Crypto's Impending Boom: Market Shifts and Global DynamicsCryptocurrencies in the Face of Rising Bond Yields and a Strengthening Dollar
Cryptocurrencies have been on a short-term downward trend, attributed to deteriorating liquidity within crypto and outside crypto due to rising bond yields and the strengthening dollar, as they are sensitive to rates and liquidity fluctuations. Their recent downturn can also be explained by the fact that they had performed much better than their interest rate & liquidity models had suggested and by US tech stocks sucking flows and liquidity.
Capital Flows: The Rising Crypto Tide in Hong Kong
Significant rallies in the crypto sector could be on the horizon, especially when the double bottoms in Bitcoin and Ethereum are swept. Some important reasons are the impending acceptance of crypto exchanges by Hong Kong and the return of cash to Voyager's creditors. As Chinese citizens grapple with capital outflows, liquidity flows from China could be redirected to the crypto sector through Hong Kong. At the same time, with mounting US-China tensions, cryptocurrencies could provide an alternative, potentially the only proxy investment to AI (US big tech).
In the Face of Uncommon Volatility: A Premonition of Crypto Spikes
As we navigate the debt ceiling crisis, we might experience volatility spikes, even though volatility remains subdued. Next week we might start seeing some significant moves, as USD 3.6 billion worth of options expired this Friday, constituting roughly 26% of Deribit's open interest. Implied volatility is at its lowest, with DVOL trading at 44 for BTC and ETH and shorter-dated even lower. This is relatively uncommon, and whenever we've seen such low volatility, a significant spike in vol has followed soon after.
A Confluence of Events: Setting the Stage for Crypto Price Surge
The latest spike in January coincided with a price rally, which may reoccur, given the significant expiration of mainly call options, with a Put/Call ratio of 0.38. With events such as Voyager distributing >1B in cash to creditors, Hong Kong authorizing crypto trade for its citizens, US tech investors capitalizing/diversifying on >3T gains and redirecting some into crypto, and potential issues with the US banking system or USD stablecoins due to a possible US default, the stage is set for a potentially explosive growth in crypto prices. The last part is something many ignore, but FUD, or real issues around banks or stablecoins, could recreate the conditions for another SVB - USDC type rally, as investors view Bitcoin and Ethereum as the safe havens of crypto and of the financial system broadly.
Bullish on Synergy: The Powerful Integration of AI and Crypto
The convergence of AI and crypto can create new business models, enhance decision-making processes, improve trust and transparency, and unlock organizational and operational efficiencies. Some areas where AI and crypto can synergize: AI-Powered Smart Contracts, New forms of financial tools, AI-to-AI financial transactions, Enhanced Security and Privacy both for AI and Cryptocurrencies and so on. AI will integrate and interact with open and trustless systems like crypto, but it's unlikely to interact with closed systems like banks. The confluence between the two technologies is apparent, making me bullish long-term.
Trade ideas
As mentioned in my recent ETHBTC idea, Ethereum looks stronger than Bitcoin. However, Bitcoin looks cleaner than Ethereum. Bitcoin has two critical untested areas lower: 25000-25700 - with 25200 and the double bottom at 25800 being the basic levels, and 22600-23600 - which is an area that the market didn't test appropriately as it went higher, especially 22600, which was the critical breakout level.
BTCUSD has two triple tops higher, one around 27600 and the other around 29900. It's unclear whether the double bottom will be swept first or one or both of the triple tops will be swept first, but to me, it's clear that the market will probably rally much higher once the bottom is swept. Given everything I mentioned above, it's better to bet on the upside and not short the market here. Therefore long around 25700 and cut below 24900, long around 23600 and cut below 22500, with targets at 27600 and 29900.
Despite all the bankruptcies and negativity around US regulations, it's better to go long than short, as everything else seems quite positive. Although there are some potential negative catalysts for crypto, and 2023-2024 could be like 2019-2020 for crypto, I think that dips are for buying and that it's more likely than not that we are in a bull market rather than a bear market.
