Did the Crypto Bull Run End?
(Originally published in the Espresso Substack on November 24)
Close your eyes and imagine for a moment the market took another dive lower.
Altcoins will bleed, friends and family will ask if the market is going lower, and you will likely be searching for answers across various news outlets, threads, Twitter, and more.
The uneasiness in your gut you might be witnessing from this exercise will likely be much greater if the market did in fact take a hit.
Now, continue to hold on to that uneasiness… And imagine the various thoughts that would enter your mind.
Is the bull market over? Are altcoins ever going to recover? Are whales behind this sell activity? Are these some of the questions you think will enter your mind in such a scenario?
Then taking this a step further…
If you had 25% of your portfolio in cash, would you have conviction in your next move? Or would you wait out this dip and wait for some other signal to show up? If you waited, might you miss the next big move?
As you continue to hang on to this uneasiness, figure out what the questions are that you need to answer right now to avoid this type of uncertainty. This way, if the market does take a dip, the way you act will be based upon conviction. Conviction that’s as dense as tungsten.
This thinking forms the idea behind today’s essay. Our team will provide you with some distilled Jarvis Labs metrics that helped us answer our questions. And hopefully it helps you answer yours.
But before we get to those metrics, I’d like to first mention Jarvis Labs is running a Black Friday sale. We are giving readers a chance to purchase an annual subscription for 10% off. The sale started Thursday Nov 25th at 0:00 UTC and ends Monday Nov 29th at 23:59 UTC. So act now.
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OK, back to the reason you are here…
The first question that is likely to pop up in the event the market dips…
Did the bull market end?
This is a concern I have seen various analysts in the cryptocurrency space begin to question.
Where Jarvis Labs stands is more along the lines of no.
Many of you may recall in our September 8 issue called “Mining the Data” there was this chart
Since then the market never dipped nor witnessed a close in the area labeled as “2021 Bull Run Invalid”. Instead, the market brushed itself off and charged higher.
Here was a chart from “Prepare Now” highlighting the strength after that correction.
Since those writings we have clinched a new high and begun to pull back a bit. And this pull back does not warrant the thinking that a bull run is over until we dip below this divide.
Where our team’s head is at is more along the lines of- another flush lower is what the doctor ordered. But before we get into why, let’s answer another possible question.
Are the whales selling?
Here is a 30-day accumulation chart of bitcoin. The closer to 1 or the closer to yellow the data point is, the more whales are accumulating. The closer to 0 and more blue the data point is, the more shrimps are accumulating.
In the chart below look at the red arrows. They point to strong whale accumulation happening during an uptrend. We saw this recently in the move to $65k. And in each of the three previous instances the price action in the months that followed were incredibly strong.
To back up this observation, when whale accumulation was noticeably absent — red square — it was in the run up to the 2017 top. This means the fact we recently saw whale behavior means we likely did not experience the last leg of this rally.
Digging into this chart further, we can change the accumulation period from 30-days to 7-days in order to see if the behavior of the market is witnessing a change only noticeable on smaller timeframes.
The arrows below point to accumulation patterns from whales that happen on smaller timeframes. As you can see when whales step in, price begins to move.
Also, when whale accumulation slows and the color shifts, the momentum on price slows.
These arrows right now are telling us whales are starting to step in. And this change will likely be reflected on the 30-day chart in a couple weeks.
This behavior is indicative of healthy demand from whales despite a new all-time high being claimed. It is not a characteristic of a top.
The response I have been met with from managers who I’ve shared this with is why are we trending down then?
Because the market is still pulling back from being overheated.
Let’s take a look at what we’re talking about a bit more.
Is this the dip to buy?
In periods where funding rates get a bit excessive, the green price line in the chart below gets peppered with red dots. After the market realizes a heavy dose of red peppered dots, it takes a bit of time before it gathers enough strength to trend back up.
We recently saw the market get a bit hot, and we are now cooling down from that period. This is the ebb and flow that happens and allows the market to gather strength and stamina for its next leg — which only happens when the demand we mentioned earlier is present.
Now, we also know the market is still pulling back and cooling off since “ROSI” has yet to flash a bottom signal.
ROSI our Reversal Onchain Sentiment Indicator tells us when onchain flows hit capitulation or over exuberance moments. When either of these two instances happen it historically leads to market reversals.
When will ROSI hit?
Well, since you are reading this market update and our team values your loyalty despite our infrequent publishing, we would like to loop you in on the next ROSI bottom call. Yup, you read that correctly. We want to relay this signal on to you.
The next time our signal flashes our team on either Twitter or our public Telegram room will use the code word “BLOOM” in some discrete way. That will indicate ROSI is signaling a bottom is likely in.
OK, so a quick summary on our market update…
The market is above the bull/bear divide, we hit an ATH with whale demand still present, the market is pulling back a bit after being overheated, and we haven’t had a bottom alert come in.
So, what does this analysis look like if we were to plot it on a chart?
It means this situation is in the cards.
I half joked on Twitter that $52k would create the last dip needed for a Livermore Accumulation Cylinder meme to be drawn. That’s what the chart above is.
And if we get a flush into $52k and this chart does come to fruition, I expect many analysts will start to publish something similar. Which would be exciting since self-fulfilling prophesies are strong in crypto.
You might be asking yourself what is the Livermore Accumulation Cylinder? Here is the diagram that many share when this meme comes up… It tends to indicate a pre-blow off top or breakout is forming.
But before we get there out team is expecting ROSI to signal a reversal.
To get a signal means a final flush out needs to happen. It will provide a reset on a lot of the market.
One area that tends to go unnoticed for resets is onchain leverage.
Onchain leverage encompasses instruments such as multi-collateral debt (MCD) positions or loans via smart contracts.
In times of volatility these collateralized positions can be liquidated as they move from over-collateralized to under collateralized.
We have yet to really see a flush on these debt instruments which tend to happen before upward trends resume.
The purple bars in the chart below show liquidation volume of ether. As you can see, red dots tend to pair up with market flushes.
Flushes don’t always need to result in liquidations. Instead it can merely cause borrowers to repay debts as things get uncertain to avoid being a liquidation statistic.
In the chart below we have loan repayments. These also pair up with drops. We haven’t seen a red dot show itself here yet, suggesting a final drop could produce one or two.
While we expect to see the credit markets have a bit of a flush, it is important to check and make sure there are even loans being opened up. After all, if no loans are being created, no loans can be paid back.
In the chart below the yellow show new loan volume. We don’t need to analyze this much more in terms of price, just knowing that yes, loans are being created tells us a flush would cause some loans to be repaid or liquidated.
As an interesting aside: note the profile of loans here. There are less small to medium size loans happening. This is likely due to the cost of using Ethereum.
The credit markets are an often overlooked component to crypto markets. Most don’t realize this part of the market also experiences a reset during dips. And once the reset takes place, markets can more easily gain momentum to move higher.
The reason markets can move higher more easily has to do with credit creation. As loans are created, more money exists in the market.
If you have $10,000 in ETH and lock it up on MakerDAO for DAI tokens. And you borrow $4,000 worth of DAI against your $10,000 of ETH… You created $4,000 that didn’t exist. Meaning more dollars are on the Ethereum network and can be used for many different activities — one of which is buying.
This loan creation is similar to leverage on exchanges. With full resets the market is able to generate the momentum it needs to punch higher as new positions are opened.
This reset and continued whale demand is what we are focused on at Jarvis Labs.
Now, in this market update our team took the time to address the questions we believed would surface if the market dipped hard tomorrow. These are our answers. It’s how our team builds conviction in the face of volatility.
Time for you to do the same.
Your Pulse on Crypto,
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