Several signals suggest that the crypto sell-off is getting overextended in the short term. Further, long-term metrics indicate that the time is ripe to initiate a more aggressive incremental BTC accumulation strategy, despite the horrendous macro backdrop
Market Take: A crowded short
Several signals suggest that the crypto sell-off is getting overextended in the short term. Further, long-term metrics indicate that the time is ripe to initiate a more aggressive incremental BTC accumulation strategy, despite the horrendous macro backdrop.
Futures trade in backwardation, and funding rates have stayed negative for two weeks. Additionally, perp open interest is on a vertical trend in notional terms, sitting at all-time highs. The hedging train is going full throttle. Further, the short BTC ETF exposure has reached a new all-time high, while long ETFs experiences outflows. Not included in this report, but also worth mentioning: options skew still suggest that a majority of BTC options traders are focused on downside protection. Everyone is hedging, and the short-trade seems crowded when gauged through historical lenses.Short-term, this sell-off shows signs of being overextended, and this represents an intriguing area to make contrarian short-term bets. A long BTC, ETH, or higher beta altcoin punt with a tight stop-loss seems attractive here. Nevertheless, it’s not difficult to make strong arguments against longing this market. There are very few positive narratives outside of the Ethereum merge. The macro backdrop offers a constant pain to the market, and JPow delivered an additional knife sharpener to short traders at the Jackson Hole Symposium.
The lending market seems to be normalizing, and crypto-specific market risks look to have been resolved for now. Outside crypto, the broad financial markets remain under immense pressure, and FED policies will dictate the general direction. The dollar strength index has found support at June highs while struggling to make a substantial push higher and could be in for a short-term reversal. Nevertheless, relative to the E.U., the U.S. economy seems to be in a far better state, and it seems reckless to bet against the dollar for now. BTC’s correlation to U.S. equities stays high, and by now, we see few indications of a structural shift in this relationship. The macro calendar remains important. Pay particular attention to the U.S. August CPI release on September 13th and September 21st FOMC.
Macro headwinds will blow further, the inflation is far from under control, and the FED is unlikely to pivot any time soon, as Jerome Powell hawkishly warned, mentioning that “pain to households and businesses” would be the “unfortunate costs of reducing inflation”. Nevertheless, the FED and other central banks are nearing a very difficult dilemma, balancing the out-of-control inflation vs. looming recession risks. The macro backdrop will be a difficult landscape to navigate in the coming years. Thus, it seems worthwhile remembering BTC’s cyclicality and previous price history. Alex Thorn of Galaxy Research highlighted BTC’s revisit below the 200w M.A. and other long-term price metrics this week. It’s well worth a read. Additionally, with BTC’s 72% drawdown from ATHs, this seems like a very appealing point to intensify a gradual dollar cost accumulation of bitcoin.