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In July 2021, the S&P Cryptocurrency Broad Digital Market (BDM) Index (Ticker: SPCBDM) launched with the objective of being a broad investable digital asset universe benchmark. The index launched on July 13th, 2021, but has a 10-year calculated history based on the index methodology.
Courtesy of S&P Dow Jones Indices, spglobal.com
The index had a notable peak in May 2021 of 5,547 and then dropped significantly until July 2021. It set a new high on November 9th of 6,215.99 and was sliding down to November 2022 with new lows at 1,331.38. In December 2022 the market failed to fail further, and during February 2023 there was a minor retest followed by higher highs. The March 2023 dip was met by buyers.
In the chart below, you can see the recent price action YTD. The market has been extremely quiet the last 30 days. Based on what we see in the chart, the following scenarios are possible:
1. If the market trades through the green line at 1, and does not fall back, there are willing buyers at higher prices.
2. Trade below 2 or 3 with price bouncing back strongly indicates willing buyers are stepping in from lower prices by shaking out weak hands. The trade below 2 or 3 sets up a stronger argument for price reaching higher, because professionals tend to buy from retail traders at lower prices.
3. If price trades through 2 and 3 only to pause temporarily before failing further, then the 2022 lows may be in play.
All of these hypothetical scenarios are likely to kick off with a false break or two from this extreme quietude before the real move gets underway.
Courtesy of S&P Dow Jones Indices, spglobal.com
Market Summary
a) Market Type
The BTC Market SQN score is “Neutral” and you can see the range has been contracting for the month. There is no directional bias at present.
Volatility continued to contract and seems to be heading for the January 2023 lows. Eventually, volatility will explode to the upside again, but that usually takes longer than what I think. Maintain your patience until the market signals its time.
From January 1st, 2023, BTC is up 77%. The BTC vs ETH performance gap continued to widen to 24% from 15% last month. Is this premium the result of the Blackrock ETF? What will happen to this premium if the ETF is approved or denied? Are you ready for both scenarios?
The two maps below portray the top 50 gainers and losers for 2023. Has your crypto system kept you onside and exposed your equity to the winners? If not, what is your plan of action for the next leg up or down?
Top 50 gainers: Courtesy of Coin360.com
Top 50 losers: Courtesy of Coin360.com
b) Super Trader Bitcoin System
The objective of the system is to outperform a bitcoin buy-to-hold while sleeping easy.
The system was stopped out on July 24th with a close below $29,900 for a 0.34R gain. The system is currently in cash, but a close above $31,476 reopens the long position. I will keep you posted in next month’s edition.
Courtesy of TradingView.com
c) Discussion: Free Rides
A fair few years ago, I was at Van’s house for dinner after a session of the Peak Performance 101 Workshop. It was summertime in Cary, North Carolina and I enjoyed one of Kala’s spectacular meals with Van, other Super Traders and the gang on Van’s veranda overlooking the lake.
I had easily found Van’s house in the daylight and with the help of a GPS app. At the end of the evening, and being the friendly chap I am, I offered to drop three friends at their hotel close by and save them Uber fairs. What was the worst that could happen?
And so began the longest return journey of their lives!
Feeling confident, I got behind the wheel of the rental car not bothering to turn on the GPS and pretty quickly became lost. No one in the car knew anything about the town of Cary so I made a brief roadside pitstop to power up the GPS app. With that problem solved, we were off on our merry way in a new direction.
Now, I am not saying the GPS was wrong . . . but judging by the stars and my gut feel, the device seemed to be pointing us in an incorrect direction. Mixing my sixth sense with the marvel that is the American roadway infrastructure, and Cary’s 10 million trees, resulted in a flabbergasted driver in the depths of night. But I drove on (in the wrong direction).
After driving for some time and still following the GPS, three of my of frugal friends started to recognize that we were hopelessly lost. I decided to abandon my own GPS instructions and asked Mr. D if we could kindly try his phone’s GPS. About the time that trusty old Google Maps was coming to the rescue and heading us in a more hopeful direction, the wheels really started coming off – I hit something with the car.
In my cognitively strained state, I had defaulted to driving on the right side of the road which for me, was the left side of the road. Realizing I was driving on the wrong side of the road made crossing the double lanes over to the correct American side absolutely vital. In the process, I unexpectedly drove over a low median and started laughing in surprise at what had happened!
A concerned passenger asked what we had hit and I explained, “Don’t worry. It was only the middle man.”
Three loud gasps followed.
Apparently, if you say “the middle man” in the US, Americans think of an actual person. Who would have guessed?! A middle man for me is the slightly elevated section in the center of the road that helps keep oncoming traffic separate!
