Short Swings Up, Larger Swings Down

Nov 4, 2022

Something to keep an eye out, prior to any FOMC meetings, volatility ensues - inflation being the core component at the markets stake can give us intel into market behaviours.

In the latest meeting, another .75 bps is not unexpected given our current state of high CPI prints, and the fact that the market had priced in the .75 bps pre-meeting. But Powell noted an important factor which may have set markets swinging long - "The hikes are likely less aggressive moving forward".

Now that does mean a conventional pivot. They have clearly stated their intention, which is to maintain hiking rates to cut inflation down. Interesting ... but not unexpected.

However this aforementioned less aggressive approach brought markets confidence up, short term that is. The probability in the current state of macro conditions are likely to keep looping to the downside.

Therefore, my underlying thesis with historical macro measures in mind, is that #bitcoin, along with any alt movements to the upside will be short and spout, with longer downsides and consolidations around mid range.

Does this mean we won't see significant price appreciations?

The market does what it wants, it's not 0 sum chance, it's just that probability is not on our side given these extensive credit pressures are looming over the market, acting like seismic waves down the economic chain.

As an example, there are many factors that have impeded the ability for markets to create any positive outlook, but rates at these levels caused the value of bitcoin to act as an inhibitor to larger Bitcoin miners (Core-Scientific) - they are becoming increasingly likely to default on their debt.

Think of Bitcoin miners as the foundational piece that holds the integrity of the house together, the larger and more aggressive moves in credit cause cracks in the foundation of the house. These structural cracks throughout the system lead can lead mining operations into insolvency. If the ground shakes, the likelihood of seeing larger corps fall is increasing.

This initial claim can be supported with Onchain data.

The dormant circulation metric - demonstrating the lack of interest to hold onto coin . With every spur of movement to the upside, we inevitable see movement of coin, especially in supply held for longer periods.

Realized P&L Relative to the Realized Value of Bitcoin - When moving past the baseline, the amount of realized coin is larger than the acquisition of coin, demonstrating a lack of coin acquisition relative to the coin spent. = lack of demand

Last but not least, if you look at the trading volume which has picked up as of recent, it is very insightful to allude to Age Consumer (AKA Coin days destroyed). AC (CDD) takes into account the coin destruction weighted by the age of coin destroyed, which is also seeing larger spikes to the upside whenever we see volatility pushed upwards.

Adding tools to your on chain tool belt - FUTURES

One other factor you can consider in your analysis: Using derivatives to determine whether there is a bias in the futures market. E.g, using an Aggregated open interest reading, or individual exchange open interest, to see if there is a large amount of coin acquisition in futures. If there is, you can determine the bias using Funding rate, to see if there is any extensive bias on the long or short side. For example, if funding rate has a positive sigma, the skew by definition is saying - longs are paying are premium relative to shorts to open up there contract. However, keep in mind an elongated and larger skew could cause a large liquidation.

Thanks for reading.

Twitter Handle: @Neuro__Invest

Substack: NeuroInvest Analytics

If you want more readings I am constantly posting on twitter, I use Santiment data constantly for onchain analysis, and I'm building something on Santiment's google excel add in that the users may find interesting.

If you are interesting in the current state of the macro environment, you can find more detailed readings on my research page.