March Outlook: All gas, no brakes?
The tendency of choppy conditions ahead of ATH breakouts and the exuberance in derivatives markets favors non-leveraged spot exposure. An imminent all-time high is written in the stars, but many indicators point towards a dangerously densely populated one-sidedness of the market. It’s also written in the stars that you have to be loyal to the nightmare of your choice, and currently, leverage is a choice you quickly could end up regretting.
February’s price action takes me aback, and I’ll be the first to admit that the February outlook missed the mark as a sudden eruption in intergalactic ETF flows absorbed a mind-blowing 123,755 BTC in February, leading February 2024 to become BTC’s strongest month since December 2020.
One Direction
In perps, funding rates have reached 3-year highs, alongside significant OI growth, as traders in a joint effort concentrate on the glorious candle pushing us above past ATHs. Similarly, retail is aggressively re-entering the market, evidenced by Coinbase suddenly experiencing a 10x surge in traffic last week and a face-ripping memecoin rally, as the market leapfrogged directly to memecoins without the typical pre-rotation into ETH.
These factors dramatically skew the risk-reward of maintaining leveraged exposure and favor a more conservative spot exposure.
All gas, no brakes stage of the market soon?
Bitcoin has breached its all-time high in more or less all local currencies apart from the U.S. dollar. This causes intensified publicity for BTC, more media headlines, and more general awareness of the rally. Typically, this causes an influx of retail participants in the market, leading to strong but also volatile and unpredictable price action.
Once we fully enter the all gas, no brakes stage of the market, overweight altcoin exposure is typically favored over BTC, as bitcoin’s market dominance typically tops out in the weeks following an all-time high breakout. This period requires extra focus and faster, more frequent market assessments from all crypto market participants.
Past all-time high breakouts have been choppy
In 2017, bitcoin spent 50 days in an aggressive drawdown after its first ATH attempt. In 2020, BTC spent 26 days in a more conservative drawdown after its first ATH attempt. Prices near all-time highs attract late buyers from the past cycle to eliminate their pain and sell at entry prices.
All-time high breakouts in BTC are typically wild. In 2020, BTC needed 18 days to double in value after surpassing its ATH. In 2017, BTC needed 87 days to double in value after its ATH breakout. In November 2013, BTC needed 10 days to double in value after its ATH breakout.These eyewatering stats attract risk seekers to employ leverage to the market, leading funding rates to grow wild, dramatically increasing the likelihood of downside volatility amplified by cascading liquidations. The market is rigged for such an event now, as froth is fuming from perps.
The tendency of choppy conditions ahead of ATH breakouts and the exuberance in derivatives markets favors non-leveraged spot exposure.
Could this time be different?
Ahead of the past ATH breakouts, we did not have BTC ETFs. February confirmed that the demand for BTC ETF exposure is enormous, and the day-to-day flows could break the trend of choppiness before a swift breakout as supply gets absorbed into these ETFs.
This could imply that this time is indeed different, but I would not bet my house (or bitcoin) on it.
Prospects for higher prices in the coming months are solid. For now, maintaining unleveraged spot BTC exposure is the most prudent strategy for March. With that being said, active traders should be nimble, focused, and prepared for an all gas, no brakes scenario, where frequent altcoin rotations amid growing irrationality should proceed.
