Welcome to Leaked Alpha where we openly share content as to what we expect from the crypto market. Feel free to follow us on twitter to stay up to date with the latest!

Every Sunday we’ll provide an article to give you updates on our macro take on the market, alongside major developments to monitor throughout the upcoming week.

Today we will be going over updates from last week, upcoming events that could affect the price of Bitcoin, and we’ll be using historical trends to try and determine where the Bitcoin bottom is.

The past week in review

Crypto price action review

Review of Bitcoin price action

During the week we mentioned that $21.7k was a pivotal support that needed to be held in order for there to be any chance of price recovery. When the $21.7k level didn’t hold after tech earnings were announced the likelihood of a push became slim. We can see in the image below the various supports and resistances that came into play the past week.

We’ve been speaking about the rising wedge resistance and used it to shout out that we were potentially close to the local top (from Arrash) before the fall. Once Bitcoin fell out of the rising wedge it was about determining how it would respond. There were many trendlines of supports that existed under the rising wedge we outlined last week, and as we can see they came into play. We ended with a channel between two of the support trendlines, one of which became the resistance outlined above. We had a clear zone of resistance with a top around $21.7k (hence why 21.7k was significant to hold). Once the support was lost we were bound to see another leg down, and no cross from the 1d MACD/signal mentioned last week which helps us determine when the price has bottomed out on its next leg down.

Review of TOTAL price action

We had outlined a support for TOTAL which it was pressing against last week at ~$963B. The support broke, leaving the door open to retest previous ATH at ~$762B. A retest could come from the loss of value of alts as we begin to see excitement simmer as we get closer to the ETH 2.0 merge.

Updates from the federal reserve

Federal Reserve Chair Jerome Powell spoke on Friday stating that “while the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down…We must keep at it until the job is done”. This unsurprisingly sent the markets tumbling, coinciding with the broken support in price action for Bitcoin.

This statement by Powell shouldn’t come as a surprise. In last week’s blog we even quoted Powell who stated he’ll want to see multi-month slow down of inflation before slowing rate hikes. For the crypto community, eyes should be on DXY and upcoming resistances and if it can break bearish patterns that are building.

Review of DXY price action

Originally we had resistance outlined at 108.41 but we are updating that to more of a zone of resistance as its a better fit. Zone of resistance tops at 109.80 and from there the next resistance is 112.26 which we outlined last week. DXY continues to show strength, especially with the latest statement from Powell the likelihood we see 112.26 seems high.

Upcoming event that could affect Bitcoin price

Mt. Gox rumors

Background

Mt. Gox was a very popular crypto exchange which launched in 2010 and handled nearly 70% of Bitcoin transactions by 2014. In February 2014 Mt. Gox abruptly stopped allowing users to trade, shut down its website and filed for bankruptcy services holding their users’ Bitcoin hostage.

Why does it matter now?

Mt. Gox is in the process of now repaying creditors of its exchange 8 years later with 137,000 Bitcoin or nearly $2.8B. The 137,000 Bitcoin would have appreciated roughly 50x from the time they were withheld from users, and many fear that once received the users will unload them onto the market causing a significant price drop. There are rumors floating around that all 137,000 BTC will be returned this week but it is unclear when all of it will be returned.

Our take

While it is likely that some will be sold on the market, the fear seems too dramatic. It is unclear when the Bitcoin will be returned back to users, and its also not certain if users will sell them at these already low prices. While a 50x return is very good, most users are likely veteran Bitcoin holders who understand market cycles. If they were to sell now they would be selling close to the bottom of the bear market. Its possible some are willing to do that, but we’re doubtful that all 137,000 BTC will be sold on the market.

One other consideration is the fact that the amount of BTC sold may not affect price as much as people believe. If we consider that all 137,000 BTC or $2.8B is sold, it is 1/10th the daily trading volume of Bitcoin. It will impact price, but far less than people think (those calling for <$13k BTC) especially considering BTC is already near its bear market lows where there is a lot of support and whale accumulation beginning to take place.

Updates on bottom signals

Now that we’ve discussed the past week and potential events that could disrupt Bitcoin price movement, lets give updates on the signals we use to determine if a bottom is near. The first signal which has already occurred is hash ribbons crossing which we covered last week.

