Obviously you know everything’s, like very nuanced, you know if we get up to this level. Um and you know derivatives is you know, you’re, seeing funding decreasing, open interest. Increasing you know – maybe that’s a you know, sign that we’re probably going to squeeze up to about 52-53 area, so i’m kind of just playing it level to level. But these are the levels that i have drawn out that i think are kind of most important. For now, hey welcome back everybody to altcoin daily.
My name’s austin here with aaron joined by friend of the channel and on chain analyst will clemente man thanks for joining us. Hey you guys appreciate you having me back on. It’S been too long. Yes, dude and yeah. Absolutely and since then, you have started your own youtube channel, correct yeah.
I have a channel called blockwear intelligence uh. We did different podcasts with people like uh we’ve had willy woo plan b, uh michael saylor, on some of the bigger bitcoin names and then as well as i just started. This on-chain analysis educational series, where i’m walking through some you know surface level, on-chain stuff, we’ll kind of progress into more advanced stuff over time, but i’ve done three episodes so far so yeah, i don’t want to get too chilly, but you know anyone who uh wants To check that out feel free to ape into his youtube channel if you get in before 10 000 subscribers you’re getting in early early stages, one thing uh, the links to your twitter and youtube channel are down below one thing that i always find is i can’t Get enough of the on-chain data i wish more people were talking about it, so i’m glad you started the channel. Well, can i just say: will is more than just an on-chain analyst that was on his twitter forever? That’S why everybody calls him an on-chain analyst, but let’s be clear, he is an analyst thanks.
Man, you must. You must have seen my tweet huh yeah yeah. I mean, i think um. You know i think on-chain was definitely like what i was known for right, but um. I definitely think, like my view of the market, has evolved to be a lot more nuanced.
I don’t think you can look at like one specific thing uh and to come to. You know your broader conclusion of what’s going on with the market, i think it’s a mix of several different things and just understanding how to kind of you know bring those things together and mesh them together to kind of give you this best, like overall structural view. What’S going on, i think once a piece in that, but um, especially when open interest is so high as we’ll look at in a second. I think derivatives data is extremely important in times like now. Let’S just jump right in take us to the chart.
That’S most relevant to us or wherever you want to start off with sure i just went ahead and uh shared my screen. I can see it all right cool. So what we’re looking at here is open interest relative to market cap. So, let’s break that down so open interest is telling you the amount of open futures contracts in the perpetual swap market, so perps are based or perps they’re short for perpetual swaps. Um are the most liquid product in the bitcoin market and also the i give you like access to cheap leverage.
You know this is where you can go and do like 125 x, leverage on finance or whatever um so open interest is telling you the amount of open contracts for perpetual swaps. So it’s not telling you like, i often get asked. Can you tell me how many longs or how many shorts are open in the pert market? That’S not how it works. It’S just you know: there’s a contract, there’s a person on the long side, there’s a person on the short side, and it’s just about understanding the risk that the person on each side of that contract holds, and so like an example of this would be.
Let’S say: there’s a retail d: gen, that’s just looking to get access to cheap leverage. They want to go 50 100 acts long on bitcoin for whatever reason guilty, so they’re they’re in the long side of the contract and they’re, obviously taking on substantial risk. On the other side of that contract, you could have a market maker which market makers are basically paid to fill orders and they they get paid by the amount of volume that they transact on each platform. They just get a fee from the exchange, but they’re non-directional in nature. Right and that’s a term.
We call delta neutral, so they have no directional bias at all times. Their books are balanced, their deltas are hedged just what the you know. Fancy finance term is called for that, and so in this case, where we talked about the you know, the retail degen is on the long side. You have the market maker on the short side, but they might be hedged in spot, so they might be long spot. Bitcoin and then short the perp, and so yes there’s you know one person on the long and short side of that contract, but the risk the risk uh parameters of both participants is completely different, right, they’re, the person on the wrong side.
In that case, the retail degen is is taking out a lot. More is taking a lot more risk, so open interest again doesn’t tell you. I know i said a lot there, but open interest doesn’t tell you how many longs or shorts are in the market. It just tells you how many contracts are built up in the system. How much leverage is in the system, and that’s where we get this this term open interest is telling you how much open engine how much interest is.
Is there excuse me to be in the perpetual swap market and so we’re taking the amount of contracts in the system, the open interest relative to market cap, and that’s where we get the some people call this metric open interest dominance? You just call it market cap to open interest ratio, you’re just dividing market cap by the open interest, and so that’s the that’s the blue line you have here uh so like maybe you’ll ask like. Why do that? Why not just look at the raw? You know value of open interest.