After explaining the regional reference to some uncomfortable passengers, we continued our journey…for quite some time. In my distressed state, I confused the speed limit numbers and was driving 55 kph which meant the car was moving much slower than the posted 55mph speed limit.
After more than an hour of driving “across town“, I briefly considered phoning Avis to ask them if they had any idea where their car was. Surely, they must have had some kind of tracking device that could help us complete the trip!
The initial GPS fiasco and the 38% slower speed at 55kph meant that in the end, we completed a 20-minute journey in 120 minutes.
As it turns out, however, the marathon served as a useful lesson.
Through the Looking Glass…
The next morning, a realization hit me like a brick! The 120-minute infamous return journey was literally the learning equivalent of the first five years of my early trading career compressed into a two-hour snapshot! There were a lot of gaping holes in my armor.
Think about it…
- Despite my good intentions, I was ill-prepared to offer anyone a ride in any direction! In fact, I was ill-prepared to even get myself home in a car in an unfamiliar town.
I started trading live in an unprepared and impatient state.
- I trusted a random GPS app without testing it first!
I started trading by trying to use a system that did not fit me and had no statistical edge.
- Even if that GPS app had been right, I didn’t have the conviction to follow the directions through any kind of losing streak.
I did not align my convincer strategy with the system.
- Instead of stopping to logically assess my driving dilemma, I happily passed the buck to Mr. D.
I was not taking responsibility for my trading results.
- In fact, I passed the buck so effectively that I didn’t even stop to give Mr. D a fighting chance or to consider if he was in any better situation than myself to take the lead in the dead of night. I simply kept on driving!
I did not consider my early trading advisors wisely.
- I had some good ideas like phoning Avis to admit defeat. But instead, I persisted.
I had not defined my plans to guide my trading nor considered scenarios about when to cease trading and go back to the drawing board.
- I managed to cause duress for myself and especially for my passenger, the dear Mrs. L. who thought she was in the car with a madman!
My own mad trader syndrome did indeed stress my friends and family.
The Power of Feedback
Truly taking responsibility for actions is eye opening. When we do that, we can see clearly how our trading shows a natural extension of existing patterns in our lives.
Taking responsibility means those patterns are now in our hands to bend and shape to our requirements.
If your crypto trading is not producing the results you desire yet, what personal patterns are undermining you?
What is one step you can take right now to be closer to simplifying and systematizing your crypto trading?
If you took that one step every day, where would you be in 10 years?
If you didn’t take that one step every day, where would you be in 10 years?
“Every night before going to sleep, we must ask ourselves: What weakness did I overcome today? What virtue did I acquire?” – Seneca
d) News Map
Context is all important and to add some context around recent news events we focus our attention on the five main types of players and the games they play in the crypto space.
We are leaning on a key Tharp Think principle here: “The map is not the territory. The better my map represents the territory, the better I will function in the world.”
We are not trying to explain the extremely complex non-linear open crypto system, but rather we are looking for a useful lens to identify what may be important changes affecting the ecosystem and, ultimately, supply and demand.
What is “useful” for a trader? Tools that help make money.
On our map, the main players and games are:
The HODLers:
These are mostly retail speculators with no trading systems or buy-and-holds with no stoploss. The early adopter HODLers have done quite well and with many who are still whales today. Many whales pivoted into other categories. The late adopters haven’t fared quite so well, they may be whales but their average BTC cost is underwater. For HODLers, 1 unit of risk (1R) represents their total capital committed—it’s basically an all-in bet. HODLers have no cash flow day to day without selling/staking the holdings.
The Traders:
These are large speculators such as hedge funds as well as systematized disciplined retail traders. Their cash flow is dependent on the gains/losses in the underlying positions on positive expectancy systems. The common denominator amongst traders is a position sizing approach to capital allocation as well as a risk to reward approach at a trading strategy level (usually a minimum of 2:1 risk reward). For this reason, private equity and venture capital is also included in the Trader category as they have definite entries and exits as well as strict position sizing rules.
Business, Big and Small:
This includes the major commercial players who design blockchain infrastructure, have already adopted blockchain or are actively in the process of integrating blockchain and its related products and opportunities into their business models. Their cash flow originates from their usual business activity. Blockchain offers operational efficiencies improving cash flow and customer experiences.
For the small business, blockchain offers the opportunity to level the playing field (or should we say “paying” field) to unlock cash flow.
The Market & Makers:
This represents the market makers, brokers & exchanges (both traditional and DeFi), banks and asset managers. Cash flow is ongoing from volume in its various shapes of trading, spreads, commissions, assets under management and even order flow payments. The makers of new coins, aka the miners, are also included here.
