Uncharted #16: Distilled
30 May 2022
In this version of Uncharted: Distilled, we deep dive into bitcoin’s development amidst a decelerating economy. We zoom out and compare bitcoin’s performance to other risk-on and risk-off assets to determine how investor sentiment makes way for the months ahead’s price action.
Let’s dig in!
Uncharted #16 kicks off by comparing bitcoin’s staggering price action to traditional assets and the Fed’s balance sheet. We then transition into the potential buying opportunity brewing from an on-chain perspective alongside assertive hedging behavior in the options market. All in the context of increasing risk according to Swissblock’s Bitcoin Risk Signal and underperforming alts.
Bitcoin is setting up for another consecutive losing week, yet the price action appeared to have bottomed for the time being.
The ties to US equities and bonds loosened following the Fed discarding a 75bps and a more dovish outlook for Q4.
Bitcoin’s price action has been sensitive to the Fed’s balance sheet, which undermines the inflation hedge narrative and paves the way for its liquidity transfer mechanism nature.
The entity-adjusted dormancy flow consolidated within the buy zone suggesting a potential bottoming, due to easing selling pressure, encouraging investors to buy at a discount.
The risk of a capitulation subsided as short-term holder seller pressure was exhausted due to lower volatility.
Crypto-backed open interest extended upwards alongside an unprecedented surge of margined long positions on Bitfinex, which could lead to massive liquidations if volatility picks up.
In the options market, bitcoin’s put-to-call ratio hit a 12-month high while traditional markets’ perceived risk of a black swan event eased.
Bitcoin has eroded nearly all altcoin excess returns as risk encouraged investors to shed risk off their portfolios.
Bears will face significant support around $26-$28k as buyers recognize bitcoin’s value at the said levels.