News from the FODL Coin Development team on August 8, 2022
Summary of market movements, w/c 1 August 2022
“The Markets have to rally before they break”
It is obvious that since the start of 2022 the markets have been in a Bear cycle, and quite a vicious one at that, but why?
Partly due to Macroeconomic conditions suggesting we are about to see a prolonged and serious Global recession, but also rising energy and food prices, the war in the Caucasus and the fall out from the real cost of the supply chain crisis caused by a Global Pandemic are just a few of the factors that have lead us here.
This, combined with the fact that many governments, especially the US and the EU, have for the last 14 years (since the 2008 crisis) been printing Trillions of Dollars/Euros to prop up their stock markets and give the illusion to the average pleb that “everything is fine” has lead to finally seeing some of the highest inflation figures in decades not just in the US but across Europe.
The current economic landscape looks bleak, to say the least for the average consumer, and people across the Globe are already feeling that there is always too much month at the end of the money.
But now more specifically for Crypto, the brutal drawdown seen in the markets since November 2021 is not only because Bitcoin is so closely correlated to the indices (S&P500 + Nasdaq100) and naturally considered a RISK asset but also a result of over-leveraged and under-collateralized lending markets (DeFi) becoming overexposed in current macroeconomic conditions.
By June 2022, the result was a brutal drawdown with some Crypto assets having over 90% markdown in price and 74% markdown for BTC and over 80% for Ethereum.
At the end of the 2nd Quarter of 2022 looked as if the markets were going to continue to sell off with high volume just as they had in the last few weeks leading up to that.
Again, the difference with this bear cycle was the fact that many over-leveraged and under-collateralized entities with very big pockets had to liquidate their assets in an attempt to cover their debts and honour their obligations to survive this market/ save their businesses.
As we know, many didn't make it, resulting in more liquidations.
A similar story was unravelling in Traditional Markets with many inventories becoming over-extended to the downside.
Jim Dalton once said; “The markets have to rally before they can break”.
This sentence describes the Ebb & Flow of the markets quite succinctly and what it basically means in layman's terms is that at some point an inventory adjustment has to occur as hedge funds and money managers become overexposed to either side of the auction.
In this case to the downside.
At some point, even if you have much more inventory to sell, the prices are no longer favourable for selling… A perfect scenario for a short squeeze and a return to favourable selling prices for the sellers.
As we can see from the Daily TF charts below (Fig1), the markets had been in a downtrend for quite some time, but like in any bear trend, the markets tend to retrace back before continuation… Lower highs and Lower lows are essentially the definitions of a bear trend.
That Ebb & Flow of highs and lows is seen on all assets and across all time frames as the price is fractal.
What I want you to pay particular attention to, is how both charts follow a pattern whereby we print a high (resistance) and then go on to deviate above that resistance before printing new lows.
This is a visual representation of that Jim Dalton reference above,
“The markets have to rally before they break “.
Now this brings me to the next observation, which is that the latest price action most certainly looks like it has extended above the previous Higher Time Frame resistance, and in the case of the Nasdaq on the right, it extended above the previous deviation as well but will this time be different and we continue higher? Or… are we now ready to break after the latest rally?
While many refer to this bear market rally as “the most hated bear market rally of recent memory” , the chart clearly shows that its not that different to previous recent rallies and that bear market rallies can be convincingly perceived as a change in trend direction …. even when they are not .
This doesn’t mean that I am bearish, (or bullish) they are just observations to keep your bias “in check” and so we don’t get carried away with momentum or contrarian views .
But it can’t be denied that the markets are definitely looking like they want to go up .
NEWS NEWS NEWS !!!
Now you’re probably wondering why the hell am I writing about the S&P and NQ on this crypto market review?!
Its pretty clear from the last few months that Bitcoin is very closely correlated and moving in Lockstep with both these indices, and since Traditional markets can be news/event driven, we have to continue to pay attention to the Boomer markets and the monthly events/meetings and figure releases from the Federal Reserve.
Additionally, if you haven’t noticed, the New York sessions have been leading the way not just in Volume as per usual but also in direction, where we have seen pretty consistent bidding flows preceding and during the NY session.
