Hi Jimbo, I wanted to share some market insight with you. This whole review is based on my way of reading the market. Take everything I write with a grain of salt. Markets don’t have a scientific explanation. Nevertheless, I hope this will help you navigate the volatile world of crypto-assets and take better decisions.
First, let’s have a look at the Bitcoin graph over 2023.
2023 has been a good year for Bitcoin. Buying some in January would’ve netted you a nice 100% return by now.
However, we both know you bought some in the highs of 2021-2022 and (might’ve) sold (half of) your stack back in August when I asked Jacob to send you a message about it. The red arrow on the chart is when the message was sent.
Bitcoin is up by a quarter since then and one could say I gave you poor financial advice. This might be true to some extent but I think one should grasp future opportunities rather than reminisce on past mistakes.
If I remember well, your goal isn’t to accumulate Bitcoin for the long run but rather make some cash out of crypto. The following is my approach to crypto markets and how I think you should allocate your free capital.
If you haven’t sold your Bitcoin at all, you might as well ignore my rant above and focus on what I’m about to share with you here.
I included the very basics of the “Auction Market Theory” above. What I’ll be focusing on is the 3rd and 4th model but the other models also apply to EVERY popular financial markets.
Price is always looking for efficiency and a fair value. Price efficiency is the grey area in the illustration above. In essence, prices hop from a grey efficiency area to another fuelled by traders and investors. Your aim as an educated investor is to enter the markets when the price is inefficient.
The 4th model also introduces a level called “POC”. This is simply the MOST traded price of in a fair value.
Grey efficiency areas are everywhere and on every timeframe. The more you zoom in, the harder they are to identify. Thankfully, as an investor you want to be looking at the bigger picture.
In grey, I’ve outlined the fair price Bitcoin was ranging in for more than 200 days before breaking out of it a couple of days ago.
No one can predict the outcome of a ranging market and what gets us out of one is momentum or a strong catalyst. In this case, a Blackrock contract for Bitcoin was what propelled the price out of the range. As a matter of fact, the fall of FTX (a crypto exchange) back in November 22’ was what fuelled the prior range breakout to the downside.
This is my personal chart. After working with various tools and by also looking at prior price action, these are the two levels I'm working with.
Let’s apply the 3rd and 4th rule of auction market theory (view illustration) to the current Bitcoin price action. We can either expect the price to retest my “prior range high” level or my “prior range point of control” level.
What’s the most likely outcome ? It depends.
If we get a sharp price pullback in the next few days, the “prior range high” will probably not hold. A “prior range point of control” buy is wiser. A patient approach is always rewarded.
If we keep trading in the 33’000-35’000 or higher for a couple of weeks or more, buying “prior range high” is probably the most generous the market will get in terms of pullback.
However, do you want to be accumulating cheap Bitcoin or do you want to make some cash ?
This a chart of Ethereum against Bitcoin in 2023. Ethereum is the second largest cryptocurrency and known to many as the internet of blockchains.
As you might guess, Ethereum is selling off relative to Bitcoin because it has no Blackrock contract scheduled. Therefore, participants are positioned for a Blackrock contract approval but forget the major update coming to the Ethereum network at the end of the year.
The update might get delayed but overall I think an Ethereum buy might be more advantageous than a Bitcoin purchase on a potential pullback, especially when you wonder: Once the Bitcoin Blackrock contract gets priced in, what’s the next crypto asset getting Blackrock contract ?
Anyhow, that’s all I have when it comes to a medium-term cryptocurrency analysis. If you're still holding 100% Bitcoin and no stable coin, only consider buying Ethereum on a pullback. Sometimes, the best trade is to not trade.
I might recommend this weekly newsletter which provides excellent insight:
To follow crypto price action without having to register anywhere:
And keep an eye on crypto outflows here by selecting the “Stablecoins” tab on the only graph of this page:
Once this curve starts going up, it means new participants are entering crypto markets to buy our bags at expensive prices.L.