The Weekend Rundown - Checkmating Beras
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 where the Bitcoin bottom could be, what we’re actively monitoring as signals, and why the market is showing the end is near for bears.
Background
As we all know, we have been in a crypto bear market since beginning of the year. Bitcoin has sharply declined in price from its high of $69k. But, there are now signals that a bottom is close and that the end is close for bears (beras).
For the past couple weeks Arrash has been talking about Bitcoin showing bearish signals with the rising wedge shaping & Bitcoin failing to break a major resistance zone, while ETH hit a wall of resistance on ETHBTC, and TOTAL also hitting major resistance. He also mentioned that the bottom will likely be tested and we’ll see if we get new lows or if the existing lows will simply get retested. We are now seeing that play out, alongside the 1d MACD/signal bearish cross.
Expectations from drop
Our belief has been that this is the last major capitulation price drop, and we will see the beginning of whale accumulation. Arrash posted a couple targets, believing that we would see new lows. This was based on multiple factors, including bull market fib retracement, 3d RSI, and potential bullish divergences which typically lead us out of larger drops. That full analysis can be found here.
However, new analysis indicates that the bottom may already be in, and we’ll be jumping into that today alongside our expectations and strategy for re-entering the market and why we think the market is showing an end to the bear market soon.
Is the bottom already in?
Let’s put together the case for the bottom already being in. This involves a few ingredients, lets go through each of them:
hash ribbons crossing
Major support trendlines holding
strength after rising wedge fall
1. Hash ribbons crossing
First off, shoutout to Capriole Investments on their outstanding work on hash ribbons. They provide great indicators on TradingView including Bitcoin Production Cost & Hash Ribbon crossing. We will go over the basics for them here.
Background
Lets give some background before jumping in, if you already understand hash ribbons you can skip this. As you may know, Bitcoin uses Proof of Work, allowing parties or “miners” to compete in verifying blocks and in return earning a reward (Bitcoin). In order to verify a block, miners must perform computation which requires “work”. This computation is done through GPU-intensive machines such as ASICs. During a bear market the price of Bitcoin drops, yet the network difficulty remains high (the difficulty to perform the computation to mine a bitcoin). Because of this, miners are put in a tough place. The cost to mine a bitcoin is rising but the price is dropping. In order to handle this scenario, miners begin to turn off their mining equipment due to lowered profits. This in turn begins to reduce the hash rate, which is the total computational power used by the network. As you can imagine, this is part of a typical flow of a bear market and miners play a big part in it.
So how does this affect price?
Miners are some of the biggest Bitcoin whales, and when profits dwindle and costs remain high they need to sell their Bitcoin in order to remain in business. We therefore see thousands of Bitcoin being sold by miners when the difficulty is high but the price of Bitcoin is low. Miners actually sold the recent rally in August, selling over 6000 Bitcoin. Therefore, on top of technical analysis of the charts its important to understand how Bitcoin’s network functions and signals for when miners stop selling which could indicate a bottom.
Diving into hash ribbons
What are hash ribbons? Hash ribbons are an indicator put together by Capriole Investments that help indicate that miner capitulation (miner selling) is coming to an end. Capriole investments outlines the thought process here but Ill provide a simple explanation as well. Hash ribbons indicate that miner capitulation is beginning when the 30 day simple moving average (SMA) of hash rate crosses downward on the 60 day simple moving average (SMA) and that miner capitulation is ending when the 30 day SMA is crossing upward on the 60 day SMA. The reasoning is simple, when hash rate is increasing miners are recommitting power back to the network, and using the 30/60 crosses is a relatively significant enough indicator that recommitment has occurred.
While the specific usage of the 30/60 day cross can be debated, the overall idea is sound.
We can see in the chart three examples that help use hash ribbon crossing not only to determine the downtrend through miner capitulation but also the reversal and uptrend. Let’s go through each of these scenarios.
Ex. 1 - 2018 bear market
We can see that in the last bear market the hash ribbons crossed downward which lead to miner capitulation and a drop in price from the $6k support down to $3-4k. We can then see that the upward 30/60 day crossing occurred and signaled a bottom.
Ex. 2 - China mining ban
In example 2, we saw the first rounding top by Bitcoin and then we were hit by the China mining ban which made mining of bitcoin illegal in China. This strongly affected miners, who had to either completely uproot their operations to another country or stop functioning as a business. This caused major capitulation in the market and in our opinion, the strong downtrend that we saw in May 2021 as miners sold their Bitcoin to cover operational costs. This was brought up by Arrash back in June & July 2021 on his Jimmy Two Times account, when he reasoned that miners would eventually return to operation and the price would rebound and referenced hash ribbons in his analysis to determine when to buy back in the market.
Ex. 3 - 2022 bear market
Example 3 is the current bear market, where we saw hash ribbons cross downward in June and are now seeing hash ribbons crossing upward signaling buy.
2. Major support trendlines holding
Beyond hash ribbons there is technical analysis on the charts to support that the bottom has formed. There are three main indicators we are monitoring to determine this. One, the support zone at previous Bitcoin all-time high (ATH), two a diagonal support that has been historically very significant, and three, TOTAL support hitting previous ATH. Lets see the charts on each.
we can see the previous ATH support zone and the significant diagonal S/R trendline outlined above. This would give major support down to $18.8k and if it held it would mean the bottom is in.
