Crypto Market Update 12.16: EOY Bitcoin Price Probabilities
Price Probabilities | Market Update | Major News | Newbies: What to do when there is leverage in the markets
Overview
EOY Bitcoin Price Probabilities
Crypto Market Update
Major Crypto News
Notable Events
NEWBIES’ Lesson of the day: What to expect when leverage is high in the market.
Below is a Ryan Selkis tweet that helps express a few reasons I participate in crypto.
Ryan Selkis is the founder of Messari, who recently released his yearly publication titled "Crypto Theses for 2022." I am in the process of reading this very informative 165-page nugget of wisdom that contains predictions, trends, and themes for crypto in 2022. I do expect to write about it, so stay tuned. Here is the link if you would like to download it. Onwards.
Market Insight: Bitcoin EOY Price Probabilities
I have an options trading background, and the entire game is probabilities-based. The poker players out there can relate. Before I would sell options to buyers, I would play out possible scenarios for a stock’s price and weigh that against the future probability of price. I would then decide if the option’s price was high enough for taking the risk.
I continue to use those skills in crypto, mainly in bitcoin. There is little options data for other crypto, and bitcoin still steers the ship. I only use the analysis to get an idea of future price action, and I don’t partake in bitcoin options. I’m more of a long-term holder with some trades sprinkled in to keep me entertained.
Below is how I would analyze price probabilities. Keep in mind that I would do it all in my head in seconds. I’m not trying to brag but bear with me if the data is disorganized. However, I will try to present it the best I can.
I believe that nothing is definitive, and probabilities devised from historical trends and math are the best chance to prepare for outcomes.
If you don’t enjoy technical stuff, feel free to drop below to the conclusion.
Using the Dec 30 Bitcoin Options Expiration:
The 52k put option has a delta of .69 or 69% of BTC expiring above 52k
The 44k call option has a delta of .73 or 73% of BTC expiring above 44k
The Max Pain is 46k (losses for highest amount of traders)
Chart expressing those marks:
The market is telling us that there is a 71% chance Bitcoin closes between 43k and 52k on Dec 30, 2021.
Price has a 62% chance of touching 52K and a 54% chance of touching 44k. Probability BTC touches both prices are high.
Let us explore other technical factors.
Bitcoin is in a short-term downtrend and aligned to hit 44k. (Blue)
Price will be drawn to Max Pain at 46K.
Strong support at 40–42k (white).
Strong resistance at 52.5–54k. (Unmarked)
Quick Conclusion
The downtrend has not broken, and traders seemed a little too optimistic yesterday. The max pain will also influence the price downwards to 46k. Touching 44k looks like a likely scenario.
Significant support at 42–44k will be important to monitor. However, unless bearish news enters the market via the Evergrande situation or other macro FUD, it’s likely to hold.
I remain optimistic that the price will rebound if it reaches the 44k support. Max Pain will likely alter to a higher number at that point. Price then has a good chance of recovering EOY to 50–52k.
Optimistic probability: 50–52k BTC EOY
Pessimistic probability: 45–47k BTC EOY
Worst Case (~15%): Price breaks below 42K
Best Case (2%): 75K
Crypto Market Update
Bitcoin (BTC) is down -2.52% after a quiet day in the markets
Total Market Cap (TOTAL) is down -1.77%
Notable Gainers:
Arweave (AR) +7.4%
Celo (CELO) +15%
Terra (LUNA) + 7%
Kadena (KDA) +6%
UFO gaming (UFO) + 25%
Bitcoin Fear and Greed index: 23 Extreme Fear
Google Trends: 31
Max Pain (Dec 30 Options): 46k
How to use The Fear and Greed Index for investing
Major Crypto News 12.16
A bipartisan group of U.S. Senators has called on Treasury Secretary Janet Yellen to clarify the language in the infrastructure bill. The issue stems from the definition of “broker” that is vague enough to include developers, validators, and node operators.
CoinFLEX (FLEX) becomes the first centralized exchange to launch a DAO and distribute revenue and profits to users. They will distribute 10% of daily revenue and 10% of quarterly profits to their stakers. Users can participate with as little as 1 FLEX coin and choose to stake from 2 weeks to 4 years. FLEX is up 101% in the past 30 days.
A group of six notable universities, including Berkely, MIT, and Harvard, will form EduDAO to promote Web 3 innovations that BitDAO will finance. It’s nice to see prominent universities getting into DAOs. DAOs could be an innovative method to fund various things in the future.
Financial institution New York Digital Investment Group NYDIG, specializing in Bitcoin financial services, announced it secured a $1 billion equity investment that places its valuation at $7 billion.
Notable Events
The Sandbox (SAND) is dropping a collection of NFTs named “Missing Parts” on their marketplace starting Dec 17 at 5 pm UTC.
Terra (LUNA) list on Kraken Exchange today
Litentry (LIT) is likely the winner of the next Polkadot Crowdloan that ends tomorrow. Today is the last day to allocate DOT.
Secret Network (SCRT) will launch its Stashh NFT Marketplace tomorrow.
NEWBIES’ Lesson of the day
What to expect when there is leverage in the market.
Think of the market as a balancing game. When specific forces such as leverage become too influential, the market returns to equilibrium.
Most leveraged positions are long; as the market begins climbing, optimism and leverage will climb alongside. You can spot this trend in the chart.
If the market becomes overleveraged, expect attempts to flush the leverage out. The most effective strategy is the simple one: a fast drop in price.
At this point, leveraged positions will begin to get stopped out, often being bought by the same participants who forced the market down. Remember, every seller has a buyer and vice versa.
Funds quickly change hands, and the cycle begins anew.
Dec 4 is an excellent example of leverage flush out.
In less than one hour price went from 50.5k to 42k and back to 47.5k. Abnormal activity if you ask me. These large extremes in price flushed out approximately $5 billion worth of leverage in one day, and the majority occurred in one hour — $5 billion is plenty of incentive for manipulation.
So what’s the best thing to do when leverage is high?
Unless you’re running a very active strategy, it’s best to hold and not enter any new positions during high leverage. Like I’ve spoken about in the past, wait for drops in leverage, drop in price, and fear to strike the markets to open positions. (Fear and Greed Index Above)
I know, I know, I wanted a 100k bitcoin to end the year, but it seems impossible, at least mathematically. But who knows, maybe a Bitcoin ETF will be approved next year, and we can all celebrate Christmas again.
Today’s newsletter was a bit technical and not for everyone. Still, I enjoy keeping things varied, so come back tomorrow, and it will likely be something else.
Have a great night!
Gabi
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