The Sheriff & Co.
This represents governments as well as any free market interventions in its various shapes, sizes and forms. The profit of all other players is their tax base and therefore cashflow plus or minus the impact a couple of trillion depending on the state of the printing presses.
Now that we have our main players categorized, let’s look at some noteworthy news items by category:
HODLers:
The Royal Canadian Mounted Police warned folks up north to be aware of increasing home invasions where thieves are targeting paperwork that contains backup seed phrases. The official RCMP recommendation is “Keep your valuables and financial information in a safe location, like a safety deposit box at a financial institution”. They are a witty bunch.
Traders:
Coinbase fought hard to give traders more choice (and earn commissions of course). In an interview with the Financial Times, Brian Armstrong, the Coinbase CEO was quoted saying the SEC requested Coinbase to delist all 200 trading tokens:
SEC: “We believe every asset other than bitcoin is a security.”
CB: “Well, how are you coming to that conclusion, because that’s not our interpretation of the law?”
SEC: “We’re not going to explain it to you. You need to delist every asset other than bitcoin.”
The lawsuit is ongoing.
Market & Makers:
April Fool’s Day is either very late or very early this year, and the theme is rebooting failed crypto ventures:
Terraform Labs are trying to reboot the Terra blockchain as the former CEO is jailed in Montenegro. They didn’t share any details on plugging the $40B hole they left last time.
Three Arrows Capital, the hedge fund that collapsed on over-leverage (code for insane leverage), has launched its own new crypto exchange called Open Exchange. They are touting it as the “world’s first public marketplace for crypto claims trading and derivatives.”
FTX continue to talk about a reboot as well.
Remember Celsius? If not, they were essentially a Ponzi scheme.
Yes, they had some mining operations etc. But essentially, they were borrowing your money for 20% and investing it for lower than 20% elsewhere, and to fill the gap they had to attract new deposits.
Good news! They are rebooting! If you previously lost money with them, you will not be receiving your old CEL tokens because the SEC says those were fundamentally stocks anyway. So instead, you will be receiving stocks in the new venture. There is a hint of irony here: It is too risky to own CEL tokens but it is 100% acceptable to own the stock.
The new company “will be the first publicly-listed company with significant balance sheet exposure to both Bitcoin and Ethereum” (Hint: That’s not so.). And people who were caught in the initial trap will receive 85 cents on the dollar back if the deal is approved.
Call me a skeptic but if Bernie Madoff made a comeback I wouldn’t jump at the 2nd round opportunity. So, what good reason could you possibly have to trust Celsius again?
Business, Big and Small:
Worldcoin, an iris biometric cryptocurrency project was launched this month by OpenAI chief executive Sam Altman.
The basic idea is to create a tool to confirm if someone is a person or a bot by volunteering the details of your iris.
Venture Capital companies contributed $500M to the project seeing very high profit potential.
Numerous authorities, including the German Data watchdog, are probing the processing of sensitive data.
If your eyes are the windows to your soul, I would caution against handing the details of your iris over to anyone… especially to the guy that is running AI bots with his left hand and protecting you against them with his right hand whilst dribbling the VC football with one foot.
- Galaxy Digital continues to move parts of its business offshore, although, Mike Novogratz says they will always have a presence in the US.
- Customers Bank has stepped into the banking void left by the Silvergate and Signature banks demise earlier in the year.
- Sam Bankman-Fried is back in prison after attempting to interfere with witnesses in the FTX case whilst on bail.
The Sheriff & Co:
- Congress launched a bipartisan bill backed by some heavy hitters. The Crypto-Asset National Security Enhancement and Enforcement (CANSEE) bill is aimed at DeFi services and BTC ATMs. And ultimately, aims to ban decentralized software in a bid to fight “narcotrafficking, WMD proliferation, ransomware attacks and other threats to national and economic security” which never existed before decentralized software came onto the scene. I was disappointed that Crypto Hamster racing was not named in the CANSEE bill.
- Gary Gensler wants an additional $72M to expand the SEC to fight crypto crime and the DOJ have doubled their crypto crime team.
e) Market in Pictures
The crypto Market SQN proxy list continues to be bearish as we await the post summer directional move to kick in.
At present, only one coin is “Very Bullish”, five coins are “Bullish” and 80 are in the red with 42 “Bearish” and 38 “Very Bearish”.
There is only one clear buy signal in mid August: Sunblock for the beach! (That’s a pun, not an altcoin.)
Overall Commentary
This is a free newsletter for the VTI community. It’s not about making any recommendations for what to buy or sell. Instead, it’s about understanding how money can be made in crypto assets.
Until next time,
God bless.