FOMO cooling period

Dear subscribers,
Welcome to the October 28, 2021 report.
In my last letter, written when BTC was at $60.7k, buying momentum was strong but nearing overbought. I gave it a week to break through all-time-highs, before retesting support. Price did peak as high as 67.0k before coming back down. The last 2 days BTC has been trading bearishly; this letter gives a short update of the on-chain structure which interestingly hasn’t changed much.

Top level summary for 28th Oct 2021 (current price $59.0k):
> Macro: Long term investor Supply Shock is now consolidating around its peak levels promising bullishness deep into 2022.
> Short term: BTC price has outstripped the investor demand we are seeing on-chain. Price currently remains in an overbought region. Meanwhile, the last two weeks has seen investor demand growing. It’s just not enough to justify the price levels we had in the mid-$60k range. Also note that derivative markets are at high levels of speculative interest; this will add to volatility.
> Ethereum Notes: ETH demand continues to explore all-time-highs. ETH fundamentals remain stronger than BTC and promises a strong rally once price breaks its $4.3k resistance zone.
> Price action expectation: Continued choppy consolidation under all-time-highs with $55k as strong support. An impulse of new investor demand should mitigate any large downside move.
> Price action conviction: Medium.

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Comparing a number of indicators, it is evident that the bearish divergence on the daily is playing out.
There is a number of scenarios which all point to finding support in the 50K range. To narrow it down will require a day to day chart TA looking for a turning point.

Analysis Breakdown

Macro: Peak long term accumulation is here

Long term holder Supply Shock is now consolidating inside of its peak accumulation levels. It’s yet to be seen how long we will remain inside of this peak band, but typically this metric starts to decline once a strong rally is underway, with long term holders selling into the rally. From this stand point the macro structure is still very early in its setup. This promises bullishness deep into 2022.

Short term: Investors demand on -chain remains flat

The recent rally to $67k has been unsupported by on-chain demand. Supply Shock, adjusted for drift, has largely been flat, even siding on bearish.
Furthermore, when we take an oscillator view of Supply Shock, it’s squarely in an overbought region.
BTC price is now pulling back from overbought highs, coming back into line with fundamental investor demand.
Meanwhile as price cools off, flows from spot exchanges (in the chart below) shows us the last 2 weeks has seen some new demand from investors with BTC leaving exchanges and USDC coming in. This is a classic buying pattern.
SUMMARY: BTC price needs some time to cool off. Meanwhile investor demand has been coming in to buy the dip

Futures demand remains high with ETFs

Using our look-back model to ascertain how the market valued BTC when on-chain demand and supply was at similar levels previously, we can see a large gap has opened up. The Supply Shock Price presently sits at $45k, significantly below the current price. I’ve included this “look-back” chart as it’s a great way to talk about how we now are in a different world where past activity does not reflect the present.

The world has changed; we now have multiple Bitcoin futures ETFs traded on US equity markets. Long term investors who buy ETFs will now express their demand via futures contracts not seen via traditional on-chain metrics.
This means the current balance between where the price should be relative to on-chain demand is now out of whack from its normal status quo. It will take some time before data around where the new balance will be found.
Overall my educated guess of where the look-back price should be is in the mid $50k region.

Short term commentary 

Looking at the chart below:

a) On the 12 hrly chart, all the indicators show that the downward momentum pressure has not finished. This does not mean it will continue down, it just means we don’t have a reversal any time soon.
On the 4 hrly, we do see some bounce but how long will it last…we need it to break the channel on the 4 hrly and the RSI resistance line before we look at the 12 hrly.
b) The Ichimoku cloud on the 12 hrly can act as support along with it have confluence with the previous resistance trend line that can act as support. Along with this, is the fib extension of 1 which is usually a support level along with the other 3 fib’s to be the main target. We will need to see how the indicators show up when or if it gets down to thisthese level.
c) on the 2 day chart, we still have bullish indicators where both the RSI and Phx RSI are above 50% and looking like its far extended to the down side with a few days left for bullish div. to appear on the 12 hrly or more. Note how the 10/20 EMA has in the past acted as support and we are looking for something similar for it to move up.
d) the next chart using the BBand shows that we are at a strong support level;

ETH and ALT Commentary

True to the last forecast, ETH has outperformed BTC off the back of stronger on-chain demand.
ETH’s on-chain Supply Shock has now cleanly broken all-time-highs while the price sits slightly below its own all-time-high. Price will need to rally to close the imbalance.

Below is the oscillator view of ETH’s Supply Shock. We can see that it’s in a healthy zone of being relatively cool compared to BTC’s overbought region. This will give room for ETH to rally strongly once it breaks through its resistance.

SUMMARY: On-chain demand points to ETH continuing to out-perform BTC in coming weeks, once it breaks its all-time-highs it’s set for strong run. This should create a bullish environment for alts.

Chart below, ETH x 4 indicators that the BARR trendline can be possibly the support line for this pullback. Both the RSI and Stochastic on the daily is showing this, along with the fib level on daily (right). The phx indicator is showing that ETH has much more strength to the upside compared with BTC daily.

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