[Crypto ] Bull flag breakout, followed by longs liquidation (Patreon)

Crypto markets had another great month, essentially a continuation of the move from the previous month. The thesis continues to be improving macro with higher certainty of regulatory improvements given the imminent spot BTC ETF launch and the conclusion of the DOJ investigation into Binance. 

The trend now is up but advise caution given the leverage that’s in the system now, which could result in sudden pullbacks such as what we witnessed this week. 

For trading, BTC hit my target just one week after breaking out of the bull flag set up. Taking partial profit here resulted in a quick 12% profit. The rest I am happy to hold and give it time to develop. If it drops below the breakout level, I'll look to close the trade with overall 6% gain. 

In hindsight, some of the tier two altcoins (e.g. AVAX, ADA, DOT) broke out TWO DAYS AFTER BTC broke out. This would have been easy 20-30% profit had one paid attention. Unfortunately for me, due to geographic restriction, it's hard to trade altcoins at the moment. 

Binance Worst Case Avoided

DOJ announced that a $4bn dollar settlement was agreed between the US agencies and Binance, resulting in Binance’s founder CZ to step down and accept charges which will be handed down by US courts. Price action dipped slightly after the news, but quickly reversed and ripped higher. As mentioned in my previous update, I agree with this price action and believe that the last major overhang has been removed.

Ever since SEC has filed a law suit against Binance, the industry has been in fear of a DOJ investigation which could potentially result in a lethal blow to the largest crypto exchange in the world. Should Binance ceased to operate, the 50% market share of crypto liquidity could partially exit the crypto ecosystem completely which would have a devastating deleveraging effect on prices.

As the last major overhang was removed, the market continued its bull run. But recently the technicals are becoming more and more vulnerable to pull backs as the higher we go. There are several things that we are looking at:

Spot volume is extremely muted given the dramatic run up in price, meaning that the rally is built on thin volumes

Most of the volumes are being built in the perp market as can be seen in OI, which is already reaching the levels of early 2022

Funding rate (cost of leverage to go long) for BTC was as high as 40% on some exchanges meaning traders were stacked on the long side. This eventually lead to a 10% correction over the past two days which led to over USD400mn of leveraged longs being liquidated

The good thing is that after this reset, funding rates have returned relatively back to normal, meaning that the Long positions are no longer as vulnerable to short drops which would force liquidations.

GBTC

The GBTC discount contraction trade is coming to an end. The discount on GBTC has narrowed from -50% at the beginning of the year to under -10% now, giving GBTC a huge outperformance (+320%) over BTC (+140%)

Disclaimer: The content of this post is solely for entertainment and not investment advice. Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions