This is a market update and capitulation in crypto has started. Essentially, we’ve seen a huge red candle, so another fun selling out or another liquidation from a really big player. I want to talk about the price of bitcoin and ethereum. What’s happening to them? So why is there just so much capitulation in which funds are actually having to do this and why and when they may possibly actually stop selling or if they’re just going to get completely liquidated? The price is not going to do anything until all of these liquidations are out and all of the leverage in the system has been completely wiped out. But before we examine it, I need to get you informed with the Jet-Bot bitcoin copy trading platform. With 3 days of trial access, this software allows you to automatically replicate the best traders. You may earn from 200 to 2000 APY and you don’t need to deposit fund to the platform. Just connect your Binance account via API keys.
So let’s look at some price levels. This is what happened today, so you see the price of bitcoin kind of stabilizing around $20,000.
There are obviously a lot of bids around these price levels. You had it at around $30,000. You’ve got it now at around $20,000. A lot of the market just puts these bids in thinking, “Well, that’s a round number.” We don’t mind accumulating there. Then obviously, this is huge. This is a massive, massive capitulation candle. So it took essentially the price right down from $20,000 all the way down to, actually, down to around $18,800 or something like that. For essentially a 30 second time horizon, if we go down to five minutes, it was basically just one big dump and then, obviously, you know, there’s other kinds of trades in the system and automatic trades that obviously have to start trying to, you know, trade this out. We’ve recovered from that position.
This is not a normal trade. This is not a collection of normal people that all suddenly want to sell at the same time. This is obviously one large player who has a lot of volume that they need to get out. This is a liquidation. This is someone who is obviously very close. They have a lot of leverage. They need to basically pay off their debts and they’ve worked out how much they need to sell. This is just a market sale straight away. This is a huge amount of volume. This is because of all of the stupid venture capital funds who are completely over leveraged and this will not stop until they are out or if they’ve basically paid back the vast majority of their loans, which they’re in the middle of doing right now. So these are going to occur.
The thing is right is that if you’re a trader right now and you know that there are many market participants who are in big trouble, why on earth would you bid up for bitcoin? If you know these people are in trouble, you know you’re going to just not bid. That is why they have to do these kinds of market dumps to actually just essentially get the volume trading and just find areas and pockets where there’s actually volume to be traded. This could be a fund or this could be miners. Let’s look at some more stats right here. You can see the volume trading is insane right now:
You have a lot of these funds who have spent months or years with rising prices that are now forced sellers. They have no other option. If they’re too leveraged, prices keep coming down, and the more they come down, the more people that are leveraged and borrowing against positions find themselves having to essentially sell out of those positions to pay back their loans. So we are in a huge capitulation phase right now.
Long term trends
All of the signals that we’re getting are showing us that we are at max pay. It can definitely go lower because what we’ve not seen before is this amount of leverage in the system from very large players who basically had access to trade fire and all of the free money coming in there. This is the first cycle, I think, where we’ve had the sheer scale of money, the sheer amount of money coming into the system, and it all has to come out. The rise was meteoric and the fall can also be that way because all of these venture capital funds have mismanaged their funds, mismanaged everything. With crypto, there are no bailouts. They’re going to get absolutely carried out on a stretcher. It’s the only way and they deserve that to happen to them.
So what you can see right here is Will Clemente on twitter. A couple of very interesting charts right here. We are at levels that we’ve only seen a few times before, and these have in the past been buying opportunities at every single time, so this is standard deviation right here. We are down on this line, touching this line. We’ve only touched this line once, twice, four times before. Then you look at, “This is market value to realize value again in a huge buy zone.”
The thing to note here is that we can stay in this buy zone for a very long time. There’s no need to rush like there are market participants who are just bent over and you do not need to kind of rush in to buy their bitcoin. You can see from 2015 to 2016 it stayed in this range for a long time. In 2019, it stayed for what six months or so? It doesn’t bounce off of this. There is no bounce right now. The central banks are putting the whole world into a recession right now. There’s going to be no bounce until the central banks flip their monetary policy and start easing again. That’s when the bounce occurs.
For now, traders who are not leveraged have to give leveraged traders the most amount of pain. It is our responsibility to inflict tremendous pain on those who are over leveraged. We should not pay up for their bitcoin so this can stay in the green zone for a very long time.
We see here again, everything is flashing a buyer signal right now, but the bottom will come when all of this leverage is out of the system. Then essentially, once the leverage is gone, all of the forced sellers are gone. This is for sale. This is not, you know, people saying, “Well, I might not buy it because of the price.” I think the fundamental value is a bit lower. This is absolutely for selling, and so you know, as a buyer, don’t bid up for a forced seller’s investments and assets. You have to give them as much pain as possible, and that’s what the market is doing now.
They are, of course, trying to find volume to deleverage all of their investments. You can see it here again. We’ve touched it twice here, uh, third time and we’re at it again. We’re actually below this level. When you look at the past through 5, 6, 7 years, these are levels where you know buying has been great, but don’t think we’re going to just level off at this price and then start the upward trade trajectory again.
The macro economy is in a big pain and nothing’s going to change until the fed flips and starts easing policy and, potentially, if they see a really big recession, they may actually, you know, ease off of any rate rises as well. When that happens, the market may find a level. Until then, it’s going to be painful until all of the leverage is out of the crypto system.
Miners getting out
Unfortunately, there is more pain ahead because it’s not just these funds, these overleveraged funds who are now having to get out, but if you look forward, it’s miners as well that are now having to essentially sell bitcoin now to fund their operations, whereas before they were selling equity or just selling debt. They can’t do that, so we’re going to look over some mining figures.
You see here that essentially miners putting bitcoin into exchanges is essentially making higher lows and reaching highs that we’ve not seen for a very long time. If we think about this, you can see it here:
Why is the dump happening today? This is the biggest minor inflow into exchanges that we’ve seen in a very long time. Obviously, some of the biggest sellers of bitcoin are bitcoin miners. If you think about the bitcoin mining business, essentially what they have done over the last few years is actually sell debt. They went into the institutional markets and sold debt. They could borrow money. They could borrow dollars essentially for nothing because, you know, interest rates were zero. They would leverage themselves by indebting their business and then mining bitcoin and keeping bitcoin because bitcoin was going up in value and it was literally zero percent to borrow money. On the other hand, like some of them did, they actually went and listed on the equity markets because the equity markets were pumped up at the time, so they could sell their own equity for extremely high amounts and that would give them cash to go ahead and mine more bitcoin. Now bitcoin is going down and interest rates are rising.
Now what you are as a miner is basically a junk business, because now your business is basically going down by 30 a week, which means that your income is essentially going down by 3%0 a week, which means that your revenue is essentially going down by 30% a week, which means that your revenue is essentially going down exponentially. So no one’s going to lend you money. You have junk bond status, so you’re going to be half. You have to pay seven to ten percent in interest to borrow money, so you can’t do that as a minor.
The second thing is you can’t raise any more equity because your income is going down because bitcoin is going down. No one wants to buy your equity anymore. You can’t raise any cash in the equity market because, basically, no one’s going to raise money for you, and if they do, they’re going to have to pay, they’re going to have to get a massive discount to what the equity is trading at. You can not fund your business as a miner anymore. So what do you have to do? You have to sell your bitcoin and this is going to continue. This isn’t just a thing now where it’s like we’re going to get out and then go up. This could be a 6 to 12-month thing, so this could be a very deep winter in crypto.
The only way we’re going to get out of it is when the macro settles down and central banks stop raising rates and inflation comes down. That is a very complex situation, but what we’re seeing is these capitulations from miners and funds and everything like that, so we need to keep an eye on who’s sending money into exchanges. The miners are selling a lot over time. If they start reducing that amount, like when you see miners actually starting to reduce the amount they’re selling, that’s potentially when you can see things starting to get a little bit better. There’s a lot of pressure on the bitcoin price and just because we have these capitulations doesn’t mean it can’t carry on. It’s definitely not good right now in terms of the macro and the specifics for bitcoin and therefore the rest of crypto.
I also want to highlight the price of oil, and you may be wondering why you are looking at oil if this is a crypto article, but it is extremely important. For various reasons, oil is the thing that is causing all of this pain right now, for various reasons but what you can see right here is that oil has actually come off a lot and this is really important to know in a trade.
This is Brent crude. By the way, this is cheaper than this. This is Brent crude, which is actually where a lot of the pain is trading at like $114-115 right now. Keep an eye on this because oil is the thing that is going to drop like a stone if the recession is here right now. You can actually see that it’s dripping off.
Why is it that rates are up and people are starting to worry? You know, the recession is imminently coming and oil trades as a future. Okay, so oil doesn’t trade like a spot because everyone knows how much oil is coming out of the ground and so oil is a future and it trades like that.
What the oil market is potentially saying right here is that we actually think a recession is basically coming way sooner than later and if oil starts to drop off and continually sees this coming down, this is going to be good for markets, good for inflation, and good for bitcoin. This is something really important to keep an eye on because if this starts coming down, the market is saying, “Actually, we’re just not going to bid up the price of oil for six months out because that’s when a recession is going to come.” This is really important for the price of bitcoin as well, so keep an eye on this. It’s showing that they’re potentially starting to trade the recession right now in oil, and if that starts coming down, inflation’s going to come down, interest rate expectations are going to come down, and inflation expectations are going to come down. That’s good for risk assets, that’s good for equities, and for bitcoin and therefore crypto as well.
It’s one of the most difficult macro situations I’ve ever seen, especially for crypto. If you’re a beginner, please don’t trade this. I think just stay out of the market right now.
[This article is a transcription of a video made by MoneyZG]
Original video: https://youtu.be/q6rmTCBlzqc ]