CryptRowe Forecast #11
Luna, Bears, and Generational Opportunities
Prologue
So, this is going to be a longer newsletter update than normal. Previously I’ve tried to smoosh the content into a small enough box that Gmail won’t cut it off, but that ain’t gonna happen today 🙃.
So, given this email will cut off / won’t fit into most inboxes, this is a reminder to click the “read more” at the bottom, or just click the title at the top of the email to be taken to the Newsletter webpage.
Intro
Since there’s a lot to add / discuss I’m going to do a small Table of Contents (ToC). Also who doesn’t love a good ToC?
Luna Recap
Mental Health + Trading
Macro Lens
Mean Reversion + Outliers
Confluence / Divergence
Price Levels
Generational Opportunity
TLDR;
Stop Losses
Twitter
Ungovernable
Ok, so let’s get to it 😏 🎉 .
1: Luna Recap
If you’ve been paying attention at all to the crypto world of late, you’ve probably noticed two things. First, you’ve seen prices crash. Second, you’ve seen people talking about LUNA / UST.
We’ll get to the first later, but for now, I want to take a crack at explaining what happened with LUNA / UST.
So UST was made by the same folks who launched the LUNA coin and was meant to be a stablecoin. What even is a stablecoin though?
Well, a stablecoin is meant to represent a physical US dollar in the digital space (on the blockchain). So, a stablecoin should, ideally, always have a price at $1.
Think of an Arcade or State Fair.
If you go to an arcade, and each token to play the games are $1, but the problem is that the Arcade doesn’t accept dollars. To play their games you need to trade your Dollars in for Arcade Bucks (AB’s).
$1 = 1 AB.
And so you do. You give your dollars to the operators of the arcade and they give you AB’s.
Now, let’s say you started with $100, and exchanged it for 100 AB’s. You play for a few hours and come back to the manager with 20 AB’s (you spent 80 AB’s). Ideally you should be able to exchange those 20 AB’s back in for $20.
That’s how stablecoins are supposed to work.
Essentially a translation layer between physical US Dollars and digital - blockchain dollars.
There are a lot of types of stablecoins out there, but let’s look at UST (made by the LUNA folks) and what happened.
So when LUNA created their “Arcade Bucks (AB’s)” AKA UST, what did they do with the US $ dollars that people traded in for their UST?
Herein lies the problem.
They used those actual $’s to buy their own token + other cryptocurrencies (Bitcoin for example).
You can see the problem right?
Basically, back to the arcade example - what happened then is you exchanged $100 for 100 AB’s (UST), and then came back with 20 AB’s and said “Hey, I’d like my dollars back. $20 please” And they said “LOL we sold those dollars you gave us for other assets.”
So, that’s not a huge issue if the other assets are stable / hold value.
But what if those assets they bought drop in price?
If say, LUNA or BTC drops in value… then the Arcade can’t give you actual $’s back because they don’t have them. They lost them in the market / investing in their own coin + Bitcoin + other risky assets.
This is what happened with UST / LUNA.
I know it’s a bit of an over-simplification and I’m leaving out other key aspects, but this is a general description of what happened.
Part of why I’m macro-skeptical of the long term viability of 99% of alt-coins is something Lyn Alden said (paraphrasing), “How much of these coins are somebody making up value from nothing?” And who actually benefits from making up a currency from nothing? What is the currency or coin actually doing (what utility does it have if it claims to)?” More on that towards the bottom.
Also… Lyn Alden called this all potentially happening and wrote a post-mortem of all this which I haven’t read yet but I am sure is 1000% better than what I just wrote. Here’s the link to that. Go read that too 😏 😉.
The overall crypto ecosystem has seen quite a bit of bloat for a while on coins that don’t have a utility and also have shadowy fundamentals (most coins given to VC’s / the creators / friends of the creators). I will refrain from a rant but, all of this is to say: when trading or investing in a Risk-On space, we’ve got to grow in caution and care.
Which leads me to…
2: Mental Health + Trading
Many invested in LUNA / UST lost their life savings. Some people invested in other coins lost their life savings as well b/c this crash helped trigger a broader crypto capitulation.