(More on that, in this excellent article by Ben Lilly from Jarvis Labs:
We have also seen quite a lot of volatility leading and during events such as the FOMC meetings, CPI prints and NFP releases, all related to the US Federal Reserve.
This week is no different and we are expecting volatility to pick up leading/during the CPI (Consumer Price Index) print on Wednesday the 10th of August.
Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate
A higher than expected CPI print (like last month) would indicate that the FED is not doing enough to contain inflation and thus send most markets into a correction, even if shallow and short lived.
A lower than expected CPI however would indicate that inflation has peaked, the FED is doing enough to contain it and thus we would naturally see markets react positively.
One thing is almost certain regardless of the print or the outcome, Volatility will accelerate during the event and in the minutes/hours leading up to it, so I will reduce exposure for the occasion and I suggest you do the same unless you like getting caught in whipsaws and large impulsive moves to both sides.
More specifically in Crypto we have had some staggering news this last week , as BlackRock announced that they will be partnering with Coinbase to provide their Aladdin users access to Crypto trading!
If you don’t know who BlackRock is or what Aladdin does I strongly suggest you Google it, or watch this 8 minute video linked in the footnotes
Back in 2017/18 this kind of news would’ve sent the price of Bitcoin upwards in double digits % .
But in 2022 nobody bats an eyelid… make of that what you will.
Now you can see this news scoop as Bullish but in my personal opinion is anything but.
First, these are not the type of investors to advertise that they are going to buy! Believe me they’re not!
An announcement like this comes after the event, meaning that the money managers and the Big Boyz have already filled their bags and this just serves to get the herds of laggards (retail) to buy in the hope that Blackrock pump our bags…
BlackRock are the Apex Predator in this ocean, The Great White Shark , or perhaps even the mythical Megalodon if I am to choose an analogy…
This is not great news for traders, as markets mature the competition is becoming stiffer, with HFT algorithms and Professional traders now entering the space.
If you thought trading was difficult you can see this as a next LEVEL UNLOCK, where the big boss at the end of the level basically owns/manages over 10% of the World’s wealth.
Yes, not as inviting now is it ?
..Are they expecting us to be their exit liquidity in the face of a Global Macroeconomic Shitstorm heading our way? or are they merely announcing that they now have the regulatory oversight in place to be dwelling in the Wild West of Crypto for the foreseeable future?
I dont really care either way, but in the face of what current macroeconomic projections are printing and while the energy prices and consumer debt continues to rise… while the purchasing power of retail continues to dwindle, I doubt very much that BlackRock are here to save the day and pump our bags to oblivion while the World economy collapses in on itself all around us…
Dont know… just a hunch ;)
Either way, this news did not move price but that was a very telling sign as to who has been quietly buying, as seen on this daily Coinbase chart… With the white line showing mostly buying since December.
Fig.2 BTCUSD — Coinbase ( CVD line in white )
The other narrative is of course the Ethereum merge and the transition from a Proof of Work to Proof of Stake consensus for Vitalik’s chain due in September.
This has obviously gathered a lot of attention and is a huge event for Ethereum.
Just like Bitcoin’s halvings reduce miner rewards by 50%, creating the deflationary model of Bitcoin, Ethereum will reduce it’s inflation model by swapping to proof of stake and cutting around a whopping 90% in future supply in ETH tokens.
Of course there are further implications and opportunity for new fork chains to be created in the hope to attract ETH miners and to compete with other Ethereum POW chains such as ETC and Raven, and there are obviously potential risks inherent with changing the moving parts of the most used Blockchain in the crypto space… but this has sent the prices soaring as investors are seeing this as a bullish event, scarcity dictates the fundamentals of Supply & Demand and less tokens should result in appreciation in price if logic has any place in market dynamics.
The real question in everyone’s mind is; will this be a “ buy the rumour and sell the news “ event or will it actually be the catalyst for mini bull run where Ethereum paves the way to new highs across the market.
Watch this space as we quickly approach the snapshot date due sometime in September.
