Deliver Us From Divergence? Crypto Market Assessment

Another few weeks gone by and yet again the markets have plenty on the table for us to discuss. At the time of writing this, the price of Bitcoin has dropped to $41,112 from the highs of $52,739 a mere 15 days ago on September 6th. The total market cap of crypto as a whole has also decreased from $2.4 trillion to $1.97 trillion in the same amount of time.

Since financial markets are notoriously pegged to psychology, there have been a few developments in the media that have helped to push us downwards:

• Chinese real estate giant Evergrande is on the verge of bankruptcy, causing shockwaves around the world with their $300 billion in debt hanging over the minds of many worried analysts.
• It is rumored that controversial stable coin Tether is backed partially by commercial paper from Evergrande which would devastate their books as well as crypto markets if actually true.
• SEC Chairman Gary Gensler continues his attack on DeFi and crypto projects as a whole citing that roughly “6,000 projects are illegal security offerings” and regulation is impending.

This is quite a bit of ammunition that has contributed to the shift in public sentiment to the bearish side. We can see this reflected in the Fear & Greed Index being back at their lowest levels since July. Buying into these periods of extreme greed has proven to be very profitable for those that incorporate it into their dollar cost average strategy but that is just an observation, not financial advice.

What about the technicals? On-chain metrics?

Oh no need to worry, we have plenty to review below.

Last time we met, we had noticed a bearish divergence on the weekly chart of Bitcoin and at least half of the crypto projects in the space. It had not confirmed until this week but we finally do have our confirmation of the bearish trend. While this may be scary for those that do not have a long time horizon for investments in this sector, the monthly chart has an even more impressive story to tell (and less scary).

Disregard the decreasing volume, we are looking at Bitstamp which has excellent price history for Bitcoin but has lost liquidity over time to other massive competitors. What we find here on the monthly chart for BTC is a reset in momentum. There was a bearish cross on the Stochastic RSI in April that was the start of this current bear trend. The RSI peaking at 92 was also a major sell signal for this with this kind of outlook.

Most interesting to us at this moment is…

a potential bullish cross on the Stochastic which would signal a major trend reversal and likely lead to the true peak of this macro trend.

Since this signal has not confirmed and we are very bearish on the weekly charts, it could take a month or two for us to actually get this cross. Of course we would love to see that happen sooner but for now we remain cautiously optimistic that a major reversal is on the horizon for Q4 of 2021.

Bitcoin Logarithmic Growth Curves

It has been a while since we looked at the growth curves and not surprisingly, we got rejected by the MidDev resistance level. This is in line with the overall bearishness that has been in the air as of late. During the macro peak, the Oscillator usually touches the 1 range which we have not even come close to thus far. We are seeing quite a similarity to the 2014 bull run where we broke above the .5 level, spent some time below as resistance, then pushed for the final phase. History could very well be repeating itself here.

Reserve Risk

The Reserve Risk is an on-chain look to identify long term investor confidence. It is a counter trade tool that allows us to know when long term holders are of high confidence while price is low indicated by green and low confidence while price is high. Historically these have been excellent buy and sell points for macro traders or investors alike. While this is not a prime time to be stacking in with great size, we have a long way to go before a peak has been achieved. This may coincide with the monthly stochastic RSI reversal previously mentioned.

Bitcoin Holdings in ETFs and Corporate Treasuries

It is true that major players put their money where their mouth is, and in this case it is Bitcoin that they are continuing to have a taste for. Take notice of the thick blue indicator that represents ‘All Corporates’. In the past year, despite price declining over time since April, corporates have not only bought the dip but have been continually buying no matter what the price is.

Is there something they know that everyone else does not?

Quite the opposite. They are also privy to the current paradigm shift and are along for the ride as well. Weak hands have been selling right into their pockets that hardly ever sell shorter than a 10 year time frame.

The Bottom Line:

Dips in the market can be unsettling. Nobody has a crystal ball to tell them exactly what will happen and if someone does, please send them our way. The best we can do is assess using the tools that are available at the time. It does still appear that this longer term correction since April is really a consolidation phase before a final expansion that will leave many in disbelief.

The good, the bad, and the not-so-ugly…Maybe it is all over and Bitcoin is going to zero but given who is buying it en masse, innovation happening across the space, and regulators finally taking notice…it would seem there are many more surprises to come.