I know if you’ve been following along with me and this newsletter I’ve been in USD / advocating for a bearish stance for a while… but if you didn’t follow suit with me I get it. I’m not always perfectly right (I’m going to be wrong) + it’s a new space and there’s lots of room for outliers.
What I am seeing is people who lost a lot or everything contemplating harming themselves. And that just hits me at the core.
Mental Health has been a huge part of my journey. I even wrote a meditations book for mental health. I’ve lost two friends (and almost a third) to suicide. I am deeply and aggressively committed to the health and survival of anyone in this world.
All of that being said… I get it. I get what it can feel like to be wrong in this market. I mean hell, even if you’re investing in the SPX/QQQ (Netflix, Peloton, etc.) for example… you’re going to be down big as well (More on that further down).
So please - no amount of money lost is worth self harm. Reach out to me, reach out to someone. You’re not alone.
You will never be as alone as you maybe feel.
Lost $ can be gained back again. And there is hope in that we are humans who can learn. The question to come out of losses here is, “What can I learn about the space? Myself? My own risk tolerance? My biases? What can I build? How can I help myself and others be safe in the future?”
In this together ❤️.
3: Macro Lens
So, before we dive into the specifics of Bitcoin Analytics, today I want to start from the macro economic lens. Just so you know, most of what I learn about / signal comes from Lyn Alden, Ecoinometrics, and Mr. Alf. They are smarter than me about Macro things. Go to them for more 🙃.
Basically, as Crypto Adoption grows, we can’t just look at Bitcoin or Crypto in isolation. We need to look at the broader Macro lens for types of assets and what bigger players in the Econ spaces are doing and how this affects Bitcoin / Crypto.
So there’s four macro headwinds going against Bitcoin right now.
First, there are lots of signs that we are heading into (if not already in) a Recession.
Second, Bitcoin and Crypto are what are called “Risk-On” assets, which is a fancy Econ term for “Risky AF” assets. And in Recession-esque environments… those don’t do well. As much as Bitcoiners (myself included) want to call BTC a Risk-Off asset… we’re not at adoption levels that this is true yet. It still trades like a Risk-On Asset.
¯\_(ツ)_/¯ I don’t make the rules.
Third, Bitcoin is trading in lock-step reverse-correlation with the Dollar Index (DXY). The DXY is a measure of the strength of the US Currency (USD) compared to other foreign currencies. So both of those together: Bitcoin trades opposite (right now) to the DXY and the DXY is growing stronger which correlates to a weaker Bitcoin. DXY is at a local peak, but could be continuing in strength.
Fourth, and finally, Bitcoin is trading in correlation with the SPX and QQQ (S&P 500 & Nasdaq). And those equity markets look like they’re in a heavy correction and could get worse in a full Recession.
So, all of these have helped my thesis to currently be bearish. I have long term (2+ year) time horizon bags of Bitcoin, but for my trading portfolio (where I trade BTC + Alts) I am basically sitting in cash.
So as in everything… I’m keeping a pulse to watch for invalidations to these thesis (and remembering that correlation isn’t causation 😏 ).
Part of being a good analyst or trader is having invalidation criteria for everything. More on that later 🙃.
4: Mean Reversion + Outliers
Ok, now onto some Bitcoin analysis 😏.
So one way to think about “When should I buy” or “When should I sell” is this fancy-sounding concept called “Mean Reversion”.
Basically… when we’re looking at probabilities, if we are far away from the average, things in nature have a tendency to revert back to the average.
Think of a pendulum. If it’s far away from the bottom / center, it’s going to be heading towards the average / bottom soon.
So this is what we look for in lots of analysis, “how far away from the mean or average is this data?” If we’re really far below, that’s a decent time to buy. If we’re really far above, that’s a decent time to sell. (And if data is really really far outside of what’s normal, we call it an Outlier.)
No “perfect” system. Just maths and probabilities.
All of that being said… we are in one of those “Oh shit… we’re pretty far below / in buy zones” on lots of indicators."
All of these charts say, “Wow… long time horizons, seems like a good buy opportunity.” And if you have a 2+ year time horizon, it probably is!
