Moonfall from Hero to Zero ¦ Trade Opportunities - Is short term Relief Rally coming? ¦ Weekly Overview
What a week we had huh? It was surely one all crypto market participants will not forget anytime soon. What can you find in this week’s newsletter:
Moonfall - as most know previous week seen a collapse of a Terra ecosystem with many losing their investments entirely.
Trade Opportunities - a quick look at most probable scenario for the next 2-3 weeks and why I think we did not see “the bottom” yet.
Weekly Overview - less eventful week ahead of us which I am sure everyone will welcome, unless our favorite JP adds some fuel on Tuesday.
It may sound dramatic, but it actually was (and much more interesting than the actual movie with that title) a vertical fall in price of an asset that was in top 10 and not many seen the danger, well definitely retail investors did not. That is always the saddest part, people losing their life’s savings in a matter of days. Main collapse started on May 9th and by May 13th Luna token was worthless.
I briefly mentioned an issue with UST holding its peg against USD last week, but did not expect for the things going so wrong so fast. For those that want more info on why it all happened you can read more HERE.
Is there any future for Terra? Do Kwon at least thinks there is, in an elaborate attempt to create Luna 2.0 or more accurately calling original token Luna Classic (do not think in this case “classic” means anything good) and newly forked token called… Luna. Yes just to confuse everyone in what looks like an elaborate long scam 2.0.
You can make your mind up by trying to read the proposal (link below) that will be voted on this week, but it is very unclear what will happen with those that bought Luna and UST tokens post-crash if they are to “go back” to pre-crash state and how much exactly anyone for example staking Luna or UST at the time could expect to get back.
Main lesson here is to never risk your whole capital on one asset even if it seems like the best thing in the world and why proper risk management is so important. Even if you have high conviction in a digital asset other than Bitcoin, I would strongly advise against putting more than 10% of your total crypto allocation, but I will continue Risk Mgm topic in future newsletters and give more examples.
We had our small crypto/equities crash already (no it is not “the bottom” yet :P) and some of you might ask, so what’s next? For those that do not follow me on Twitter or TradingView yet, see my post for most likely play in next 2-3 weeks max.
Why only such short timeframe, well June will bring more metrics from US, employment, inflation and finally FOMC meeting on 15th, so the closer we get to that date the more likely return to bearish trend. If the above plays out this could be your last chance to limit risk, exit positions on altcoins you might lose conviction in or simply don’t want to hold them for next 3 years not knowing if it will be worth anything. Long setups are always riskier during a down trend, so please keep that in mind.
As always YT and Twitter are full of sudden calls for “the worst is over”, “bullish scenarios to 100k BTC” mixed with those that call for imminent move to 20k. While you know I am waiting for 21-22k at least this year with decent enough likelihood for even sub 16k Bitcoin, it won’t happen as suddenly as with Luna, so please take anything you hear from “veteran” YT’ers with a pinch of salt.
Why am I so sure we have not seen the bottom in crypto market yet? You might have read my previous newsletter where I have outlined various on-chain metrics and TA setups that would identify start of a “BUY ZONE” if not please check Week #16 and Week #17 for detailed descriptions. None of these hit the areas suggesting crypto market is indeed reaching the area of best buying ops, NUPL still above 0, Puell, MVRV and others not within the zones either, even weekly BTC chart has not closed below RSI (11) 30 yet.
Don’t get me wrong, if you bought Bitcoin below 30k, you are still far better off than those believing in a new bull run in March getting it at 45k+ and I do encourage regular long term investors to rather buy regularly at good levels than waiting without having any Bitcoin for example, as it can be stressful too.
As I am bit short on time this week and I will not go into too much details on why we should be following leverage ratio closely, but you can see in the recent 12 months a new high in Bitcoin’s leverage comes in shortly before a larger price dump. It is like an album on repeat with market participants not learning anything, raising the leverage to new highs every few weeks after each drop off, so this time should not be any different. I am expecting Bitcoin’s price to slowly rise as the leverage does too before expecting a sharp return to down trend.
If I see any indication of current mildly likely Long setup invalidated I will post on Twitter and update TradingView.
After an eventful week in crypto (probably one that most of us will never forget), we should be looking at some green candles this time. After “bloody Monday” where equities tanked, dragging crypto with it and as mentioned in first section causing Luna’s vertical drop, CPI numbers last week where hard to predict and even harder to judge whether market had higher than consensus priced in or not. In hindsight its safe to say that it did not price in what most expected, so lower than March, but higher than 8.1% inflation “experts” predicted. Of course most casual traders if they even look at CPI data at all (everyone investing should pay attention to inflation in general, seems obvious but...) don’t check other than YoY CPI and I think that is where the negative reaction came from, CPI ex Food and Energy showing double month on month change compare to March at 0.6% (consensus was 0.4%).
Eventually as with every sharp move, we started rallying back with Nasdaq making up quite a lot ground giving good chance for a this week’s green candle or maybe even two. Bitcoin followed suit and weekend was on the green side, with Weekly candle coming back well above 30k.
I think everyone will welcome a quiet enough week, with little action on the calendar, apart from Lagarde’s and Powell’s speeches on Tuesday, unless JP says something unexpected, price action should be steady. Of course there is clear intensification of FUD on digital assets, so be vigilant as even without equities falling, crypto might get volatile again without a warning.
In crypto world, more bad news for those seeking crypto tax heavens, looks like Portugal needs some extra income and decided to tax crypto after all. The details of how and what activity will be taxed is yet unknown, but if you planned to move there in the near future you might want to revise your plans.
My final advice is, be smart and stay away from risky assets, any DeFi in particular, preferably avoid all altcoins during bear market as I would expect more trouble lies ahead and Terra collapse could just be the first one this year even if it was the most spectacular.