We’ll cover:

updates on whale accumulation
signals that DXY could be slowing
current supports and how they compare to historical

Updates on whale accumulation

Let’s start with an update on whale accumulation where we can see wallets have increased slightly during this fall. It could be an early signal that we are on the last leg down, but we want to see a sharp increase like historical occurrences in order to have stronger conviction that they believe the bottom is in.

Signals that DXY could be slowing

Because Powell stated the fed reserve will continue to be aggressive in combating inflation, its possible now that their future decisions are getting baked into the market. From a technical perspective, DXY is starting to see HTF bearish patterns build which align with some significant resistances ahead.

As mentioned last week, DXY is in a channel and currently inside a zone of resistance. We believe it will likely follow the trajectory outlined aligning with the top of the channel and weekly RSI bearish divergence that has built which will slow the price action down.

Will this be the top for DXY? It’s possible, but as we mentioned we’re not macroeconomists. There are too many market factors to determine if DXY has topped. This outlined pattern plays out through end of year which will likely continue to apply pressure to the price of Bitcoin though which we should be aware of.

Comparing this bear market to historical

Because Bitcoin price movement is very cyclical because of its miner economy & halvings its relevant to compare its historical price movement in bear markets to its current movement. We’ll break down all our thoughts in one place in the following chart.

There are a bunch of pieces to this and we’ll go through each one individually. The last two bear markets 2014/2015 and 2018 both had the following 7 characteristics at their bottom:

a hash ribbon cross
the hash ribbon cross leading to a miner capitulation period in which the low was hit
the low being hit targets the .382 fib retrace
the previous bull market’s ATH not breaking when the bear market low is hit
a support trendline forming that breaks
the breakdown leading to retest lows
the 14d MACD/signal cross indicating the bottom is in and a reversal is underway

Many of these same characteristics are being displayed now. We had the hash ribbon cross, a miner capitulation period which was very similar in length to 2018, a rising wedge formed that was broken which was similar to 2014, we hit the .382 fib retrace, and now we're retesting the lows, right at the previous bull market’s ATH. The last characteristic not shown here which we find important is whale accumulation at the bottom of the bear market which we are potentially seeing the beginning of, but still early to know for sure.

Does this mean we’re at the bottom?

If you want to use historical data to try and project the future, its pretty easy to conclude that the bottom is likely in. However, we are in a global macroeconomic recession. Although it was born out of “the great recession”, Bitcoin has never gone through one before, therefore, its very difficult to decipher where its bottom is.

Our opinion

Following the technical analysis, if DXY performs the outlined path and begins to slow with upcoming bearish signals & resistances there is a good chance that the pattern repeats and we’ve seen the bottom. It could end up simply continue its retest with DXY continuing to rise. Bitcoin still could drop another $2k and still only be retesting the existing lows at $17.6k. The crypto market has already gone through some of the worst news possible. There was 3AC, Celsius, Voyager, and the LUNA depegging all within a single quarter leading to the lows. Considering miner capitulation is likely coming to an end with hash ribbons crossing & flashing a buy signal it seems unlikely we will have a new low based on the technical analysis.

However, there are events that can occur that impact TA that can’t be predicted. If global economic situations significantly worsen, or if significant events occur such as war, the support will likely not hold. And this is what makes this bear market much more difficult to decipher, and potentially why we are not seeing much whale accumulation even though the signals for a bottom look in.

As we’ve repeatedly stated, it’s important to continue to monitor the signals and have a strategy. If whale (wallets with >1000 BTC) accumulation continues to pick up on this leg down (potentially this week), it may be the right time to begin accumulation. When the 1d MACD/signal cross occurs its likely this leg down’s bottoming indicator as it has been on the previous 2 legs down.

Lastly, because of the macro state we’re looking to take a conservative approach to accumulation with a DCA or average down strategy until theres a clearer sign of a reversal beginning with the 14d MACD/signal cross. The 2014/2015 and 2018 bear markets took 160 days and 70 days to exit from the bottom respectively, and considering the macroeconomic state there is no reason to believe this one will be on the shorter end.

The Weekend Rundown - How does this bear market look compared to historical?