Market Recap — Feb 4, 2022
Plus: January Recap + Volokh on the 4th Amendment and Crypto
Bitcoin respected Monday’s range and presented a textbook reason to wait for Monday’s range to form before taking any short term positions. BTC tested Monday’s range low before ripping through both Monday’s high and the recent high above. BTC is now in the weekly supply block between $39,700 and $44,000, which should provide a fair amount of resistance. If we can’t clear this supply area, I’d expect to see the equal lows around $35,300 tested again at the least. Zooming out, I would not be surprised if the 2021 range lows around $30,000 come into play, which could present the trade of the year if we go there.
Regarding Monday’s range...
If you are interested in short term trades, using Monday’s range is a great way to find areas of interest in the market. On Tuesday, BTC tested Monday’s highs before dropping back to sweep the range lows on Thursday. At this point, the idea is to wait for a close back inside the range, setting orders at the range low ($36,640) with a minimum take profit target of the range high ($38,735). Given a 3:1 risk / reward ratio, stops are set at $35,930, which also provides a small, but in this case important, cushion below the initial sweep of the lows. This type of set up (successive range limit tests) often results in further extension beyond the first test, and given the confluence of resistance above Monday’s high, taking 1/2 profits at the range high and 1/2 at the top of the fair value gap (FVG) area above is a potential way to exit the trade.
Going forward, the RSI indicator on the daily chart has broken out of, and so far successfully retested, an extended downtrend. The last two times this occurred, BTC subsequently rallied about 80% and 70%. Not only that, but the RSI is now coming off its lowest reading since March 2020, which, following a break out of that extended downtrend, led to a 160% bounce in BTC over the following 55 days.
To summarize, if the current supply zone provides enough resistance, the 2021 range lows mentioned earlier could be in play. Reaching the range lows would be a great opportunity to apply the Monday-range trade strategy above to the massive 12-month range while leaving the bullish macrostructure in place. Or, alternatively, the RSI breakout may be the sign the market is front-running everyone waiting for the macro range to play out and our next target is higher, potentially a breakout of the weekly supply and test of the three-day supply just above that.
The broader L1 market is following BTC’s lead with SOL, ETH, AVAX, ATOM leading the way higher since the start of February. My FTM/SOL trade from last week is still underwater — I guess the lesson so far is to not bet against a hot hand.
You can’t say January wasn’t uneventful. Forgetting price action for a minute, the amount of activity across the crypto space continues to grow. From funding rounds to regulatory posturing, Travis Kling sums it up nicely in his monthly newsletter from Ikigai Asset Management:
Notably, FTX and Blockdaemon raised Series C rounds at valuations of $32b and $3.25bn, respectively, while Phantom completed a series B, and Cointracker series A, at $1.2b and $1.3b, respectively. This is just in the month of January, the third month of a slow grind down in the markets in general, and does not account for the funding rounds of several over companies who did not release valuations. The ability for companies to raise funds from anyone with access to a blockchain wallet is a sea change compared to the tradition fundraising process, which takes place over years and only rarely minted new unicorns. According to CoinMarketCap, there are 82 unicorns by coin market cap, but it seems equity raises are following close behind. The massive equity raises in January are evidence that not only are investors very eager to find exposure to the crypto space, but they better be quick to find it.
Volokh on the 4th Amendment and Crypto
Writing on the a16z blog, Eugene Volokh considers the Fourth Amendment implications of privacy and DeFi. He unpacks the privacy implications some portions of the recent Infrastructure Investment and Jobs Act (HR 3684) could impose on miners, developers, or individuals transacting on blockchains. I highly encourage you to read the whole thing, not only because Eugene Volokh breaks down legal considerations in ways even I understand them, but the conclusions he reaches here are not what you might expect.