TOTAL represents the market cap of the entire crypto market. We can also see that the crypto market retested previous ATH at $766b and bounced back, due to the hype of ETH 2.0 and a price rebound by BTC. There is significant support for the crypto market back down to $766b and it is currently retesting the support at $963b.
We are closely monitoring the diagonal trendline support for BTC which falls at ~19.7k or previous ATH. If that falls, it could end up becoming a significant resistances and the first domino taking BTC towards a new low but for now it is a strong support.
3. Strength after rising wedge fall
Now lets get into the lower time frame analysis (LTF) and what we should be monitoring to determine if the bottom is going to hold.
Remember when we brought up the Bitcoin MACD/signal cross in the first image on this post? There was a good reason. The 1d MACD/signal cross has shown to be a good indicator of the beginning of the next move down (bearish cross) and when the move down begins to settle at a price (bullish cross). We can see we just had the bearish cross downward.
Determining if the bottom is in
Considering the hash ribbons are signaling buy, Bitcoin having strong support below its current price, and TOTAL having strong support as well there is a case to be made the bottom is in. Now, if the 1d MACD/signal bullish cross occurs and the support zone of $18.8k holds, our confidence in the bottom being in will be high. The 1d bull cross has shown to be the settling of the price at the next downward level. Hash ribbons flashing a buy signal helps indicate that miners selling off large quantities of Bitcoin could be slowing which would reduce sell pressure on the market. This along with TOTAL holding its outlined supports would help indicate the price stabilizing during this drop.
What makes us hesitant that the bottom is in
Now that we talked about the signals that the bottom could be in and what we’re actively monitoring to have more confidence that the bottom is in, lets talk about what makes us hesitant the bottom is in.
Whale accumulation is non-existent in wallets
Whales know best is our typical philosophy and following the whales is generally a good idea. Well considering wallets are public we can understand the movement of Bitcoin in large wallets and correlate it to price movement. What we consider a whale wallet is one with over 1000 BTC. Look Into Bitcoin provides a nice chart showing the number of wallets with over 1000 BTC compared to the price of Bitcoin.
We can see whales nailed the last two bottoms, accumulating at the 2014/2015 bear market bottom and the 2018 bear market bottom. Well, where are they now? Whales haven’t started accumulating. Whales are clearly waiting for a better signal the bottom is in or don’t believe the bottom is in, potentially hesitant because of macroeconomic factors.
Strength of DXY
Now in no way will we try and breakdown macroeconomic theories. We are not macroeconomists, but we can correlate the strength of the US Dollar against Bitcoin and see the trend that has been created.
We can see a very strong correlation between DXY and BTC. At the end of the day, BTC is a currency and is to be compared against other currencies. When DXY is strengthening BTC price weakens, and when DXY is weakening BTC price strengthens. Again, while we are not macroeconomists the theory is simple — DXY will continue to strengthen with a hawkish federal reserve and they will continue to raise interest rates to combat inflation which will strengthen the dollar. The federal reserve will begin to slow rates when inflation begins to fall. Quoting Jerome Powell, “What we’re looking for is compelling evidence that inflationary pressures are abating and that inflation is moving back down… We’d like to see that in the form of a series of declining monthly inflation readings.”
This all becomes hazy quickly as we try and balance not only the approach by the federal reserve, but also the market baking in the hawkishness of the fed and their expectations. Determining the movement of DXY, the decision of the fed, and the market’s reaction to all of it is complicated. Instead we can use S/R trendlines to try and determine continued strength by DXY which should make us hesitant of a bounce back by BTC.
From a TA perspective, DXY is showing a lot of strength but is up against major resistance. If we see it pop through its current resistance at 108.40 it could continue to put pressure on a BTC rebound until the next major resistance level at 112.26.
Whether the price has bottomed or not, the end is near for beras
If the bottom is not in, we can refer back to the chart Arrash provided with specific targets. The analysis is pretty clear inside the chart. However there is one new piece of analysis that wasn’t brought up and it’s something thats never occurred in the history of BTC and in our opinion would be a massive signal of a bottom. The 1 week RSI showing a bullish divergence.
It’s never happened before and its not only a bullish signal, its on a higher time frame.
Because the 1 week RSI went so low during this drop, it opened the door to the possibility of the 1w RSI bullish divergence. This would be a clear indicator of a market reversal in our eyes. Historically, the 3 day RSI bullish divergence has been a significant indicator of market reversal post major drops. It happened during the 2018 bear market and May 2021 china ban. The 1 week RSI would be an even larger signal of market reversal.
The only way this doesn’t hit is if we post a new low on the 1 week RSI which would probably come from a price drop to around $13k which would also be a major bottom signal as it would likely form a double bottom on the RSI below 30. Regardless, there is no escaping that in terms of time the end is near for the bear market.
Conclusion
Based on this analysis, we know what to look for. If $18.8k holds and we get our 1d MACD/signal bullish cross, we should have high confidence in the bottom holding. We can then begin averaging into the market. If $18.8k doesn’t hold, we will likely see a new low. In this case, we begin monitoring the boxes outlined here. If the blue box doesn’t hold we wait for orange, then we wait to see if the 3 day RSI & 1 week RSI bullish divergences form or the double bottom. Regardless, the end of the bear market is close and both scenarios are accounted for leaving bears in a checkmate scenario. Either we hold the current bottom, or we see a new bottom and it has a trap ready with a massive bullish signal.
We expect whales to begin accumulation once we get a clearer signal from the market on this current move down. We will continue to monitor all of these signals and provide updates as the week progresses.
