There are three major factors behind this massive BTC rally in the last 2 months (+60% BTC since the $9800 lows in early-Sep):
1. Diversification away from USD as a result of debasement from unprecedented twin fiscal and monetary stimulus ;
2. Forced digitalization (and CBDC impetus) as a result of the worsening worldwide Covid situation
3. Increasingly used as a safe-haven / store of wealth in the face of macro uncertainty (particularly US elections);
The overnight price reactions to the Covid vaccine was quite telling — with Nasdaq selling off sharply along with Gold, even as S&P spiked to record highs. (Chart 1: Red — S&P 500, Blue — Nasdaq, Turquoise — Gold). Gold specifically had its second largest one-day sell-off in 7 years down 6% (Chart 2).
We think this reaction is a result of the market reallocating between the hard hit real economy (Russell 2000, USD, and smaller extent S&P) vs. beneficiaries of the stimulus/Covid economy (Gold, Tech, Rates, BTC). However, even as other assets continued selling off, BTC bounced strongly off 14800 lows. This is a positive sign indicating latent interest still looking to buy BTC on dips.
Entering the final stretch into year-end there are 4 things on our minds now:
- Whether good news will cause a sell-off for markets addicted to stimulus.
S&P has now faded below the vaccine headline levels (Chart 3), and Nasdaq has continued its weakness from last night. Equities in particular look vulnerable here especially if good news on the Covid front leads to bad news in terms of less fiscal and monetary stimulus.
2. We are now in the dead zone for positive stimulus catalysts — and markets will be reacting more to positioning and sentiment.
The next Fed meeting is 15 Dec and it would take a huge selloff to trigger any inter-meeting action. The run-offs for control of the Senate run-off is 5 Jan & Biden’s Inauguration 20 Jan, so we’re also very unlikely to get any fiscal stimulus before then either.
3. Specifically for crypto — whispers on potential appointments into Biden’s cabinet.
Biden & his VP haven’t aired their opinions on crypto in public before, so naturally any potential appointees will be scrutinized for their own views.
4. Trump still has 70 days as president — what scorched earth policy could he pull once he is forced to make his way out. China would be the clear target but anything is possible really.
For BTC, we will be looking to Thursday for clues as to any change in market condition. Turbo Thursdays have some incredible stats — since the Sep low, there’s only been 1 out of 9 Thursdays when BTC was down, with an average gain of 3.2%. We are looking to whether this Thursday can push us beyond the 16,000 resistance, or will the market need a breather after the massive run-up.
It is likely that the sharp bounces in BTC price yesterday and on Saturday were retail led — with the Perp funding spiking for the first time since Sep. One reason for the overall strength and stickiness of the rally in the last two months has been the absence of retail over-leverage, as evidenced by the flat funding up till now (Chart 4).
Our game plan now is to watch the parabolic trend that has propped this entire rally (Chart 5). Should we get a bounce off the parabolic trend support again (14,800–15,000 level), then we will refrain from selling calls and continue selling aggressive puts. A firm break of the trend support might see a period of consolidation. If so, we will begin selling calls above 16,000 (16,000 end-Nov calls are at 60% annualized). On a longer-term basis, 14,000–14,500 will be key for us and we will keep using any dip to sell 12,000 puts across the tenors for ~20% annualized as long as this level holds (Chart 6).