To Be A Dead Cat...Or To Be A Blow-off Top?
Updated
I find these periods the most interesting to write about the market - peak uncertainty. This is a speculative analysis to show why this moment might be a very good risk-reduction opportunity. As shown on the above chart, when Bitcoin dominance (lower panel) touches the 50 week MA (red), it can indicate a decisive move for Bitcoin to come. If Dominance rejects here and heads lower, it can lead to a blow-off top for the market, as shown on the left side of the chart (2017 bubble). On the other hand, if Dominance continues up from here, it's very possible we see something like what happened in July-August 2018. I wrote another post about this recently. This is essentially a follow-up with a little more added to the analysis. Bitcoin has headed up nicely towards the $46-50k liquidity zone, though it still lingers just below 45k at the time of this post. Strong support has so far been found near the 100 week MA (yellow).
One thing I've been watching is DXY. If the dollar continues to rise, there is a chance the positive correlation with Bitcoin dominance returns. As shown below, Bitcoin Dominance has tracked DXY pretty closely. It could be about to follow.
Why have they been correlated in the past? I think DXY tends to trend down in risk-on environments. Alts are seen as even riskier than Bitcoin, so they tend to increase in risk-on environments as DXY goes up, and they tend to decrease in risk-off environments as investors accumulate cash and sell risky positions. Despite recent recoveries in markets, I still believe we are in a risk-off environment, with major players accumulating cash positions. If Bitcoin blasts higher, I do not think it's likely to sustain for very long, and I think we can finally see that blow-off top so many were waiting for last year. It would come when everyone least expects it.
Based on what I'm seeing on TradingView, there are plenty of arguments to be made for both the bearish and bullish case. Usually Bitcoin will do what no one expects. Does that mean we get a triple top near 60k? Does it mean we enter a deep bear market with Bitcoin declining ultimately below 20k? Or does it mean Bitcoin heads straight to 6 figures next month? Regardless, I don't think Bitcoin will sustain any new highs unless Dominance breaks above that 50 week MA. I would see Bitcoin breaking out and pulling market share from alts as bullish. I'm skeptical of anything else.
A few other notes:
1. Many people attribute the recent rise in Bitcoin price to Terra (LUNA)'s purchase of over $1 Billion worth of Bitcoin to back their stablecoin UST. Bitcoin-baked money might end up being the future, but I'm skeptical when the CEO of the company also announced a 2M Twitter bet in the midst of LUNA's all-time high price run. That 2M is peanuts compared with what he made on LUNA's price appreciation, and could have easily been a hype-move to generate liquidity for big LUNA whales to unload. Buying Bitcoin is also an easy way to hold the market up while sellers exit. LUNA increased in value by 1000x during the bull run - one of the few coins to do so. I think it's likely that it has topped out. Since the Twitter bet and Bitcoin purchase have been announced, it has remained in a small downtrend.
2. Bullish articles about crypto are beginning to surface again, claiming these conditions are what Bitcoin was meant for. We will need to see if the masses agree, or whether the crunch of inflation and debt becomes too heavy a burden. Welcome to the future.
3. Open interest continues to climb. It now sits around $42 Billion, a level not seen since the very beginning of 2022, when price was higher. Often when growth in open interest outpaces Bitcoin price, it leads to a large squeeze, where traders get shaken out of position. We do not know whether this will happen to the upside or downside. Every time since 2021, the squeeze has caused a sharp price decline. Data viewable here: coinglass.com/pro/futures/Cryptofutures
This is not meant as financial advice. This is meant for speculation and entertainment only.
-Victor Cobra
One thing I've been watching is DXY. If the dollar continues to rise, there is a chance the positive correlation with Bitcoin dominance returns. As shown below, Bitcoin Dominance has tracked DXY pretty closely. It could be about to follow.
Why have they been correlated in the past? I think DXY tends to trend down in risk-on environments. Alts are seen as even riskier than Bitcoin, so they tend to increase in risk-on environments as DXY goes up, and they tend to decrease in risk-off environments as investors accumulate cash and sell risky positions. Despite recent recoveries in markets, I still believe we are in a risk-off environment, with major players accumulating cash positions. If Bitcoin blasts higher, I do not think it's likely to sustain for very long, and I think we can finally see that blow-off top so many were waiting for last year. It would come when everyone least expects it.
Based on what I'm seeing on TradingView, there are plenty of arguments to be made for both the bearish and bullish case. Usually Bitcoin will do what no one expects. Does that mean we get a triple top near 60k? Does it mean we enter a deep bear market with Bitcoin declining ultimately below 20k? Or does it mean Bitcoin heads straight to 6 figures next month? Regardless, I don't think Bitcoin will sustain any new highs unless Dominance breaks above that 50 week MA. I would see Bitcoin breaking out and pulling market share from alts as bullish. I'm skeptical of anything else.
A few other notes:
1. Many people attribute the recent rise in Bitcoin price to Terra (LUNA)'s purchase of over $1 Billion worth of Bitcoin to back their stablecoin UST. Bitcoin-baked money might end up being the future, but I'm skeptical when the CEO of the company also announced a 2M Twitter bet in the midst of LUNA's all-time high price run. That 2M is peanuts compared with what he made on LUNA's price appreciation, and could have easily been a hype-move to generate liquidity for big LUNA whales to unload. Buying Bitcoin is also an easy way to hold the market up while sellers exit. LUNA increased in value by 1000x during the bull run - one of the few coins to do so. I think it's likely that it has topped out. Since the Twitter bet and Bitcoin purchase have been announced, it has remained in a small downtrend.
2. Bullish articles about crypto are beginning to surface again, claiming these conditions are what Bitcoin was meant for. We will need to see if the masses agree, or whether the crunch of inflation and debt becomes too heavy a burden. Welcome to the future.
3. Open interest continues to climb. It now sits around $42 Billion, a level not seen since the very beginning of 2022, when price was higher. Often when growth in open interest outpaces Bitcoin price, it leads to a large squeeze, where traders get shaken out of position. We do not know whether this will happen to the upside or downside. Every time since 2021, the squeeze has caused a sharp price decline. Data viewable here: coinglass.com/pro/futures/Cryptofutures
This is not meant as financial advice. This is meant for speculation and entertainment only.
-Victor Cobra
Note
Correction: TUSD will supposedly be backed by TEN BILLION in Bitcoin.Note
As price has moved up, open interest has continued to increase, which tells me that we haven't necessarily seen our *squeeze* yet.Note
So far, a perfect rejection of the channel or "flag." Also a rejection from the 200 day MA. It'll be interesting to see if buyers can hold price on any correction. 
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