Understanding crypto cycles is an essential skill that many new traders struggle with. After 4 years, we've got a pretty good idea of what's going on 😎
📢 Today’s article will help you understand where money flows in crypto and how to use the information to profit.
💢 Don’t miss out on the crypto analysis that our team spends hours each day creating.
Crypto. Bitcoin prices have risen by nearly $2,000 since Reuters reported Visa’s decision to allow the use of stablecoin USDC to settle transactions on its payment network. More on this later 👇 As tends to be the case, this has had a positive knock-on effect on other crypto currencies, meaning it is a pretty green day.
Legacy. Financial and energy shares pushed the S&P 500 down from a record high following revelations that banks including Goldman Sachs and Morgan Stanley liquidated holdings in Bill Hwang’s family office Archegos Capital Management on Friday after he failed to meet margin calls.
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CRYPTO CYCLE GUIDE
Among the many esoteric phrases newcomers to the crypto space will stumble upon, perhaps one that carries the most excitement is “alt season,” a period of time crypto traders cherish as coins left and right begin to rally parabolically 🚀 Alt season is catalysed by a principle known as the money flow cycle 🔄 In this section, we’ll look at how money flows in crypto. Make sure to grab a pen and paper, because this one is jam packed with actionable tips and tricks to help you profit 📝
❓Does this sound like you? You open a short because a red candle briefly wicks below support, sending you into a whirlwind of fear only for the price to rip up after you panic sell? Or you open a long because the price is at resistance and “looks like it’s about to break.” You FOMO and then price comes crashing down 😩 If you can relate, that means you’ve traded. You are not alone. In fact, emotion and psychology are eerily predictable and since markets are a human representation of emotion and psychology, we can also predict the way money flows. Let’s take a look at how you can profit by studying crypto money flow 💰
Put simply, money in crypto flows like this:
Bitcoin ➡️ Large Caps ➡️ Mid Caps ➡️ Low Caps.
💹 As traders in Bitcoin see the price rise and their profits increase, naturally they begin asking the question, “where can I roll my profits into?” As Bitcoin price continues increasing, traders begin rotating out of Bitcoin into other large caps like Ethereum that haven’t yet pumped. This cycle repeats as capital rotates out of assets that have pumped into assets that haven’t, until capital pours back into Bitcoin. For example, a trader may sell Bitcoin for Ethereum, sell Ethereum for Solana, and sell Solana for one of many small-caps 📈
Knowing how to rotate between Bitcoin and altcoins effectively is critical if you’re a trader looking to maximize profit during the crypto bull market 💰
Consider the following 3 things 👇
1️⃣It’s rare to catch the top or bottom. Rotating from bitcoin into altcoins is tricky. If you sell Bitcoin too early, you’ll likely miss out on a parabolic move upwards whilst your alts hold USD value but drop drastically in BTC value. Sell Bitcoin too late and now the altcoin you planned to long is already up 50%, throwing off your risk to reward ratio. Consider these two things as a solution to this issue:
🚫Don’t trade with your entire portfolio. Hold spot Bitcoin as a long term investment that you never rotate into altcoins (your time horizon may be several years or decades so remember to position size accordingly). This can ease the psychological setback of rotating into altcoins too early as you’re still profiting off of a Bitcoin rise with your long term stack.
🚦You can scale in and out of your position slowly. Instead of rotating all of your Bitcoin into altcoins, consider rotating incrementally.
2️⃣Diversify your rotation. Given that altcoins are less liquid than Bitcoin, big money can manipulate them relatively easily, especially the mid-caps and small-caps 🤹 Thus, trading altcoins is more risky as you’re susceptible to the actions of a small group. Thus, as you begin rotating out of Bitcoin into altcoins, you may decide to rotate across many altcoins and adjust your position size based on the risk of the particular altcoin you’re playing. Additionally, you may think to rotate a percentage of your Bitcoin profits into stablecoins so you have purchasing power in the event of a Bitcoin or altcoin correction 💵
3️⃣Trade with the Market. Whilst technical analysis is critical to develop your effective altcoin trading plan, not even the most bullish, technically sound altcoin setup is likely to break up if Bitcoin begins dropping aggressively. Trading with the trend of the overall market helps you avoid losing money during periods of uncertainty 🤔
Consider the following 2 things when developing your trading plan👇
1️⃣Watch ETH/BTC. When Ethereum outperforms Bitcoin, it is a sign that mid-caps and low-caps should follow suit shortly as traders roll profits into higher beta coins. ✅ A bullish technical altcoin setup for a mid cap or small cap is more likely to break upwards when Ethereum is also bullish.
2️⃣Watch Bitcoin dominance. This chart reveals the ratio between the market cap of Bitcoin to the market cap of the other crypto coins. When Bitcoin dominance is bullish it is a sign investors and traders are deploying their capital into Bitcoin. When Bitcoin dominance drops this is a sign that capital is flowing into other coins 🔁
❌ It’s important to remember that just because ETH/BTC is bullish and bitcoin dominance drops altcoins do not have to increase. As traders, our job is not to predict the market. Our job is to utilise data and information available to us and create high probability setups 👍
To see how I select which altcoins to day trade, check out my YouTube 👉 video 📺
MINING NEWS & ANALYSIS
Bitcoin and ‘Dirty Energy’
According to the Miami Mayor Francis Suarez, the U.S. should address the environmental problems of Bitcoin mining by providing its clean energy to set up mining hubs 🌎
“A part of the problem with Bitcoin (mining) is 90% of it is not done in the United States. 90% of it is done in countries that have dirty energy. So that’s the reason why it’s considered to be a dirty activity.”