The reason is because you need to see how large this open interest is relative to the market cap, because, let’s say you know, let’s say open interest, that’s just random numbers. Let’S say open interest is at uh, you know 100 million and bitcoin’s market cap is at 250 million. Well, that’s a lot more substantial than if open interest is at 100 million and bitcoin’s market cap is at 1 billion right because it’s you know it’s it. You know bitcoin’s market cap and the first example is 2.5 2.
times larger versus you know at a billion it’s ten times larger. So the you know this basically adjusts open interest for um for like how large bitcoins market cap is so like. If i pull, if i pull this up this green line, this is just this is just open interest in person. Ask you something real quick, yeah, i’m familiar with markets in general in the cryptocurrency market, i know about spot buying. Somebody buys somebody sells that makes the price now what you’re telling me here with futures and derivatives and open interest a question to you is, i guess, percentage-wise.
How much does this factor into the price versus the spot right? So this is. This is basically what open interest is telling you so like when open interest is higher. You need to be factoring this in more so because the you know, the amount of the amount of futures activity is larger relative to market cap. Whenever, whenever it’s down like right here, like, for example, you know we’re looking at mid-may, it’s it’s way lower.
So it’s telling you that you know the size of the open interest relative to market cap is much smaller, so you can give more weight to what’s going on in spot. You know spot has a larger influence on the market at that time same as here here recently here right, but currently we’re way up on this metric up in this. If you’re going to draw like this imaginary kind of zone up here, you know this like overheated zone or whatever you want to call it um. You know opening has been hanging out here for several weeks now it’s been two or three weeks up in these areas. Where previously, we’ve seen a flush, so you know in this case this was a long squeeze in this case this was a short squeeze, another long squeeze another long squeeze, and this is still kind of tbd right.
We’Ve seen we’ve seen this slowly grind down a bit. Came back up over the last two days, but still we haven’t seen any type of flush. I mean this is a one day movement. You know one day, movement here, a one day, movement here and here as well right. So i’m still waiting for that kind of major flush.
In that sense and the question will and when this flush happens, does that mean the price is going to go down substantially right? And so this is where we need to look at other metrics to tell us about the positioning of that open interest. Because, again, openness is just telling you the amount of contracts, not about the positioning and that’s where we can look at things like a funding rate or long short ratios. And then we can also just look at something as simple as how is open interest reacting to price. You know, where is the open interest coming in?
Is it coming in as price is moving up? Is it coming in as price is moving down uh? How is it in? How is it interacting with price? You know if you see bitcoin sweeping you know some lows and you see open interest close out well, what does that tell you versus you know when you see open interest, closing as bitcoin’s price is sweeping the highest right uh.
So you know, there’s several different things that you can look at, but open interest in itself is just telling you basically, like pressure, is built up right. Think about like uh. This is an analogy i just made up top my head. Like let’s say you have a balloon right, you blow up the balloon, that’s telling you that’s the open interest, building up as soon as you let the balloon go and it starts to blow all over the place. That’S all based on the on the positioning in terms of the other metrics we talked about, but no open interest is just telling you that the balloon is blown up cool.
I get it and we’re that balloon is getting blown up, higher and higher, or bigger and bigger. I see from where we are now yes and, and so we can look at some other things like uh again, like funny rate long short ratio to kind of give us a gauge. As to you know where that aggression is, we can look at that if you’d like, let me pull up funding great yeah. So, while i’m doing that i’ll talk about these two metrics, so long short ratio is comparing well, i love being educated, but really when it comes down to it. I want to know if price is going up or down, so i hope we’re getting to that yeah.
We should i wish it was that simple man all right, i’m just joking around dude. This is very no, no, no, no totally yeah. So long short ratio is telling you the amount of accounts that are net long relative to net short. So you know obviously again like there’s always a long for every short, but long short ratio being high means that there’s more accounts that are net long versus accounts that are net short and generally, you want to fade what the majority is doing right. You want to fade what the majority, which is mostly retail in most situations or is doing, and then this is the other.
This, the other indicator that you can look at to kind of gauge aggression of positioning. This is funding, so funding is telling you the delta or the difference between the weighted average price of the spot exchanges and the perpetual swap price. So, whenever funding is positive, so whenever it’s green on this chart, it’s telling you that longs are paying shorts because there’s more interest to go along relative to being short generally but um, yes, generally yeah generally green green is bad um, because it’s telling you that you Know the pert price is trading above the spot price, which you just you know. Healthy rallies are really driven by by spot or at least initiated by spot, rather than rather than derivatives, which are you know when we’re talking about. Perps are highly leveraged market participants, um and so, like you’ll, see whenever we have a corrective phase.