Let’s look at the Long Term Aggregate Indicator I have built (combines 14 or so Long-Term High Time Frame [HTF] indicators together) so we don’t have to look at a bunch of individual charts 🙃.
Yep, also says we are in a long-term buy opportunity zone.
But what are the odds we get a return if we bought here, just looking at this Long Term Risk metric then? Well, I recently built a tool to answer that question (kudos to Ecoinometrics for the inspiration).
So what this chart shows is that: using historical data for these levels, a buy now at times like this (and you don’t sell for 2 years) has never led to a negative return.
That’s wild. I’ll say it again.
If you buy now and hold for two years (at similar levels like this historically) we have never had a negative return. Positive returns range from 1.4x to 100x.
So from an investment perspective if you have two years to wait, it’s not a bad time to invest. Could it get better? Of course. It could also get worse. ¯\_(ツ)_/¯
We have the data we have.
Ok, but what about shorter term? Well there things are a little more less clear.
30 days out… things are split. There’s no real historical-data edge for buying with a 30 day time horizon here.
What about with the Shorter Term time horizon Aggregate Indicator I built?
Welp, after 30 days kind of a nothing-burger here for insight. (Which does make me want to reevaluate the efficacy of the Short Term indicator! This Eval tool has been really helpful in identifying “Hey, this indicator I build it actually great” or in this case “this indicator I built is not that great.”) Always gotta be open to being wrong 🙃.
So long term, we’re pretty sure this is a good time to buy (if your time horizon is over two years). Short term, we don’t have a lot to say one way or the other.
So why am I siding bearish in the shorter term then?
Let’s find out…
5: Confluence / Divergence
The key here, and why I’m still a short term (weeks to months) bear (including the macro environment described above), is that I don’t see the momentum yet on-chain or in the TA (Technical Analysis) to justify breaking through upwards from some of these low ranges we entered.
While all of these indicators above show a long-term value-zone for buying, part of my job is to ensure and look for a confluence of indicators all saying the same thing in the short term as well.
When some indicators (like above) all say one thing, but a group of other indicators say another… that’s not confluence.
Here’s some (that historically have been great for finding confluence) that are saying something different from those charts above.
This is the 28 day MRGO (Market Realized Gradient Oscillator). None of the other timeframes I watch are green either.
Still Red in the Heikin Ashi 1W.
Zero Blue 😬.
Still in a “be very careful” green dot area.
Long Term Holders teetering on the edge of capitulation. This one makes me the most cautious I think.
So given the Macro + this Divergence… I’m still bearish for now. If some of these things change above, I am happy to flip bull.
But also one thing to note, is I’m not looking for shorter (less than a week) scalps really. I want the highest probability - most confluence trades on a weeks-to-months timeframe. And that’s what I look to provide insight for here in this newsletter.
So ok, what kind of invalidation would I look for? (Besides these Divergences becoming Convergences?)
Let’s look at some price levels.
6: Price Levels
So here a couple of fun price levels to be watching for invalidation of what I’ve shared above.
The Fib Log Chart bottom line here.
The 2 Year MA here.
The next HODL Wave levels are basically $24,000 (Realized Price) and $36,000 (1y-2y Holders).
From a TA perspective (new to me, I know #excited), this is the 5th time we’ve tested this level.
Usually as levels get tested more they get weaker, and then when they flip from Support to Resistance, the more they were tested, the stronger they are on the other side. So this, to me, seems like a prime opportunity for that $31,000 level to flip to a strong Resistance potentially. Of course, could be a support again ¯\_(ツ)_/¯. We could also bounce up and then back down again. TA still feels mysterious / vague to me. Working on learning more 🙃.
If we get a strong bounce above $31K, it holds, and $31K becomes support again (+ the metrics above move from divergence to confluence) I’ll be more apt / prone to flip bull.
But for now, I’m a bear until that happens.
Patience and nuance.
7: Generational Opportunity
One of my bearish biases right now is that we are close to some low BTC price levels that are generational buying opportunities. Look at this MVRV chart below (Market Value to Realized Value of the entire Bitcoin network).
An MVRV buy below 1 has historically been an opportunity to make generational-level wealth for your life. And we are trending that way. And I want us to get there.