The mayor’s proposed solution is to set up a U.S. Bitcoin mining hub as part of a national security/environmental conservation goal. He believes this would benefit the crypto community because if it were produced on clean energy, it would change the narrative and dynamic. Indeed, there is a narrative that Bitcoin’s energy consumption rate has been growing massively 📈
✅ Suarez is a known crypto ally, backing multiple crypto initiatives in Miami, including proposals allowing Miami residents to pay taxes and receive salaries in Bitcoin.
ETHEREUM NEWS & ANALYSIS
VISA Completes First Crypto Transaction on Ethereum
Visa has announced today that it will allow the use of the USD Coin (USDC) cryptocurrency to settle transactions on its payments network 🚀
Visa’s latest step, which will use the Ethereum blockchain, strips out the need to convert digital coins into traditional money in order for the transaction to be settled. Critically, this removes pre-existing complexities for businesses. Visa has partnered with digital asset bank Anchorage and has completed the first transaction this month - with Crypto.com sending USDC to Visa’s Ethereum address at Anchorage.
✅ Reuters refers to this as “the latest sign of growing acceptance of digital currencies by the mainstream financial industry”. To add more colour to this, the move comes as major finance firms such as BNY Mellon, BlackRock and Mastercard have embraced some digital coins, sparking predictions that cryptocurrencies will become a regular part of investment portfolios.
And it doesn’t end there. According to Visa CEO Al Kelly, Visa is also looking to “enable the purchase of Bitcoin on Visa credentials”. The future is bright indeed 💡
Don’t Forget the Failures: Survivorship Bias
During World War II, the American military wanted to study how to protect airplanes from being shot down, so they went to mathematician Abraham Wald. Their solution had been to examine planes returning from combat to see where the worst damage had occurred. This, Abraham warned, would be a fatal error. 💣
By only studying planes that had returned, the military were not accounting for a key piece of information; the planes that had been damaged the most and had actually been shot down. Failing to consider this information would have resulted in the military not understanding a key weakness of the planes - the armor around the engine.
The American military had fallen victims to survivorship bias, the logical error of paying attention only to successes but ignoring failures. Just as in World War II this can lead to massive oversights.
Let’s look at some common examples in the world of business, finance and investing:
Most startups fail. It is easy to only look at successful companies in an attempt to understand their success however correlation does not imply causation. Look at companies that failed, consider why and avoid their mistakes.
Fund performance is often overstated. When a company fails it’s data is removed from the performance data of any funds that contained it. This means that considering the final performance of this fund does not account for all the failed companies, skewing the data. Vet your data sources and include projects that failed.
Competitors' successful strategies will not necessarily be successful for you. There could be any number of factors as to why this strategy was successful, many of which could be circumstantial rather than based on the strategy itself. Never directly copy a competitor's strategy, instead look at all instances where this strategy was used, including unsuccessfully, and try to work out the underlying reasons it was successful.
The key to avoiding the logical trap of survivorship bias is to consider what you do not see. 🔬 Don’t just look at those that have been successful and are therefore visible. Consider everyone and everything that started on the same path but did not rise to the top.
SCAN THE WEEK
On Mondays, our ‘Scan The Week’ section is designed to show our community what events and headlines we will be keeping an eye on.
Monday, 29th March
Utrust Partners with NGRAVE 🤝
Utrust, a seamless integration that gives e-commerce businesses the power to accept digital currencies has partnered with NGRAVE, creator of the “coldest” ZERO wallet. This partnership means you can now store your $UTK in the ZERO and buy NGRAVE products using your crypto.
Tuesday, 30th March
MM Podcast Release #58: Ethereum, DeFi and NFTs with Camila Russo 🎧
Camila Russo is the founder of The Defiant, a DeFi news platform. She is also author of The Infinite Machine which details the story of Ethereum.
Wednesday, 31st March
DSLA Protocol Mainnet
After its beta launch last year, $DSLA Protocol and the flagship DSLA.network dApp will be both available in production (data is contingent on the security audits).
Biden is due to lay out the first part of his multi-trillion dollar plan for federal investments in physical infrastructure on Wednesday.
Thursday, 1st April -
April Fool’s Day, stay alert!
MM Podcast Release #59: 7 Tips to Protect your Profit with Koroush AK 🎧
In this episode, we explore everything you need to know about protecting your profit through risk management.
Friday, 2nd April -
Good Friday, remember, the U.S. stock market will be closed on this day.
PancakeSwap Limit Orders
BogTools Limit Orders is launched for certain key Pancake Swap pairs. This comes after BogRNG, the randomness Oracle, was launched in March 2021. They plan to expand limit orders to all Pancake Swap pairs by May 2021.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.