Hi YXI friends,

Today we are going to look at the state of crypto, with a primary focus on the chart technicals.

If you haven’t already, please read our primers on Bitcoin and Ether. I am yet to write up primers on altcoins such as Solana and Cardano, but the Ether primer serves as a good starting framework for understanding the underlying principles of these altcoins as well.

Secondly, throughout my future market updates, I will break down my exact thoughts on how to use the various tools at hand, including fundamental analysis, technical chart analysis, and macro or seasonality. To me, they are all interlinked to provide us with the big picture view.

Let’s dive in!

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. The Rise in the US Dollar Has Made Things Difficult for Bitcoin

If we think about BTCUSD as a currency pair (just like EURUSD), it becomes obvious that when the USD strengthens, BTC by default weakens. US Dollar’s strength is often a function of the US interest rates - higher interest rates attract capital flow from abroad as foreign investors seek higher returns.

BTCUSD vs DXY Hourly (https://www.tradingview.com/x/Oi336JK8/)

The chart above plots Bitcoin price (in dollar terms) versus DXY, the US Dollar Index. We observe an inverse relationship between the two variables, where the dip in DXY in early September helped Bitcoin strengthen. However, the latest surge in Dollar strength, propelled by higher US Treasury yields, has put significant pressure on Bitcoin.

Will the US Dollar strength last? In my last article, I discussed that UST yields could be entering the reversal territory with TLT potentially bottoming. It would follow that the US Dollar should start weakening with lower yields, but buying oil assets, e.g. USO could provide an effective hedge if the thesis fails to play out.

2. Fast Money Sees Outflow

Here we define “fast money” as those who have been holding Bitcoin in their addresses for less than 6 months.

The fast money proportion of Bitcoin holders peaked around 27% in the past year, and has declined from August to just 21% today.

There has not been many outsized ETF flows in Bitcoin either. There was some buying on the back of FOMC’s 50bp cut, but cancelled out by the month-end outflows.

3. BTC vs ETH

BTC vs ETH Daily (https://www.tradingview.com/x/y1rL962S/)

Compared with Bitcoin, Ether has fared even more poorly in the past 3 months. While Bitcoin still hovers above 40% return YTD, ETH is essentially flat on the year, retracing from the 75% gain made before March.

In the long term, I see a big difference between the two assets, regardless of CFTC’s labelling of both as “commodities”. Bitcoin should win out as the “hard digital money” like Gold outcompeting Silver. Ether’s growth likely depends on the value of the Ethereum network, as do altcoins like Solana and Cardano.

But that isn’t to say Bitcoin is definitely “more valuable” per se - Apple is a $3.5 trillion company / ecosystem, and there is no reason why Ethereum couldn’t be as big. My point is that over time Bitcoin and Ether should start to decouple and trade according to their individual merits.

4. Technical Analysis: BTC, ETH, COIN

Before we go into technical analysis we must caution that:

1) Technical analysis is just a set of tools for our subjective analysis of price action.

2) The shorter the time frame and lower the liquidity, the harder it is to get predictions right, due to a higher prevalence of noise and randomness.

What I like about Elliott Wave Theory is that with every chart, it is hard to be indifferent - the price action is either motive or corrective. If we are forced to invalidate our thesis or counts (which happens more often than we’d like, especially going into shorter-term analysis), it becomes psychologically easy to stop out of a trade or reassess the chart altogether. The ability to stop out of a losing position is perhaps the single biggest trait that separates the sheep from the goats.

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