MVC September Market Observation: When Can We Bottom Out? It Feels Like "Waiting for Fish to Gasp for Air in the Market."

Author: Metrics Ventures

Metrics Ventures September Market Observation Guide for the Cryptocurrency Secondary Market:

1/ The overall market in September is sluggish, with multiple indicators at their lowest levels of the year. Bitcoin and Ethereum chip data show significant losses, with chips being thrown out and a sharp decline in contract positions.

2/ MVC's buying operations. We made moderate buying operations in mid-September, purchasing about 20% of our Ethereum position. The transaction price was around $1,600. This was mainly based on the following positive signals: after three months of fluctuations, potential selling pressure has been somewhat released; market sentiment shows panic, etc.

3/ The main contradiction in the market is still the lack of funds, and this contradiction cannot be resolved at present.

4/ The monthly report "Waiting for the Fish to Die in the Market" metaphorically describes our current investment strategy. Before determining the trend, we will remain patient and wait for the real allocation point to appear.

This article is a summary and commentary by Metrics Ventures on the overall situation and market trends of the cryptocurrency market in September.

The title of this monthly report comes from a famous anecdote about an elderly woman who goes to the market to buy fish. She stands by a stall staring at the fish, and the vendor, puzzled, asks her which fish she likes and why she hasn't bought one. The woman replies that the same fish costs 13 for live ones and 3 for dead ones, and she is waiting for them to die------ this is quite similar to the mindset of many secondary investors holding a lot of coins in the current market, just sitting on the sidelines quietly observing, waiting for the live fish to die before jumping in to buy cheap goods.

Of course, our mindset is similar. The lively token2049 conference in September felt especially like a market, where some fish have already turned belly-up, while there are still some seemingly plump fish flopping around, but everyone knows they won't be able to flop for long.

In mid-September, we conducted some position-building actions, mainly buying about 20% of our ETH position, with an average transaction price around $1,600, because we observed some marginal changes in the sentiment and chip levels that indicated a good opportunity for building positions.

From the chip perspective, we can observe that as the market declines, Bitcoin chips concentrated in the $29,000-$30,000 range are starting to shift towards the $25,000-$26,000 range, indicating that the previously trapped positions due to the expectations of Bitcoin ETF approval and favorable XRP/DCG lawsuit outcomes are now surrendering, cutting losses and throwing out chips, while the existing capital in the market provides relatively supportive buying. ETH also has corresponding chip characteristics, with nearly 50% of the ETH chips on-chain having realized losses, similar to the characteristics of previous panic bottoms, indicating that the bloodied chips in the spot market are being thrown out. (Through on-chain data observation, we also found that on September 10-11, Arbitrum experienced large-scale whale liquidation, with common losses of 30-40%, representing that since June, the patience of large holders and whales in the market has finally reached its limit.)

From the sentiment perspective, market sentiment has also quickly turned pessimistic.

From the above chart, we can observe that after nearly 11 months of market adjustment, about 97.5% of short-term BTC chips are in floating losses. The drop from the $30,000 range to the $25,000 range may not seem like a significant absolute decline, but the pain of cutting losses is actually very severe. This level of market clearing should bring about a market cooling period of about one month.

From the contract position data, we observe that at the beginning of September, the BTC contract positions on the Binance platform dropped from a peak of $4.81B to $2.88B, a decrease of about 40%. At the lowest point of the market in early January 2023, this number was $2.52B, and during the banking crisis in March, it was about $2.85B, indicating that the series of unmet positive expectations in mid-September has indeed greatly destroyed the confidence of market players, leading to a strong cleaning of market leverage. Moreover, throughout September, the OI position of contracts recovered slowly, with moderate fees, basically in a low mood where no one dared to go long or short.

If we look more closely, from the hourly BTC chart below, we can roughly observe that the narrow fluctuations in the September market are indeed a hell mode for contract funds, with frequent liquidation events, where both rises and falls lead to liquidations, and the sequence of rising then falling leads to repeated liquidations (poor thing). So it is quite clear that the sentiment around Bitcoin at the $27,000 level is actually more pessimistic than at $16,000, showing obvious deep bear characteristics. The entire September and even October belong to a phase of digesting the selling pressure from trapped positions.

