Is the Bitcoin Bull Run Sustainable? Should We Be Looking to Altcoins? #45

Can bitcoin sustain the latest bull run and remain the best performing asset in the market? Is there incredible trading opportunity elsewhere in altcoins? These are questions we will answer today in this exclusive edition of the Market Meditations.  

In a crypto bull market, simply holding an asset until the trend is over outperforms the majority of traders. Twitter has been shouting for a 20-30% correction for weeks now and those who sold their position with the expectation of buying back lower now have to chase the market in order to not be left out. Bitcoin has seen a sharp run up and red candles get bought up instantly, indicating that demand remains very high. Can bitcoin sustain this latest run up and remain the best performing asset in the market? 

What Has Bitcoin Been up To?

With bitcoin being accepted above 18-19k and funding normalizing again, most traders aren’t so certain about a big correction anymore. In true bitcoin style, if everyone is expecting something the opposite is more likely to happen. With so much new demand coming in, is the market really going to give everyone an opportunity to buy back their positions 30% lower before testing all-time highs (ATH) again? Although the trend is definitely accelerating and will eventually correct once the parabola breaks, price action certainly does not hint at the trend slowing down for now.

A trader should always be flexible with his/her expectations and be prepared for multiple scenarios to play out. If we get a correction, great. That could be an opportunity to buy back lower, something many participants will take advantage of. But what happens if we break ATH before a meaningful correction happens? Cantering Clark, a well-known crypto trader with experience in legacy markets, offered an interesting perspective on Twitter this week.

If bitcoin manages to close (daily, weekly) above all-time highs, a level watched by almost every market participant, chances are low that it corrects shortly after. A more likely scenario is bitcoin extending upwards even more due to a combination of short liquidations and a fresh batch of long positions being opened before we see that inevitable correction many have been talking about. Once broken convincingly, $20k is more likely to act as a price floor and breaking below could even be a sign that the trend has started weakening, at least in the short-term.

Just by looking at a bitcoin chart can you see that the FOMO has been increasing now that we’re trading so close to $20,000. Nobody knows what’s going to happen exactly but preparing for likely scenarios is never a bad thing. Before closing this segment, I leave you with an interesting thought exercise that Andrew Kang posted on Twitter last week: Is this what institutional FOMO looks like?

Altcoin Volatility: A Trader’s Paradise

With such a strong bitcoin trend, some would almost forget that other crypto assets exist and can provide even more actionable trading setups. Because of their lower liquidity profiles, altcoins are even more volatile than bitcoin and as such provide traders with some incredible trading opportunities once the market gathers enough momentum.

(XRP/USDT)

For my Market Scans and Turbo Analysis on Twitter, I look for altcoins that show a good amount of volatility but are also liquid enough to trade. In this market, traders tend to miss a lot of the opportunities simply because they are not aligned with the project’s fundamentals and therefore refuse to trade it. In my opinion, a better approach is to have an open mind in a market where there are very few real ‘experts’ and judge altcoins by their liquidity. As long as you’re able to exit the trade, why wouldn’t you take advantage of an opportunity to make money if it presents itself? 

XRP is a prime example of having a lot of haters and skeptics but I managed to take advantage of the momentum this week. By drawing some simple horizontal support & resistance lines coupled with some fibonacci retracement levels, everybody could find multiple actionable setups. Meanwhile, XRP is up over 100% in less than a week while Twitter is still arguing over whether XRP is too centralized or not. Don’t let your bias limit your trading options, especially in environments that we’re given right now. 

Conclusion

Let us return to our exam questions.

Can bitcoin sustain the latest bull run and remain the best performing asset in the market? 

The more likely scenario seems to be bitcoin extending upwards given the continued increase in demand. Keep in mind that bitcoin is currently trading at a major resistance level and opening up new positions here before confirmation does not have a favorable risk/reward ratio. 

If bitcoin does indeed break and closes above its all-time high, expect continuation in the short-run due to a combination of short liquidations and a fresh batch of long positions being opened before we see that inevitable correction many have been talking about.

Is there incredible trading opportunity elsewhere in altcoins? 

There is indeed. XRP has rallied significantly in a short space of time offering strong trading opportunities; don’t let your biases limit your trading options.

  • Yearning for Pickle? Two DeFi Protocols Merge. The anonymous operated yield farming protocol Pickle Finance, which was exploited for nearly $20 million DAI this week, has cut a deal to merge with Yearn.Finance, led by lead developer Andre Cronje. Cronje posted the news on Medium himself. This is done to reduce duplicate work, increase specialization, and to leverage shared expertise.’ The Pickle token, after crashing +70% after the exploit was made public, saw a sharp rebound and jumped up almost +100% on the news. Read more.

  • Eth2 Deposit Contract Passes Threshold Needed for Phase 0 to Launch on December 1. The Ethereum community has reason to celebrate this week. Not only because of the price, but rather achieving the required threshold for the Eth2 deposit contract, meaning that the initial phase of Eth2’s launch will begin on December 1. Eth2 will make Ethereum more scalable, more secure, and more sustainable. Amid an active market like Ethereum’s, failure of exchange to settle contracts could cost big in terms of users. Such was the case of one of professional derivatives exchange Bybit.Read more.

  • Stocks in U.S. Slip Following Latest Round of Economic Data. As we mentioned in the ‘Scan the Week’ section of the Market Meditations on Monday, today is U.S. data release day.  The mediocre economic data dimmed positive vaccine news and the formal state of President-elect Joe Biden’s transition to power - including the selection of Janet Yellen as Treasury secretary - that had fueled optimism about the outlook for risky assets. S&P 500 retreated and DJIA fell below 30,000. Read more.

