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GM. This is Ponder Crypto.
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The newsletter that serves you crypto content tastier than next-day pizza.
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Today's 5-course meal includes:
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🏁 Gentlemen, Start Your Engines!
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🏃♂️ Bitcoin Is Sprinting Away
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🎢 Take Advantage of Volatility
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🎥 This Week on PonderTube
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🏁 Gentlemen, Start Your Engines!
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Want to see a sexy pattern?
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A few things to point out:
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1 / Lower drawdowns at every cycle bottom
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As the overall crypto market grows, it'll be more challenging for each bear market bottom to reach the depth of the previous. This is because, as the market cap grows, it'll require more people and capital to capitulate in selling during a bear market to drive the price lower.
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2 / Average duration of each Bear cycle
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Historically, crypto bear markets have lasted about 8-18 months. The most recent bear market has arguably been the longest so far, which makes sense because it was the first cycle that coincided with a macroeconomic bear market. If we have bottomed, it'll be interesting to see how long the next bull cycle lasts and if the total duration balances out on average.
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3 / Price movement once we reached the cycle bottom
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When the market bottoms, the price does not immediately turn and do a 180. Investors are often hesitant to believe when a market bottom has been reached, which is why there is usually a significant sideways period before the market capitulates. Once the market turns bullish, supply/demand effects kick in and the next rally begins with full force. I would not be surprised if we traded between 16k and 24k for the next six months before starting our next bull cycle climb.
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🏃♂️ Bitcoin Is Sprinting Away
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We've seen a nice pump in Bitcoin's price in the first few weeks of 2023, and a big reason is market liquidity is dropping on exchanges.
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People are tired of trusting exchanges out of convenience just to have their investment rug pulled because of greed and poor risk management.
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The top 6 exchanges, Binance, Coinbase, Kraken, KuCoin, Bitstamp, and Bitfinex have experienced massive Bitcoin withdraws leaving about half of the circulating liquid supply still on exchanges.
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As we get close to the Bitcoin halving, we are potentially setting up for a massive market supply shock.
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Not only will this emphasis on self-custody solutions make the overall market safer, but it will make blockchain analytics more accurate in terms of market cycles.
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I see your eyebrows are raised; let me explain.
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If holders kept a majority of their Bitcoin on exchanges, you would not be able to distinguish a HODLer from someone who is looking to flip Bitcoin continuously with market swings. By the time a person made their stance known, it would be too late because the sale would have been executed.
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With more people pulling their Bitcoin off exchanges, we now have a leading indicator that will show when the market is moving toward selling.
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Those investors that are looking to flip Bitcoin will likely keep the Bitcoin they expect to trade on the Exchange. It doesn't make sense for them to move in and out of cold storage to their exchange of choice frequently.
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However, those that are HODLers will pull their Bitcoin OFF exchanges when they are in HODL mode and will send their Bitcoin TO exchanges when they are in SELL mode.
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..I spent a good 12 minutes trying to come up with a HODLE equivalent term for selling, but nothing spoke to me. You can't force these things.
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If the total Bitcoin on exchanges stays low, seeing the flow in and out will be a reliable leading indicator highlighting the long and short state of the market.
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Good for traders. Meaningless for HODLers.
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🎢 Take Advantage of Volatility
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If there is one thing both crypto bulls and bears can agree on, it's that the crypto markets are Volatile!
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You need a double dose of Dramamine just to study the charts, let alone take a trading position.
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Volatility may seem bad, but if you're looking to trade, volatility really means opportunity.
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The crypto markets trade 24 / 7 / 365, which ends up being more than 120 additional trading hours each week compared to the 38 available trading hours of the lazy stock market.. not including holidays.
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Combine that with the fact that crypto prices swing harder than a Columbian Tango dancer, and you've got yourself something juicy.
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There are many ways to trade using volatility, but these are my favorite three that you can build a reliable strategy around in both bull and bear markets.
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Bollinger Bands consist of a moving average, typically of the stock's closing price, and two standard deviation lines plotted above and below the moving average.
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The upper band typically represents an overbought condition, while the lower band represents an oversold condition.
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Basically, when the price crosses above the upper band, there is likely increased sell pressure coming to bring it back to equilibrium or the moving average.
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Similarly, when the price drops below the lower band, there will likely be buying pressure soon to follow, bringing the price back to the moving average.
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Where to calculate the upper and lower bands is the key.
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Also, determining when a new equilibrium is being established is more of an art than a science.
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2 / Relative Strength Index (RSI)
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Relative Strength Index (RSI) is a technical indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions.
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You might see the RSI shoot up during an unexpected rise in price, which could mean the run-up was abnormal and is likely to pull back some.
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The challenging aspect of using RSI with crypto markets is that the majority of the gains are had during these short run-ups.
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In a bull market, it's not unheard of to see a 15% rise overnight, and the price sets a new floor.
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A good time to use RSIs would be when the markets are trading consistently sideways, and you're more likely to see these abrupt rises and drops return back to neutral.
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Common thresholds include when the RSI reaches above 70, indicating overbought conditions, and falling below 30, indicating oversold conditions.
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Ichimoku Clouds, developed in the 1930s by Goichi Hosoda, a Japanese journalist and analyst, plots multiple moving averages above and below the price in the form of shaded areas known as bullish or bearish 'clouds.'
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The indicator is built using five calculations, resulting in a cloud that represents the difference between two lines.
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A price above a cloud indicates an uptrend, while a price below a cloud indicates a downtrend. A price swing into a cloud that is bullish indicates resistance, while a price swing into a cloud that is bearish indicates support.
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Span A and Span B are the names of the two cloud lines. When Span A is higher than Span B, the cloud is green; when Span A is lower than Span B, the cloud is red.
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A price that is above a red cloud indicates a bullish divergence, while a price that is below a green cloud indicates a bearish divergence.
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The cloud, which is the area between Span A and Span B, is the most commonly used element of Ichimoku Clouds. The price is considered bullish when it is above the cloud and bearish when it is below the cloud.
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🎥 This Week on PonderTube
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Bitcoin is SUPERIOR to Gold in Many Ways
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The Bitcoin vs Gold debate is constant in the crypto and traditional finance space. There are a lot of commonalities between the two commodities, and the true debate emerges when discussing physical vs digital properties.
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This is not financial advice. I am merely stating my own opinion on how I am perceiving the current market structure and conditions. Consult with a legal investment advisor and all the other good legal stuff that needs to be said.
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Disclosure: All content shared in the Ponder Crypto website, newsletters, video channels or any other medium are for entertainment purposes only and should not be received as legal or financial advice. We are not legal experts or financial planners so please, exercise proper due diligence and do your own research.
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