Not only is the sentiment in the spot and contract markets low, but even the on-chain meme market that extreme left players like to hype has completely cooled down. As shown in the figure below, the ETH network gas base has hit a new low for the year, and ETH has rarely entered an inflation state since the Merge, with a heavier chill compared to the freezing point in December 2022. From the Mempool transaction data we monitor, the activity of non-transaction tax tokens has sharply decreased.

Moreover, in September 2023, DEX trading volume has not exceeded 30B, which is even less than the 40B in December 2022, recording a record low for DEX monthly trading volume since 2021------ this also aligns with our intuitive feeling of market sentiment, where the market heat at $27,000 for BTC is surprisingly lower than at $16,000.

When we observe the liquidation of trapped positions and extremely low sentiment, we chose to enter the market with small-scale bottom fishing. This does not mean we believe the market will show any significant rebound opportunities in the short term, but rather that this position has released bloodied spot chips (with a high proportion of realized loss chips), the leverage cleaning is relatively thorough (with positions close to the lowest level of the year, and low long-short comparisons), and sentiment is extremely low (with weaker volume). The market has given signals leaning towards support, and this is a position with a good risk-reward ratio. As a long-term allocation, the price is also reasonable; even if there are possible signs of a sharp decline in the short term, we can stop-loss and exit at a clearly defined and low-cost price.

Coincidentally, there have been some widely circulated screenshots about the BTC calendar effect in the market recently, mainly indicating that historically, the cryptocurrency market tends to perform very well in October, and there will likely be a vigorous Alt Season. The calendar effect can be regarded as a kind of mysticism, and we do not hold much optimism for the October market.

Currently, the market is barely catching its breath from the reduction game, with the total market value of the top five stablecoins not significantly declining in the past month, at most upgrading to a stock game. In this case, the market is more about a rebound from overselling, with limited upward space, and the upward momentum is also on the spot level. Due to the generally low positions of all market players, there is some buying power from short covering. Our market research shows that secondary institutions and individual investors with capital scales exceeding $100 million are choosing to bottom fish with a dollar-cost averaging mindset.

If there really is an Alt Season, due to the weak market liquidity and low market capitalization, some short covering funds may bring huge increases, but there will also be a large number of altcoins competing for funds, leading to very rapid rotation of themes, poor sustainability of the market, and it is estimated that it will not generate considerable profit effects. The value of participating in short-term trading is low, and if one does not escape quickly, they will become unfortunate exits from liquidity.

The market is stuck, with continuously new lows in volatility, a slowly rising proportion of long-term chips locked in, and short-term investors repeatedly chasing highs and cutting losses, leading us into a state of being unable to go up or down------ the main contradiction in the market is still the lack of funds, and this contradiction cannot be resolved at present.

The core constraint of the main contradiction still lies with the Federal Reserve. In September, the Federal Reserve's interest rate meeting paused a rate hike but led the market to interpret that rates would remain high for the long term. During the November holiday period, it coincides with the critical point of the U.S. government's new fiscal year budget resolution. U.S. Treasury yields have risen back to 2008 levels, while U.S. stocks, gold, and oil have plummeted, and the dollar has risen, causing severe tremors in overseas markets, with signs of tightening liquidity already appearing------ this is also the main consensus in the current cryptocurrency market, where those who have not lost everything and are watching the fish pond from the sidelines are generally waiting for the collapse of U.S. stocks in Q4 2023 to Q1 2024, using the collapse of U.S. stocks or interest rate cuts as confirmation that the fish have completely died (the memories of the 312 incident are echoing).

We remain attentive to this, but still emphasize that since 2023, we will not base our investment decisions in the cryptocurrency market on macro information. We are not macro experts; the end of a rate hike cycle does not mean the beginning of a rate cut cycle. Each rate cut occurs only after risks appear, and this is not a priori signal; at the end of each rate hike cycle, there will be a bubble bursting in some corner of the Earth, and this time it may not necessarily be U.S. stocks that burst; whether it collapses or when it collapses; all these various factors do not help our decision-making on "to fish or not to fish."

In summary, the cryptocurrency market in September remains in a sluggish state, and we maintain a cautious attitude. Until the market's funding situation improves, volatility and fluctuations may continue to exist. We will continue to monitor the fundamentals, make allocations in a timely manner, and patiently wait for the real buying points. ```