In the previous article, I made out the case for a base forming in BTC. In this instalment, I’d like to outline how this may in turn affect the alt market, and look at the state of that market by focusing on a couple of coins as representative. The benchmark of course will be BTC, for as the kingpin when BTC sneezes the rest get a cold.
The scenario of a 25K correction [as covered in the last article] in BTC has half played out. Why do I say half? Because BTC needs to build a base here and then show a recovery to higher prices for that scenario to fully play out. I’ll first look at a review of the BTC thesis, then at a review of the alt thesis, and lastly look at some comparative charts, where I’ll argue the relative health of the alt market, even as wider sentiment is so low [always a positive from the contrarian perspective].
Review of the BTC Thesis
All trades require context. It is fine to look at the purely technical and objective aspects of the chart, but then the more ‘subjective’ element of the chart needs to also be taken into account - what is the bias [or working hypothesis] of the trader/ chartist, and what are the personal circumstances/ wider positions involved that might hedge or counter-balance the positive predictions of the chart.
Though habitually we may have a [largely unconscious] preference for objectivity, this has to be seen as illusory for the active trader who must make their own decisions within the context of their own circumstances in real time. My input here has been to provide a general strategy, which traders, if they’re to follow my approach, are to put into practice for themselves.
Bringing this back to BTC, it is a foundational part of that strategy to keep a core in BTC. Of course this is easier said than done. It takes some discipline to sit on BTC when alt prices promise to deliver much better gains. But of course, it need not be an either or - the strategy suggests sitting on a core of BTC and then also buying some alt positions [preferably in majors] to sell on a cyclical spike. The idea being that the greater volatility and return [in the shorter term] will effectively hedge your longer macro position in BTC. And of course for this to work, the trade must be made against USD [against which alts are more volatile], and in the accumulation of which you have your long BTC well-hedged.
The strategy here effectively keeps you from being over-exposed to Crypto in general, whether that Crypto consists of just BTC, or just alts, or both. The crucial concept is the maintenance of a solid USD fund counterbalancing your Crypto. Remember, the lowest level in the strategy is uncertainty, and the complementing layers or ‘super-structure’ are based on the next most certain thing - volatility. The ‘play’ on volatility is your hedge, which brings us to a review of the alts.
Review of the ALT Thesis
Alts are primarily a play on volatility, even your longer term positions in major alts [preferably bought at lower levels] are to be sold on the cyclical spike. The difficulty here is to know where that spike is, or, if indeed, that spike has already been and gone. And this is where your shorter-term swing trade of alts hedge in turn these longer trades. Of course, this pure trade on volatility can be difficult, and not so much in technical terms but in psychological ones [that subjectivity of the trader again], for the tendency is to become overly bullish on the alts as they increase in price. It takes quite the conscious effort of wearing that dollar bull hat to make these hedging trades [you are primarily hedging against yourself here].
But trade you must as the strategy dictates… for there are no certainties. This policy has served to take some of the sting out of seeing those alt positions, earmarked for the longer term, come off in price…. even if bought high having come to the market late. IF the alt market recovers, then these positions also should recover and in turn go on to new heights, where you’d be averaging out in a renewed manic market. So of course this brings us lastly to a review of the alt market itself as opposed to explanations and reminders of the strategy.
The Alt Market as Relative to BTC
And so lastly we come to the charts, that other half of the equation. Given what happens in BTC never stays in BTC but impacts the alts, I’ll compare ETH and ADA, as more major alts, to the price action in BTC. Keep in mind also that my working hypothesis for BTC is the LGC/ logarithmic growth curve. Keep in mind also that the long core BTC hold is not only hedged at an upper layer by trading alt volatility, but also hedged at a lower layer - by not betting the house in the Crypto space in general, i.e.; in having assets and reserves outside of this space. This is to give the reigning principle to uncertainty not to core BTC… something that those who focus on the BTC/ alt trade might miss. There is room for neither ideological certainty nor false assurances here [those looking for such, need to learn how to manage their own risk].
Anyone familiar with my BTC charts will know that I’m looking for a basing pattern to form at the .38 retracement and the 200 MWA level [the wick of the 25K capitulation effectively touched this level]. The building of a base may require a retesting of lows, but the wildcard here is increasing medium-term volatility [referred to elsewhere as ‘diminishing cycles’/ breaking up of cycles] that could well see price break to the upside earlier than might be generally expected. For the purposes of this article, and given that BTC is the driver of alt price, I’ll be comparing various alt charts to this BTC chart. Note: there is a hedged confidence not a certainty in the BTC chart here, which is the basis of investment. This, in turn, becomes the basis for one’s further more speculative trade in the alts.
The first thing to note in the above chart is the comparable retracements, in real terms, of the previous moves up. While outperforming to the upside [in terms of ROI/ return on investment/ trade], the alts have managed to hold on to solid gains along with BTC, they have not been ‘rekt’. Whereas ADA and BTC show a similar retracement of 38%, ETH is the out-performer here having retraced [so far] 23%. A couple of differing interpretations in the medium-term [not the longer-term macro] on this [for interpretations are all we have]:
1] If BTC continues to consolidate, and BTC dom increase, then you may yet see that extra fib level correction for ETH to 38% [in keeping with BTC] and an extra fib level down in ADA to 50%. This would line up with ETH being the most major alt [for the long term position trade], and ADA as a more speculative ‘minor’ coin that, ideally [in terms of the strategy] should be swing traded for USD on its volatility.
2] These levels, as charted above, hold with ETH outperforming BTC and ADA matching BTC.
Given TA is not clairvoyance, and given I prefer not to sugar-coat my general macro outlook but rather offer a ‘stress-test’, I’m inclined toward the first interpretation [part of the hedging strategy, in actual performative terms, involves a more bullish interpretation at a higher level of trading]. That said, this is where the practical layering in policy comes into effect - layer in over time, and in terms of weighting, at levels where you think Crypto may be bottoming; or in other words, buy in tranches over intervals.
The most difficult part here is the time-span, which can involve months, where the proper weighting [and waiting] and layering in of trades is crucial. A balancing act is always involved at the bottom [as it should be at the top.. the taking of profit on alt swing trades], where you don’t want to over-react and instead to keep [or even increase] exposure to the alts given that the wider macro picture is confidence in a relatively quick recovery to the upside.
What follows is the macro bullish scenario going forward, which also incorporates both the stress-test above [interpretation 1] and confidence in a macro bull market going forward. Obviously, I am not clairvoyant, but I’m thinking it reasonable, on the basis of extrapolating trends, that something like this could well eventuate. And it is that something that investors and well as traders want some exposure to.
It has been my aim here not to offer false assurances but a basis on which one can have confidence going forward in what is an extremely volatile market. Such volatility has not taken by surprise those that have subscribed to the LGC thesis. Those buying alts earlier and for the long term are still sitting on good positions. Those that came to the market later, to gain some exposure, to cover risk to the upside, may find themselves underwater, yet these positions should recover - the crucial aspect here is to keep an eye on the real retracement/ correction as opposed to nominal/ price percentage declines from the top. Such declines will always be harrowing to the less macro literate.
Those that have fully employed the various aspects of the strategy should be in a relatively good position - not over-exposed to Crypto in general, still sitting in a solid core in BTC, some exposure to major alts, even some more exposure to more speculative alts, and of course some swing trading, on a shorter time-frame, of that volatility we’ve seen for the restoration and accumulation of USD funds in that trading account to counter-balance our longs.
Whatever position you find yourself in, the focus should be on the rational macro, and not on the daily sentiment. It currently may well be just the case of weathering the storm for better times to come.