So that’s my bias that I have to keep in check. Will we get there? Maybe. Will I let you know if we do? Abso-fucking-lutely.
Is it possible we’ve seen the bottom and won’t get down there since everyone is watching it? Yes.
Is it also possible that Mrs. Market doesn’t care? Yes.
So I’m watching invalidation (as described above), but I can’t help get excited at the chance for folks to invest at basement prices and change their lives forever. ¯\_(ツ)_/¯.
8: TLDR;
If you’ve made it this far, congratulations! If this was too long and you skipped to here, nice work too ;).
Basically - I have been and continue to be bearish on a weeks-to-months basis. If $31k-$32k flips to support or we get some stable confluence of on-chain / TA indicators I’ll flip to a bull.
Be careful. Protect your capital. Nourish and take care of your heart, body, and mind.
9: Stop Losses
So when we invest or trade, we should have invalidation criteria built into any trade we enter. Anytime we buy a digital asset, we should have this invalidation defined.
One way to automate this is to set Stop-Losses after you buy an asset, to protect yourself if it drops in price.
I think one reason people don’t use them is that they’re hard to understand when you start.
Invest the time.
It can protect you from losing much more than you might normally. Especially if you’re buying and selling digital assets.
Every trade you enter, should have a stop loss.
What’s hard I think for folks is that when you buy an asset, if you don’t put a stop loss you’re essentially saying, “I’m right af! Can’t be wrong. This is going to the moon!”
But what if it doesn’t?
Please learn about and use Stop Losses if you’re going to buy / sell digital assets.
Thank you for coming to my Ted Talk.
10: Twitter.
I got some texts this last week asking if I was going to send a newsletter update while the events were going down. I told them what I’ll tell you all - I like and am keeping, for now, the bi-weekly cadence for the newsletter.
If you want in-between pulse checks on what I’m thinking… I do that on my Twitter.
Go make an account and follow me there for more frequent updates 😉.
11: Ungovernable
One reason I appreciate Bitcoin is that it is “ungovernable”. There is no “governing body” for it. It’s not possible. It’s a peer-to-peer network.
And so most USD-centric (macro-dominant) governments hate it b/c they can't control it or set policy for the actual network. Adoption is growing slowly to realize this - especially in non-dominant (Econ) countries.
Those without the economic power of the Dollar / USD understand the value of Bitcoin inherently. The value of money being ungovernable.
All other crypto coins are run, governed, by someone or a group of folks. Makes me inherently skeptical of them (but still willing to trade / try to make $ off of them). And it’s also why I think they’re so popular and more and more spin up. “If I’m in control of the money I can make the most / more!”
Yes… but that’s not really any different than the system we have. 🤦🏼♂️
I want a world where no one can control or manipulate the money. I want a world where the wealthy don’t get to make more decisions that benefit them at the expense of the poor.
I don’t know if Bitcoin is the answer to that, but it sure looks like it could part of the solution (or something like it).
If you’re wanting to think more about governable / ungovernable money and the history of money, read this article by, yes you guessed it, Lyn Alden.
Closing
And that’s it! As always, if you have questions, desires for clarification, or thoughts on how to improve this letter for yourself or others please reply and let me know or reach out on Twitter.
Also, if you are interested in any kinds of individual consulting services regarding your own Bitcoin or Crypto journey (getting started, trading, analytics, learning, advising, etc.), feel free to respond to this email or follow / reach out to me on Twitter, where I also post more nuanced / individual metric-specific charts there more often.
Thank you for reading!
Sincerely, Matt Rowe
Links and References
Data Provider: Glassnode (free on-chain charts, paid tiers available, I have T3).
My Twitter: @mattrowsboats (often provides on-chain analysis)
Crypto Learning Twitter Lists: On-Chain, Macro-Econ, and TA.
Disclaimer 1
Exercise caution, don’t lose it all. Please don’t trade on this newsletter assuming it is perfect information. Everything here is probabilistic and based off of past patterns, which may prove to be invalidated. Short time frames are subject to less accuracy as markets can change on a dime due to a variety of factors and events in the world. Use risk management as much as possible.
Disclaimer 2 (the all caps one)
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