What you want, what you want to see is like a regime as i call it of negative funding. So if we look at the recovery after march 2020, if we look at the recovery after september 2020, we saw regime of negative funding. We were you know what funding was bonkers. You know throughout early 2021, obviously we were in a massive state of euphoria. Um then came back down had another regime of negative funding over the summer, you’ll see during this corrective phase at the end of september, and then here we’ve started to carve out some negative funding, but overall we’re not it’s not quite as clear as you know this.
This area that we saw over summer, this was clearly you know. Funding was funding, was you know, majority negative for this whole period as well as as it started, to grind off these lows when we zoom in here as it started to grind off the lows, you saw funding go more negative, so it showed you that spot was Really leading this rally slash the fact that perps were fading the rally and then eventually we got this big squeeze right here, um and so with. That being said, i think it’s it’s a lot more difficult to gauge the positioning based off of funding um. Just because you know we haven’t had this clear regime as we did. You know over summer, for example, you know again, we have started to see some negative funding, but this isn’t quite as bullish of a setup, as perhaps a summer 2020
So this was a basically uh, you know really high level sophisticated way of saying it could go either way, and so with that being said, let’s look at let’s look at some price action because i think i think um you know, price action is is not more Telling, but i think the way you kind of have to approach this right now is you kind of have to set levels for yourself in terms of invalidation or saying you know if the market reclaims this level i’d be looking for, you know, i’d be i’d, be Claiming that you know momentum has been reclaimed um, just because the future setup isn’t explicitly clear, at least from from my perspective uh, and so with that in mind, i think the most important level remains to be this 40k level when we zoom out uh.
You know, i think, first of all we’re just in this giant range between 30 and 60
But 40 is kind of that point of control for the middle of the range and it’s kind of where price is interacted with the most and kind of been this key pivot point for market structure from like a higher time frame perspective like a broader perspective, uh And so i did start i bought like two weeks ago, around 41k, i’m still sitting on those spot buys um and i’m looking for i’m looking for. You know this area to perhaps uh get tapped for my first tp on that, as well as this 52 area. But i think if you’re talking about you know looking for momentum to be reclaimed, i think this is the first level around you know, 45 46 and then, if you’re a bit more conservative um this 53 area. I think this 53 area is kind of that. Pivotal point for high time frame momentum to be reclaimed um.
I you know for for these buys that i made two weeks ago. They’Re really just kind of a play on mean reversion for kind of a balance up to this area, and then i think kind of at the highest that this area. That’S my base case that we probably set some kind of macro, uh, low or high at these levels. Um but yeah i mean we’ll see how the derivative setup goes when we get. You know how it looks when we get there.
Obviously you know everything’s, like very nuanced, you know if we get up to this level. Um and you know derivatives is you know, you’re, seeing funding decreasing, open interest. Increasing you know – maybe that’s a you know, sign that we’re probably going to squeeze up to about 52 53 area, so i’m kind of just playing it level to level. But these are the levels that i have drawn out that i think are kind of most important for now and if we can’t hold 40 40 000 where’s, the next support um i mean i think for now. My my base case is that 40 is cheap.
I think if we start closing below 40, that then kind of gives you the the market is telling you that 40 is then expensive, and in that case i think i would kind of just resort back to this massive range that we’re in between 30 and 60
I think that kind of really gives validation to that thesis if we start closing below 30. um and so yeah, i mean, i think, like buying that initial retest of 40, which is essentially what i did. I missed it by like uh like by like one grand you know. I think it also just offers you really clear invalidation to your point. It’S like you know if we start closing below 40, that gives you a clear.
You know signal to say: hey, maybe i’m going to step out of this trade. You know my idea for the trade has been invalidated, but i think you know on the initial retest of this really important macro level. You know i think after you know, seeing down only for two months. I think at least expecting some mean reversion in the short term uh. You know i don’t.
I don’t think that’s unreasonable at all to to be expecting that it’s just, i think, from a high time for like a high time frame perspective. When we talk about you know what i just mentioned is a lower time frame. Opinion like when we talk about higher time frames, i i still think you know you were it’s definitely prudent to be cautious until the 53 area is reclaimed. So you know if you’re, just someone who’s looking to know like you know, are we gon na? Are we gon na, you know perhaps resume the bull, the bull market?