The S&P has found acceptance within a balance area, between 4000 points and 4300 points. It is currently on its way to testing the upper boundary after testing the lower boundary and confirming it as support. Providing the CPI print on Wednesday is not terrible, this rally should see continuation to go test that confluent area where the 2022 VWAP (Blue squiggle) meets the Low Volume Node/ HVE at 4300 points.
A look at the Weekly chart, shows that we have just reclaimed the 200 Moving Average. The Weekly 200 MA has been historically what has marked the bottom for Bitcoin on previous cycles and so this has got many investors excited and most of retail sentiment on my feeds are saying the bottom is in.
I dont like to follow the masses, and even though admittedly the markets do look indeed very bullish. I will continue to keep an open mind and trade this level to level.
A look at the composite Volume Profile on the right of the chart, shows that we are currently testing the upper HVE (High Volume Edge) of a balance area (Blue). Above there is just a void in Volume, which will act as resistance until proven otherwise , however as this is an imbalance area and so price could rally and accelerate through this area with one big impulse to the next balance area (Red).
The Bottom of this upper balance is around $28,500 which coincides with previous support, now most certainly resistance…at least on the first and second test.
Acceptance above this level will most certainly push Bitcoin back to the 2022 VWAP, currently sitting around $32,500.
Failure to break above the current area of Balance (24k) and subsequent acceptance below the 200 W MA , will most definitely indicate that $17,500 was not the bottom and price will print new lows when testing both edges of the current balance area ( Blue) .
ETHUSD shows just how bullish investors have been, regardless if due to the Merge news or if just because of the huge drawdown since November, either way Ethereum is currently in the middle of a High Volume cluster with the range POC/ HVN (High Volume Node) acting as temporary resistance at $1800.
The way its looking, and providing that S&P and Bitcoin continue upwards, $1800 will flip to support instead of resistance and the next target for Ethereum will be the upper HVE (High Volume Edge) at around $2000 USD.
This is a balance area and so that level will constitute strong resistance as its also a big round number where most investors/traders will be keen to book profits.
Acceptance above $2000 will send Ethereum into a new balance area (between $2000 and $2500) where the higher HVE has perfect confluence with the 2022 VWAP.
It is impossible to ignore the fact that ETH continues to outperform BTC in terms of recovery speed and has most definitely caught up with the drawdown impact that the bear market had on both assets.
Remember that ETH had a 80% drawdown while BTC was down 70% ish…
It most certainly looks like the selling has stopped/slowed down, looking at this daily FODL USDC chart from Sushiswap .
The brutal nature and speed at which this token came down to these levels, means that we have left large inefficiencies in Volume above us, and this could result in very large impulses to areas of previous balance/consolidation.
Meaning if FODL finds it’s way above 2 cents (currently around 38% above us) the impulse to next resistance area will be in triple digit %, all the way to 6 cents.
Please note this is not financial advice and I am not a financial advisor, just that from a trader’s perspective, if FODL token has indeed found a bottom here, the Risk/Reward is incredibly favourable here .
Please do not take any of this as financial advice, they are merely my own thoughts and opinions and should be taken lightly and are intended for educational and entertainment purposes only!
But I will conclude in saying, that if this is not a suckers rally and we have already printed a bottom on Equities and on Bitcoin, you wont have to look very far to find opportunities in Crypto after so many assets took a severe beating in the last few month’s bloodbath.
In a couple of days (wednesday) the CPI print will most definitely cause volatility but it should also indicate direction after the dust has settled.
A lower than expected rate in inflation figures should push prices up, but a higher than expected rate could send prices back down to previous levels of support. So all in all a important week to pay attention to.
As always, I suggest caution and good risk management.
Never invest more than you can afford to lose, so be smart!
I will be back with another Market review next week, in the meantime you can follow me on Twitter @StopsTaken and join the free discord group for FODL, where we provide regular trading Technical Analysis updates, TA Livestreams and trading education free for all.
See you soon , Trade smart
The FODL Factor
For more information and access to free educational content join our Discord and don’t forget to check out https://FODL.finance for decentralized trading with 0 funding rates, trading competitions, and more!
Disclaimer: This article is not trading or investment advice. The above article is for informational and educational purposes only. Please do your own research before purchasing or investing in any cryptocurrency or digital asset.
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