Still Waters Run Deep - Bitcoin Set To Go Bullish?

7 de nov. de 2022

BACKGROUND
Bitcoin (BTC) price has been in decline for the past year with price crashing as much as 20% on a single day in June. Still, the low set of $17,750 on 18 June (Saturday & hence unseen on CME chart) has turned out to be a resilient support level.

BITCOIN PRICES RESILIENT RELATIVE TO S&P500 (SPX) and NDX
NDX and SPX with which BTC is generally correlated have both set new lows since June while BTC has been traded within the same range (of 18k - 20k). This again shows remarkable price resilience. Analysis from market experts points to significant deleveraging within the crypto industry and hence the perception that crypto prices might have bottomed out.

SHRINKING IMPLIED VOLATILITY
Thirty-day forward implied volatility is at record low. Low premiums to acquire call options to secure outsized gains from price break-out is seen on non-traditional crypto derivatives exchanges. Call-put ratio of 2.09 on Deribit points to 2.09 calls for every 1 put, underscoring the bullishness in BTC. However, call-put ratio on CME is 0.362 at the time of this writing.

BULLISH ONCHAIN SIGNALS
Turning our attention to on-chain analysis, we notice that Long Term Holders BBTC_ACTIVE1Y (those who held BTC for at least 12 months) now represent nearly two-thirds of total BTC supply. This again points to further selling pressure being limited.

BULLISH TECHNICAL INDICATORS
Talking of technicals, BTC/USD is showing a falling wedge formation, suggesting the possibility of a breakout.

BTC has retested its June support at DXY local maximum. As the USD is the primary base currency against which BTC is traded, the value of the Dollar strongly impacts BTC price. The DXY has been rallying all year with an unprecedented rate hiking cycle. However, the DXY has started to show a broadening ascending wedge formation, signaling the softening of rate hiking cycle. The CME FedWatch tool currently suggests three more rate hikes are likely by 22nd March 2023. Anticipation is that each of these upcoming hikes will be incrementally lower relative to the last four outsized rate rises.

TRADE SET-UP
CME’s Bitcoin futures for December are currently discounted relative to spot at the time of this writing, offering investors an opportunity for a long position - amid a macroeconomic backdrop which poses a significant threat to risk assets such as BTC. With that backdrop, an entry around $20,770 with a stop loss at 17.7k (the June low) might provide a compelling trade set-up. Profit could be taken at previous bear market rally highs of 22.7k and 25K delivering a risk reward ratio of 1.38 and 0.63, respectively.

CASE STUDY WITH 1 LOT OF CME Micro Bitcoin Futures
One lot CME Micro Bitcoin Futures provides exposure to 0.10 BTC. CME Micro Bitcoin Futures expiring January 2023 requires a maintenance margin of USD 528 per lot.

Entry at $20,770 and take profit at $22,700 would result in $193 in profits with a return on capital of 36.5%. However, if the trade turns sour triggering a stop-loss at $17,700, it would lead to a loss of $307 amounting to a loss of 58%.

Investors must take note that when prices plunge sharply, stop-losses might be triggered at levels way below the set levels inflating realised losses.

CME Real-time Market Data help identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/gopro/

DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.

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13 de dez. de 2022

Trade fechado: stop atingido

On November 7th, we published a case study looking at a potential long position on CME BTC/USD futures. The entry price for this position was $20,770 with a stop loss at $17,700 and targets of $22,700 and $25,000.

In the following days, one of the largest crypto exchanges, FTX, halted withdrawals and eventually filed for bankruptcy. This event led to a quick and rapid sell-off in the broad crypto market which led to BTC breaking below its 2022 low and our stop loss.

On November 10th, the US CPI continued to decline, indicating that inflation had likely peaked in July. This led to a large rally in US equities as well as the battered BTC/USD pair which managed to recover 13% from its new low of $14,925.

Analyzing the rationale for the case study, we had pointed to a falling wedge formation that occurred on the daily BTC chart. We had also pointed to on-chain data that showed that LTH were resilient amid the pre-FTX crash.

In the day following, BTC/USD broke below the falling wedge bottom with a rapid selloff in the market following news that Binance would not go through with an acquisition of FTX, which would have provided a sort of “bailout” for the now defunct FTX.

We had also pointed to a broadening ascending wedge in the DXY, this signal did in fact end up panning out since the publishing of our idea, DXY has dropped from 110 to 105.

As for the on-chain signal, LTH continue to be resilient despite the FTX crash. However, a large majority of these are now in loss at current BTC price (16.5k) which could now weaken their resolve.

Finally, we also pointed to shrinking IV on Bitcoin futures as well as put/call ratio on Deribit that suggested bullish sentiment. This sentiment quickly changed following the collapse of FTX and BTC futures on CME are now trading at a steep discount to spot as traders expect huge downside.

Additionally, although Long-term holders of BTC remain high, a large portion of these wallets now being in loss indicates that there could be further selling pressure.

The case study got stopped out at $17,700 leading to a loss of $307.