If you will, you know that would be that 53 area that i would kind of be looking at to gauge that i you know. The other thing is we’re really um. We’Re correlating to equities really strongly right now, especially the nasdaq um, and so like, i think, until either. I think until either you see a rebound in tradfi, which is traditional finance, um or if we start or if we have some type of catalyst from bitcoin, that kind of knocks us out of that correlation. I think we’re probably just you know at the mercy of what happens in tradify, and so you know, we’ve had this um kind of monetary tightening uh, you know tone coming from the fed.
They still haven’t done anything but they’re. Talking about they’re going to do three rate hikes in 2022, uh jamie dimon was saying they’re going to do six or seven or something like that. You know i think it’s key to understand. They still haven’t done anything yet but um. You know you flip the camera.
As we talk about this, if you would, is it yeah yeah, because this is valuable stuff and i just want to make sure we have the clean, visual, so you’re, seeing it yeah. No problem um, i just i just didn’t realize what you’re saying when you should put the camera. First, it’s a bond moment, um yeah, with with equities. You know we’re correlating really strongly so unless, unless bitcoin has some kind of catalyst that can knock it out of that correlation or we start to see, you know, equities rebounding. I think we’re still caught up in that in a correlation with them, and you know a lot of that’s just dependent on monetary conditions, so i think you know the kind of like 50 iq trade of last year, which is saying hey, look.
The fed is continuing to inject liquidity into the market, and so all asset prices are going to go up and we saw that you know it. As my buddy uh travis kling likes to say, is it’s all one trade right? It’S just you know by owning bitcoin. Last year you were just going out further on the risk curve in that sense, um, and so this very nuanced discussion as to your opinion of how far can the fed go with monetary tightening, but i do think it’s safe to say that um, you know until We until we either have a catalyst that knocks us out of that correlation for bitcoin, and i’m not sure you know what that may be could be potentially, like. You know the bitcoin bond getting oversubscribed to.
As you know, some of the domino effect that maybe come out can come out of that. I think that would be a strong catalyst. Maybe maybe we see a spot bitcoin etf. You know there’d have to be some type of catalyst to knock us out of that correlation, or else we’re, probably just susceptible to correcting with equities. Until we start to see monetary conditions ease up again, and you know that that all roots out of inflation right so part of the reason that bitcoin and equities have been you know correcting for the last month or so is because markets are forward-looking and so uh.
When we have you know, inflation is good in moderation, but when it gets to extremes like we’ve seen over the last month with these massive cpi prints, you know cpi, at the highest, it’s been in 40 years, which is the consumer price index for maybe listeners who Don’T know you know that that basically puts the pressure on the fed and just the government to at least make a stance that they’re combating inflation, especially with midterms coming up at the end of the year in november. You know Biden’s approval ratings are way down. It’S just not a great look, you know for the current uh administration, so they need to kind of at least appear that they’re taking a stance against uh. You know these inflationary forces and so again, like i think, once you start to see those really high cpi prints. I think bitcoin actually topped out on uh on, like the initial cpi print that shocked a lot of people um, and that was just because markets are forward-looking.
So they’re saying if inflation is getting out of hand well, then we can probably expect monetary tightening in the next couple months and then you start to see the fed coming in uh, starting to talk about doing degree rate hikes next year, so um yeah. I think that’s that’s what really that that’s what it’s going to take to kind of break out of this correlation with equities. Let me ask you something: well so uh, some of the things you said was that at the moment 39k 40k might be a buy, but if it breaks that, then we need to consider bouncing around between 30 and 40k. The question to you is number one big question: well, what if we’re in a bear market, i guess that’s one question and the other question is on the flip side. Would you say that bitcoin never goes below 30k again yeah?
I think i think saying. Never is, you know, really difficult because i think, like you know, before, like the covet dump, you probably would have said: bitcoin was never going to go below 6k or whatever at the time, so i’m gon na like i’ll, be away from that i’ll say. I think it’s unlikely, but it’s definitely possible um and then um, like you know, in terms of like will, will we go below 30k? I do still think like we’re kind of in that macro range uh. You know between like 30 and 60 call it um.
What was that first question? I just went on my head, i forgot, will i’m coming to you man, because i want you to be straight with me. Are we in a bear market? Oh okay, my fault, um yeah. I think, like the bull bear market thing.