  • Coinbase to Discontinue Margin Trading Services Due to Regulatory Concerns. Coinbase halted its margin trading product due to regulatory concerns, according to a blog post on Tuesday. Twitter users initially rumored that the announcement was due to exchange overload, which could be a sign of exponentially more users signing up but that was debunked by Coinbase’s announcement shortly after. Coinbase relaunched its margin trading services this year after suspending the functionality in 2017 due to a flash crash in the price of ETH. Read more.

  • U.S. Intelligence is Looking at Chinese CBDC as a National Security Threat. The U.S. national security apparatus is warning other agencies about China’s upcoming digital currency. A successful digital yuan could challenge the status of the dollar in international trade. The flip side, however, is that many see a digital yuan as a tool of surveillance for the Chinese Communist Party. While that might reduce demand, the upgraded access to information may be another factor the U.S. is worried about. Read more.

#26 Altcoin Psycho: The Meaning of Money, Algorithmic Trading and Leaking Alpha

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Altcoin Psycho (@AltcoinPsycho) is a trader, tech entrepreneur and creator of the bitcoin trading bot @ThePsychoBot (You can use the code “podcast” to get a 30 day trial) On Twitter, he's not only known as a crypto trader but also through his successful options trading strategies in legacy markets.

In this episode, we discuss the meaning of money and the road towards financial independence. We talk about what it was like growing up in a trading environment, we dive deep in various aspects of algorithmic trading and also touch on the value of indicators and flipping biases. We briefly touch investing outside of crypto and at the end of the episode, AP leaks some alpha about his options trading strategies. 

Things I learned:

  • You shouldn’t pursue money to buy nice houses. You should pursue it for the freedom that it brings. Materialistic things are nice but they’re not going to fill a void you have inside of you.

  • Perfecting your trading psychology is very hard. Algorithmic trading can help with this as it takes the emotional aspect out of trading.

  • Most trading bots perform well when a market is trending but underperform in a ranging market. You really can’t trust an overall trading strategy if you haven’t tested in all three environments: a bull market, a bear market and a ranging market.

  • Most indicators fail to show you the true characteristics of a move. They are not always reliable on parabolic moves like the crypto market shows once in a while.

  • Although it’s often frowned upon, having a fluid bias is a characteristic many successful traders share. It proves that a trader trades level to level and does not succumb to some bias in the market. Crypto Twitter can become an echo chamber where users are always looking for tweets that reaffirm their bias.

  • Betting on yourself is the #1 common denominator of successful people. Don’t be afraid to take risks.

What’s Your Sign? Determining Your Trader Type

In this next section, I will outline the various ‘Trader Types’: The Scalper, The Swing Trader and The Position Trader.This should allow you to identify with one of the types. Then we will explore which is most suitable for profitable crypto trading. 

Trader Types:

1) The Scalper. A trader who looks for short, minimally profitable opportunities in the market that can add up over time. Scalpers don’t have the patience to hold a position for a lengthy period and grow bored easily when keeping trades active for too long. They are motivated by the excitement of fast moving markets. You aren’t happy about placing a losing trade but you’re typically less impacted financially and emotionally due to the small nature and frequency of the trades that you place. 

2) The Swing Trader. Someone who enjoys staying in a trade for as little as a few hours to potentially weeks. If you’re a swing trader, you like the analysis aspect of trading - finding patterns that develop and exploiting them like a cunning strategist. Because you place fewer trades on a daily and weekly basis, losing trades could have more of an impact on your psyche, so keeping your longer term goals in mind and sticking to the plan are imperative.

3) The Position Trader. A position trader has a much longer time frame in mind. If you’re a position trader, you could be in a trade for months of even years if your conviction is strong enough. Usually based on a fundamental perspective of political, sentimental, or supply/demand reasoning, you brush off the fear of short term movements. You’re much more tolerant of drawdowns and could take losses for a very long time. 

At this point, most Market Meditators will have identified with one of the 3 trading types. There is no right or wrong answer here. Let me be clear on that. However, whatever your trader type is, I insist that you are able to put on the hat of all 3 trader types

As we have touched on in this exclusive newsletter for our premium members, $BTC has rallied over the long run and $XRP has exhibited a very short term rally. This leads me to the conclusion that contrary to in the legacy markets, crypto traders ought not to limit themselves to a particular ‘trader type’ but rather, adjust their trading strategy based on the category of cryptocurrency in question. As you may have noticed when reading the trader types, some are naturally more suited to particular coins. The Scalper would not have been a $BTC hodler and would not have reaped the benefits of the long awaited 2020 rally. Similarly, The Position Trader would not have much luck in some altcoins. For instance, the movements we have seen in $XRP require a more nimble approach to trading; an approach that is able to make the most of the intraday volatility we witness. This kind of jack of all trades approach (literally) may well be the most fruitful; allowing you to reap profits across all the various products cryptocurrency has to offer.

You may have also noticed that each trader type included a few lines on the associated personality. ‘Be able to trade like all 3 traders’ is easier said than done. If you are to really master this approach and reap the benefits, you will need to master your emotions. You might be kicking yourself for shorting your $BTC back in 2019 but have you taken the necessary steps to mean you are more tolerant of losses that will enable you to trade more like a Position Trader when needed?

I hope this section has: i. Made you clear on what your trader type is, ii. Proved the merits of being able to trade like all 3 trader types iii. Conveyed that mastery of emotions is necessary to achieve this. That last point is precisely what the ‘Education’ and ‘Self Improvement’ section of the Market Meditations sets to deliver for the community.

Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.