Welcome to the Three Ts with CoinJar. Each fortnight we explore a big Theme, an interesting Trade and some good, old-fashioned Technical Analysis (courtesy of Tom from trading gurus FX Evolution).
A big cup of commodity
I don’t know if you’ve heard, but the Ukraine war is really messing up the world’s supply chains. Russia, a country that shares Australia’s enthusiasm for digging things out of the ground, was responsible for significant portions of the world’s supply of oil, gas, nickel, copper, titanium and a whole bunch of essential metals you’ve never heard of. (Dude, where’s my tantalum?)
So, what happens when the world’s favoured provider suddenly becomes persona non grata? According to Arthur Hayes, a “financial crisis of epic proportions”. And according to renowned Credit Suisse strategist Zoltan Prosar – whose name is pleasingly close to that of the magic fortune-telling machine in the movie Big – a wholesale reorientation of the global financial order towards commodity-based currencies.
Zoltan argues that the collapse of trust in the US dollar, which we’ve learned can be confiscated en masse, and inefficiencies in commodity markets will lead to resource stockpiling and the increasing use of commodities as collateral in money markets. Not so different to the gold standard, but with a whole basket of useful stuff in its place.
The surging prices of most commodities would seem to suggest there’s something to the idea. But what’s interesting for us is his final prediction that “Bitcoin (if it still exists then) will probably benefit from all this”.
We’ve had Bitcoin the global currency. We’ve had Bitcoin the store-of-value. We’ve had Bitcoin the inflation hedge. Will we soon add Bitcoin the commodity to the list?
Hard mode activated
Bitcoin has now spent the better part of four months effectively trapped between US$37k and US$42k. Stagnant price action is, in many ways, worse than decisive nukes because what you’re really seeing is the disappearance of opportunity, or the dream thereof.
The result is what’s being called a PVP market (player-vs-player). When the narratives fade and the retail participants become HODLers, all you have left is a bunch of hardened traders trying to destroy one another – and often destroying themselves in the process.
Bear market…
Hostile PvP environment, fake breakouts and breakdowns.
Massive frustrations to traders and investors alike.
Losers rage quit, cash out, downward spiral.
Winners eventually lose, negative feedback loops.
Don’t play. Win.
— HnR (@TheHnR) April 15, 2022
On the plus side, there doesn’t seem to be much appetite for wholesale bear market value destruction. On the negative side, being anywhere near crypto right now is a joyless slog where any victory is instantly undone by the next arbitrary correction.
This market is on hard mode right now – it was easy mode most of 2021
You lucked out on a massive win in 2022 – don’t overtrade thinking the entire year will be like that. It won’t. It’s PvP. This is 2018 all over again. Very difficult
— Teddy (@TeddyRoosevalt) April 11, 2022
You want to know when things will get better? When new people start entering the market in force, driving a shift out of this godforsaken range. According to Glassnode, there’s little evidence that this is happening right now. But the long-term trend remains strong. We just gotta be patient.
There are currently ~275k daily active entities on the #Bitcoin network.
This level of activity is far below bull market highs, indicative of tepid demand from new users.
However, the activity floor continues to climb in bearish markets, reflecting longer-term network effects. pic.twitter.com/qm9wx7Jesk
— glassnode (@glassnode) February 17, 2022
Finding the right buyers
Nothing hurts the soul (and trading account) more than a failed breakout, so the inability of Bitcoin and Ethereum to hold strong after breaking through the resistance we talked about last time was pretty dispiriting.
However, according to Tom from FX Evolution, the reaction over the last couple of days suggests we’ve found a solid stash of buyer support around US$38k – coinciding with the ascending support line we’ve been flirting with since January. Which leaves us, well, back at resistance. Break through and we can start talking about US$45k again.
However, any optimism should be tempered by the steady increase in Bitfinex shorts. While far from a surefire indicator, it does suggest that BTC whales are expecting further declines in price.
For Ethereum the setup is pretty similar. Hammer candle shows solid buyer support, resistance-turned-support-turned-resistance-again now set at US$3150. Punch through and US$3300 and US$3500 come into play.
CoinJar is Australia’s longest-running crypto exchange. Since 2013, CoinJar has helped more than half-a-million Australians buy and sell billions of dollars in cryptocurrency.
FX Evolution is Australia’s premier forex, stock and crypto trading community.
