullish. I would wait until we see a clear rejection from the downtrend line or around the $415 resistance and then get short.
Recommendation
Structured Products | Generate yield
Two weeks ago, we recommended that readers use a buy-the-dip bot with a $15,000 strike price and a 10-day duration. As expected, BTC prices did not reach $15,000, and the bot has reinvested 1 round for us. Currently, we have made a profit of 1.91% with very minimal risk. If BTC prices stay below $17,000, I will let this bot generate a low-risk yield. If BTC gets over $17,000, I will stop the bot because the yield would not be worth the risk is taken.
If BTC prices are over $17,000 when you read this, I will open a dual investment order on ETH with a $1,100 strike and a 9-day or less expiration. ETH options have high IV currently, resulting in higher yield for the user.
Swing Trading (Manual) | Hands-on Approach
Risky trade I am personally taking. As stated above in the SPY technical section, this rally is an opportunity to get short. If BTC fails to close above or hold above $17,000, I will short under that price and put a stop-loss above the most recent high. Use leverage as desired since this is only a 5% profit trade. If prices go above $17,300, I will not enter any trades.
Entry: $17,000
Target: $16,000
Stop: $17,100 – $17,200
Risk-Reward: 5:1
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.)
Currently, we are 10% allocated in the market, with a total percentage change of -3.1% overall from -4.1% last week.
I still only have 1 bot open. We will be looking to open more BTC and ETH grid bots when prices retrace to $15,500 and $1,100, respectively. Will update when prices get closer to that area.
Started on 9/7 $18,800. 10% of portfolio allocation.
