Tech Update: 22 Feb 2021

QCP Capital
5 min readFeb 22, 2021
Chart 1

We’re well into the 5th wave of the BTC rally from the March lows now — a wave characterized by declining volumes versus the prior 3rd wave, as nobody wants to sell here at euphoric fresh all-time high after high (Chart 1). Rather many in the past month have taken their mark-to-market BTC/ETH profits and spread it around the higher-beta Alts as well. This was also the hallmark of the 5th wave in 2017. We’ve started seeing low liquidity BTC moves across exchanges lately, even on Coinbase where most of the institutions are doing their buying. A lot of leverage has driven this last move — with the 5th wave alone doubling the leverage from $10bn to $20bn in less than a month, versus the slow steady wave 3 which took 4 months to increase by the same amount, but coming from a much lower base (Chart 2).

Chart 2

BTC stalled just shy of $60k late Sunday night — at the 361.8% Fibonacci extension of the 2017 move, which has worked well in projecting the prior waves of this rally. Wave 3 ended at the 261.8% extension, and Wave 4 retraced to just above the 161.8% level (Chart 3).

Chart 3

If we do break higher however, we have the 423.6% projection as the next target — that’s at ~$1.25tn market cap or $68k per BTC. This would then equal to roughly half of Gold’s market cap. Looking lower from here — we have $54k as the first trendline support, a break of which will take us to $50k which is the stronger second trend-line support. These 2 are the retail leverage levels — and a break of these on forced retail liquidations could take us to test the 40–42k which is the hedge fund trading level corresponding to the parabolic trendline. For us this has to hold to preserve the strong bullish momentum, and is now the bull/bear line in the sand for us, with 30k our hard core long stop level (Chart 4).

Chart 4

With ETH trading one step behind BTC, the weakness has spread here to a higher degree following the failed break of $2k over the weekend. The ETH/BTC chart is looking even lower, likely to retest first the trendline at 0.0275 and more importantly the 0.023 base level that we’ve highlighted as a long-term switching point from BTC to ETH for larger institutions (Chart 5).

Chart 5

Without much institution support yet for ETH, retail leverage will make all the difference trading, and we’ve been watching the build-up in ETH leverage with some apprehension (Chart 6).

The trendline support around $1,700 now is key to trend continuation. Below that $1,470 is the next support level, but we don’t see anything very strong until $1k. We think on any weakness ETH would come off much faster from here, and have rolled all our short puts to $1,000, $800 and $600 on the longest end — which we like very much as a long-term accumulation level (Chart 7).

Chart 7

We’ve been expecting some weakness over this period owing to the seasonality. On a more granular weekly level, we can see on both BTC (Chart 8) and ETH (Chart 9) that the next 4–5 weeks will be key. With the low volume rally we’ve seen combined with high leverage and 5th wave dynamics, we prefer erring on the side of caution over this seasonal period of weakness.

Chart 8
Chart 9

On a fundamental basis, we wrote last week about the key to this whole rally being central bank liquidity, and this week’s Powell Senate & House testimony, and next month’s FOMC meeting will be strong drivers. We definitely expect Powell to be as dovish as always, especially in front of his new employers now — but wonder how high the market’s bar is. If he is questioned on tapering and mentions anything construed to be possible, no doubt there will be major disappointment. Many other Fed speakers have now turned more hawkish, and Powell for us is the last line in the sand.

In terms of trades — for BTC we’ve had on the long 48k-56k 1x2 end-Mar call spread, and we still like to keep it here letting the 56k short legs decay further, and looking to sell the delta of this structure too below key support levels especially if we break and close under $50k. Into this period of weakness we have stopped offering all puts on both BTC and ETH, and starting selling higher delta short calls at 60k-80k for all tenors up to Dec-21. What we like now as a trade is locking in the later date futures spread on both BTC and ETH (buy spot sell futures date) as we don’t expect much curve steepening from here for the next month or so at least. Any unexpected weakness too similar to last March and this trade would outperform massively. For BTC & ETH the curve is almost identical — 31% annualized for March & about 24% for June and Sep (Chart 10 & 11).

Chart 10
Chart 11