#2 Cliff's Edge

Bitcoin is teetering on a cliff trying to hold on.

Jul 20, 2021

The Only Value Investing Crypto Newsletter | 100% hype free

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CHEAT SHEET

(You can print this out at work to follow along. Wow! That’s a lot of red!)

Red = Bearish, Green = Bullish, Brown = Neutral since the date given in “Bias Since”. Support levels are where the price could bounce when falling and Resistance levels are where the price could stop if rising. You can find more details on how to read the cheat sheet here.

What We Are Watching

We further breakdown our case for these cryptos here : What We Are Watching

News About What We Are Watching

SUSHI - Sushiswap gets a name drop on CNBC.
This is big news! Sushiswap launches Trident. Look for a deep dive piece from us soon about what the implications of this could mean for Sushiswap’s role in Decentralized Finance (DeFi), and what Foot Guns we see.
LUNA - Launch of $150 million Terra Ecosystem Fund to promote development and use of the Terra Blockchain.
MATIC - Polygon launches new arm to develop Blockchain gaming.
AAVE - Grayscale has launched a DeFi fund that gives a 10% allocation to AAVE. This is AAVE news but we noticed that the fund has 50% UNI and only 5% SUSHI. We think in terms of relative value, SUSHI will outperform UNI in the short to mid term. We would suggest a higher weight to both the SUSHI and AAVE allocations.

TAKE ME TO (BTC) MAXI TOWN

Today we are looking at a chart from the famous and anonymous Bitcoiner, PlanB (@trillionUSD). PlanB is famous for creating the stock-to-flow model after the last Bitcoin bull run. You can see in the above chart the black line showing the model’s price prediction and the dark blue shaded area representing the standard error of the prediction model. As you can see, the Bitcoin price has recently dropped out of the dark blue area. It has only ever done this one other time in early 2019.

There are two ways to interpret this: 1) It’s a huge buying opportunity. The price is oversold compared to the model’s prediction and will soon correct (in the next 3 to 6 months) with a massive upswing. 2) The model is overfit and not a good predictor of future price. If this is true, the model should not be used as a buy or sell signal.

Possible Course of Action

Do nothing. Let the next 3 - 6 months play out and only buy Bitcoin if the price moves back inside the blue shaded region.
Reduce size of holdings. If you are currently feeling overexposed to the Bitcoin markets, reducing your holding size is prudent here. If the price continues to decline, it will enter a “no-mans land” where the price moves into discovery mode hunting a new bottom. This could be a volatile state that takes a long time to play out.

If you want to be a hero and catch the bottom, be sure to do so with appropriate size. If you have 100 units to spend put 10 on now and wait to see how this week plays out.

Price Action Summary

The Cliff’s Edge - Bitcoin went below $30k last night and could not take out the June 22nd low. If $28.5k breaks (June 22nd low) then $27.5k is the next short term support level.

The Bulls’ Defense:

On-chain metrics show the area around $30k has strong buying support
Historically Bitcoin price has reverted toward the stock to flow prediction

The Bears’ Prosecution:

Price remains below 200 Day Moving Average
US Markets down and Delta cases rising

ETH SHY BOY ZONE

I was writing this yesterday evening to tell you how after I saw ETH fail to rally back yesterday morning that the next level of support is at $1,740. But, hey - look where we are this morning - at support! So now, if $1,740 cant hold (and the price action looks awful so it might fail quickly) then the next major support level is at $1,550. Expect consolidation or a bounce off of these levels.

How we’re trading it: Boomer has a tiny (less than 1%) position in ETH, and Hal does not hold any ETH.