Market Analysis There will be a sharp decline before the next rise, a bear market is approaching.

Bear market approaching, expect sharp decline before next rise.

Original Title: Waiting For The Biggest Bears

Original Author: Ben Lilly

Original Source: substack

Translation: Kate, Marsbit

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The earth is shaking.

When you feel the instability under your feet intensifying, the last thing you want to hear is something happening thousands of miles away.

Therefore, I won’t discuss my original thoughts – discussing the dynamics of the International Monetary Fund (IMF), the Federal Reserve (Fed), and other central bank governors – given the recent price movements, I will redesign today’s Blend to make it more relevant to recent price fluctuations.

I will divide today’s insights into short-term, medium-term, and long-term discussions, discussing our views on the market. This way, I won’t sound completely detached from reality.

Let’s get started.

Short-term

Last week, I mentioned in the Alpha Bites program that CARI issued a signal. This is one of our internal reversal indicators.

The chart of CARI is as follows. You can see that this helps the team better assess the market. The blue dots are the signals. The most recent dots appeared on August 12th and 13th.

This signal is consistent with some reports from the team, namely that the trading volume on exchanges is very low, suggesting low liquidity. In fact, we started monitoring the liquidity of Tether (USDT) at this time. The reason is that its linkage with USDC seems a bit soft.

These observations have given us more confidence in the flickering of CARI.

We all know what happened next: the tremors intensified until the ground collapsed and prices fell.

In response, the market became overly excited and started shorting.

The chart below shows the funding rates for the past five months. As you can see, the appearance of negative funding is not frequent (the fourth part).

As a reminder, positive funding rates are considered neutral. This means that long positions are paying to maintain their open positions to short positions. When funding is negative, the situation is the opposite. Short positions are now paying rewards to long positions to maintain their open positions.

Negative funding is abnormal. That’s why when it really happens, prices like to go up and solve this excessive desire by stealing people’s lunch money.

We can observe similar dynamics in the options market.

The indicator I rely on is d25 deviation. It basically requires two option contracts that are similar in price difference to the current price of Bitcoin (d25 = 0.25 delta and 0.75 delta contracts). This indicator compares the two. If the number is negative, it implies overly negative sentiment.

For cryptocurrencies, negative bias is definitely not the norm. In the chart below, the red box highlights the contracts with a distance to expiration of about 7 days and 30 days, expressing this negative sentiment.

All of this negativity occurred right after the market lost hundreds of millions of dollars through liquidation. This is the largest liquidation event of the year. As you can see in the chart below, the price wiped out some long-standing low-leverage long positions.

All of this indicates that the market is suggesting that the price is ready to trade within a lower range. Now we see that the bears are late to the party.

Looking ahead, I expect these bears to experience some pain, either through higher prices or more “crab walks”.

But what also needs to happen is for the market to generate some downward liquidity. A sudden drop to new lows still feels premature. I can see subtle relief here, resetting some funding rates and liquidity.

This is a good transition to a medium-term view.

This is a good continuation of the medium-term view.

Medium-Term

We still need some time for this prospect.

My initial impression is that in the next few weeks, we will indeed trade sideways within the range of $25,500 to $28,500. Ideally, I would like to see a clearer pattern form in the chart below.

Show CVD points. It basically tells us whether the buyer or seller controls the spot trading volume. If it tends to decline, the seller dominates. It has been a very reliable indicator since the beginning of this year (using a 4-hour timeframe).

I’m waiting for one of three possibilities. I’ve drawn them below. Basically, the CVD spot indicator either fails to return to the white trend line and then declines, returns to the white trend line, or breaks through the white trend line.

Before being too confident about anything, I want to see what happens here.

While we wait, one thing has been lingering in my mind. It’s a simple fact that last week we broke below the 200-day moving average.

When Bitcoin breaks this moving average and the next halving is less than a year away, historically, it has been a good buying opportunity. It usually lasts only one or two months. The premise is that we consider the major pandemic of 2020 as an anomaly, which I will explain more in the next section.

Therefore, in the short term, I lean towards a relief rebound to flush out some overly eager bears. In the medium term, I think we will have more sideways movement, eventually leading to a sharp drop, a final shakeout, and then a rebound, witnessing Bitcoin absorbing liquidity from small-cap stocks, which will boost its dominance in the market.

This will send a signal to the market that it is time for an uptrend. This is the mid-term event I have been waiting for, and I am getting very excited.

The sharp decline before the uptrend is a way to bring out the biggest bearish sentiment. This has been the case for several months.

This will create a lot of liquidity and bring upward momentum through a reversal. This will be a very strong signal that the long-term view is now ready to take center stage.

Before that, it may be best to start averaging into Bitcoin as it is below the 200-day moving average, waiting for the moment to surrender.

Long-term: Only up

This part is relatively short.

I mentioned the data of the 200-day moving average before. As early as April, I explained my long-term view in more detail, and this view still holds true today.

Well, let me add to its importance…

Every time the Bitcoin price halves, the price does not close below this moving average until a major top appears. This is important. It cannot be ignored. You can see this in the red box below. The vertical red line is the halving, and the moving red line is the 200-day average.

The halving time is April 2024. This means that the mid-term price trend I previously predicted may last for 3-5 months. Not just one or two months.

Many people may have a hesitation that in 2020, the price fell below the 200-day moving average and think that we may see this situation again. You’re right, we may. This is a black swan scenario. A black swan refers to an event that cannot be predicted by definition.

But what I want to say is that in 2019, the price rose a lot from the low point. From early 2019 to July 2019, the increase from the low point to the high point exceeded 300%. From the end of 2022 to the high point in April this year, we only saw a 70% increase. The market is not as hot as the previous cycle. That’s why I think we are more in a sideways market rather than a slow and painful decline like in July 2019.

In fact, if we surpass the 200-day average before the fourth quarter and still feel like we are in a sideways market, I wouldn’t be surprised.

But once we get through this boring and ugly period, it will move towards a new all-time high as shown in the chart above.

That’s it for today. I’m trying to focus on the near term because that’s what matters most.

Until next time…

Your Pulse on Crypto

Ben Lilly

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