I think, like we’ve, basically been projecting the past on to the future right instead of trying to think like what does the future look like uh, i think like now that bitcoin is like a legitimate macro asset. You know we have a much tighter correlation, equities and equities kind of have this upwards. You know upwards uh grind to them right, we’re not going to see, i think, as much volatility with bitcoin as we have seen as it kind of matures, and you see a new type of kind of market participants in the in in the market. So, like you know, like part of the the double edge sort of of having institutions, is everyone thought you know? Institutions are going to diamond hand bitcoin up to you know a million dollars a coin.
The other end of that is that you know um you’re, going to see like tighter correlations to what happens in traditional finance, just because that’s how these people are thinking and that’s how they’re, balancing their portfolios and managing their balance sheets is. You know with what’s going on in traditional finance in mind versus historically bitcoin’s, just been a retail journal asset, so uh kind of tldrs that i think we probably see these more rounded tops and bottoms with bitcoin until um. Until we see some kind of blow off top, that would be like being. That would be my invalidation, for that is that we continue to kind of see these um. You know lower volatility, you know, uh, you know rounded bottoms and rounded tops until we see some kind of you know major blow off top at that point, then i think we see like a prolonged bear market, but you know, i think we need to kind of Also define like what is a bull market, what is it bear market?
Are we defining that by price drawdown? Are we defining that by you know, transactional activity on the blockchain like if we’re defining it? By that we’ve been in a bear market since may of last year, so you know, i think it’s. We need to think about like what. What are we calling a bow and bear market and then, as well as like um, you know, should you just be expecting what what’s happened in the past and especially when we talk about like these four-year cycles?
Should we be expecting that moving forward uh, i tend to think that the answer is probably no um and you know at some point. Even if i’m wrong about you know the next couple years i mean at some point, the four-year cycle is going to break down. I tend to think that it’s probably closer than further away because of the type of market participants that we now have that are dominating market being traditional finance will thank you so much for sharing the charts. Sharing your perspective to the folks at home, the altcoin daily audience. Would you just give a final summation final thoughts for all those bitcoin holders out there sure i think you know if you’re, a long-term investor, just you know, sit tight and huddle.
I think once we get through these uh, you know monetary tightening conditions, whether that be you know a few months or potentially into the end of the year until after midterms, you know, i i don’t think, there’s anything that changes the broader bitcoin thesis, even if they Marginally, you know do raise interest rates. You know the general trend of rates is down over called the next five ten years and that’s you know extremely bullish for bitcoin, uh and yeah. Aside from that, you know traders uh kind of gave some of the levels. I’M personally looking at uh but yeah uh for long-term investors just hold on sit tight. I think at this point, if you haven’t de-risked, you know for macro purposes at you know 60k, it’s kind of, in my opinion, silly to start getting worried about that.
Now, at 40
You know if you’re gon na, if you’re gon na you know, sell because of macro. You would have done that two months ago. Not now, i think whenever you have, you know everyone talking about a narrative that narrative is probably reaching saturation and getting ready to kind of pivot to that next narrative as you’re talking about as as everyone’s talking about the next one um, and so i think, like At this point, you see like everyone on crypto twitter is everyone’s a macroeconomics expert and everyone’s telling you about the fed and everything and uh. Maybe i sound a little hypocritical as a kid talking about that myself, but um. You know, i think i think, when everyone’s talking about something that generally means that uh you know you’re, probably getting due for a narrative shift uh pretty soon.
So that’s so say it’s a question of you know how much of this is priced in right and i gen. I generally think that more of it is priced and than not at this point will give us a price prediction. I’M good guys, i’m gon na open the video 2022 price prediction yeah. I screwed myself away i’ll, say i’ll, say um i’ll say between 25k and 150k hey, i love it dude you didn’t out and say: 100k, like everybody dude, i love it. I appreciate it.
I you know, i just uh, i think it’s just like when we talk about a year away, it’s just so difficult to predict. Like all the factors you know, i think uh, you kind of just got to play this level. The level in terms of you know you don’t know, what’s gon na happen macro over the next year you got like you know, ukraine and russia. I don’t know if i can curse on here, but um. You know, oh yeah, all these different cool.
You know all these different geopolitical factors. I think it’s you know going to be tricky to say. What’S you know where is bitcoin’s price going to be at exactly in a year? I think i think uh. You know you really got to just like look at this level level and just watch what the market’s giving you as we go.
Well, i love the reasonable perspective. Links for will clemente down below that’s his youtube channel and twitter thanks man appreciate you guys, thanks for having me on and bearing with me through the nasally voice, with the covid here.