Bitcoin Crash Report — Bear Market Or Still On Our Way to $100K?
Welcome back.
It was a bloody Friday. Bitcoin plummeted from $57,000 to $45,000 within a matter of hours, or as low as $41,000 on some exchanges. First things first, did I expect this? No. No one can really expect flash crashes like this. I did say that we were due for a correction. I thought a correction from $69,000 to $57,000 would suffice in flushing out excess leverage in the system. But I was wrong in regards to the severity of the drop.
This is what I think happened. Bulls have been on easy mode since $30,000. September and November were far from bullish, but the overall uptrend since the end of Summer has been strong. Futures open interest and overleveraged longs kept piling up because, well, it was easy making money riding the bull trend and lots of people were expecting December to be bullish, myself included. Hence the capitulation as punishment. Large inflows into exchanges by whales made the punishment worse.
On the bright side, we’ve done a proper reset. Overleveraged longs that have been on easy mode for months have been liquidated and open interest is back to healthy levels to resume the uptrend, slowly. I say slowly because crashes like this create a kind of PTSD effect that takes time to recover from. We’re currently 18 on the Greed & Fear Index and it’s quite rare to see it below 20. The market needs time to close up the wound first.
So, are we entering a bear market? My simple answer is no. We do have to tread carefully and watch out for support levels (obvious yet important ones being $40,000 and $30,000), but my macro outlook on Bitcoin is still bullish. I believe this flash crash was a hodgepodge of fear of Omicron, an overheated futures market and whales punishing overleveraged traders as they always do. But I believe the bull market will likely continue into next year and the following on-chain metrics seem to support this thesis.
All Exchanges Reserve: With the whales depositing their BTCs into exchanges, we saw a slight uptick. But it’s being immediately followed by a downtick, which means this dip is being bought. Despite the bearish price action, the overall downtrend in Bitcoin supply remains intact and is in favor of the bulls.
HODL Waves: Older coins remain flat and we have yet to see a spike (which indicates retail FOMO) from younger coins. Remember all those tweets about an “extended/widened” version of the 2013 double-peak cycle? I still stand by them. I was wrong about December being bullish but it doesn’t mean my thesis is invalidated. I just have to tweak the timeline of my plan. More on that next week.
Spent Output Ratio: We’re dipping below 1, meaning people are panic selling at a loss. Hope you’re not one of them. As of right now, the downtick is not as severe compared to the 2020 Covid crash or the 2021 May crash. If you look at the 2017 bull cycle, we’ve had several instances like this (30~40% crash, dip-buying opportunities).
Relative Unrealized Profit/Loss: Same deal with this one. We’ve dipped back into the Optimism and Denial zone as bears take charge short-term, but I believe we’ll slowly bounce into the Greed zone. Flipping back and forth between these two zones is typical in a bull market. The way I see it, there are no big red flags at the moment.
I’ll be sharing more on-chain analyses as well as TA on Twitter. But overall, I’m unfazed by this crash. I don’t believe the top is in and I don’t believe this crash is enough to trigger a bear market. For now, let’s keep a close eye on support levels and watch how this recovery plays out. Thanks for reading and I’ll see you in the next one.