Comparing the King and Queen of Crypto

Dear Readers,

History of Female Rulers: Usage of the Title of Queen

I thought in this fortnight’s article I’d compare the price performances of Bitcoin and Ethereum with the intent of showing how both the price of Bitcoin is holding up, and indeed recovering, in an ongoing macro bull market, and how Ethereum, our proxy for the better alts, is also showing relative strength… even when the wider sentiment in the market is somewhat negative. Remember, it is only price that counts… while we also stay hedged.

Besides outlining the macro case for a continued bullish outlook on the market, I’ll also look to conduct a ‘stress-test’ with shorter-term volatility in mind. The idea here is wanting to be prepared and resilient should price move counter to our immediate expectations.

The Relative Retracements of BTC and ETH

Significant is not only the holding of the lower bottoming fib levels, but the break of price to a higher fib level in each case. Coinciding with the recovering of a higher fib level is a break of the longer-term diagonal of resistance signaling a recovery. Interesting to note also that where BTC retraced a full 50% of its previous move up, ETH retraced only 38% of its move, where its price is currently 23% off that move… in real terms.

Technical Support on the BTC Chart

On the face of it, with the simplest of TA drawn, we have technical support - in an uptrend - at 25K, both diagonal support and horizontal support. The case is strengthened further when superimposing the LGC model, based on a longer-term macro outlook on price development, where price is right where it should be - in the buy zone.

A ‘Stress-Test’

What follows is a ‘stress-test’, where a future, more extreme volatility, is factored in… while still remaining macro bullish. Like the boy scout, the TA practitioner should always be prepared. In the following chart, the idea of the 38% lower fib level being re-tested is entertained, where price, though being low - 21.5K - would still be macro bullish insofar as we see it still in the buy zone, and with still a series of higher lows.

Again, I’m not saying price will go this low, how could I when I reject the idea of clairvoyance and instead profess the principle of uncertainty, but the possibility of this price serves as that stress-test. In terms of what is more likely, I think the 25K is a reasonable level of support.

Of course, this raises the question of what impact this kind of volatility would have on ETH, our proxy for the better alts. Here we are looking at the worst case scenario of something akin to a capitulation event. If both BTC and ETH were to revisit the 38% fib level, then you’d be looking at a 22K BTC price and ETH at 1200. On the positive side, this makes a 3 digit ETH price highly unlikely.

And then at a later date, on a renewed bull market, I’d be selling that ETH as per the strategy, where I could realize profits, in a more volatile asset, while remaining long a core position in Bitcoin.

The reader might be slightly alarmed at seeing such prices sketched, but keep in mind that one is always better off in considering various scenarios, given the future is uncertain. The idea here is to be aware of the worst case scenario while also being confident in an ongoing macro bull market.

For myself, in case such a ‘stress-test’ played out, my position trades in the more major alts would survive, while other more speculative swing trades in more volatile alts would no doubt be stopped out. This would ensure the maintenance of a solid USD fund besides continued exposure to the more major alts bought at a lower level with a higher tolerance of risk.… not to mention a continued core position in Bitcoin.

Managing Risk

To finish, keep in mind that my primary aim is to help readers manage their own risk. This is not done by simply pushing a bull or bear narrative to further consolidate the reader’s sentiment. Rather, an irreducibly complex approach to the market is taken, where one can be confident in trends… though uncertain and hence hedged. The best picture to portray this, the management of risk, is one of a balancing act, where one keeps on eye on various outcomes.

Of course, complexity does not have to mean complication. The point of illustrating complexity is to shift the mind away from what tends to be an habitual association with simplicity. It is this frame of mind, that is reductionist and simplistic in its outlook, that is averse to uncertainty and the very concept of hedging. Hedging, like a hedge, actually partitions our outlook, so that we can be said to have various outlooks, and a continued tension between them. The best analogy here is that of the super-tanker that has isolated bulkheads within the hull - puncture one of those bulkheads and the ship still will not sink.

As opposed to being uncomfortable with what is known as ‘cognitive dissonance’, we make this our very starting point, and become comfortable with it. All desire to draw a single circle around everything is deliberately rejected as illusory at best, and self-delusional at worst. And we know this is the right way to deal with risk, as opposed to listening to soothsayers, insofar as we become anxiety free. We can say, come what may, we’ll survive volatile markets that can wreck the many.