Pionex Market Weekly: Cautiously Chase Highs, Add Positions on Dips

Author: Pionex

Weekly Summary

The significant increase in Bitcoin futures at the Chicago Mercantile Exchange (CME) suggests that institutional investors may be driving this recent surge in Bitcoin prices.

As Bitcoin's dominance declines and altcoin prices rise, it may signal the arrival of altcoin season.

SBF has been found guilty on all seven counts related to wire fraud and conspiracy. Does this mean the clouds over Solana will finally dissipate?

In the context of stagnant or even shrinking overall revenue, consumer trends may not be sustainable in the coming quarters, and high interest rates will have a substantial impact on the U.S. economy;

We believe that on-chain data and technical analysis indicate an increased risk of a pullback, but they also provide good opportunities for entry or accumulation;

Liquidity has not shown substantial changes, and caution is still needed in futures leveraged trading;

Short positions around $35,000 are much denser than long positions in the $34,000 range, making it difficult for bulls to break through; however, if bulls perform strongly and trigger short covering, it could lead to a new round of impulsive gains.

Macroeconomic Analysis

U.S. Economic Data at High Levels

The U.S. Department of Labor reported on Friday that non-farm payrolls increased by 150,000 this month, below the expected increase of 170,000. The main reason is the strike by the United Auto Workers, with the deadlock in negotiations leading to job losses in manufacturing. The unemployment rate rose to 3.9%, the highest level since January 2022, while it was expected to stabilize at 3.8%. In addition to the economic slowdown in October, the Bureau of Labor Statistics also revised down the data for the previous two months: the adjusted non-farm payroll for September was 297,000, significantly lower than the initial estimate of 336,000; while the adjusted non-farm payroll for August was 165,000, also below the initial estimate of 227,000. This collectively reduced the initial employment estimates by 101,000.

On Wednesday, the Federal Reserve's rate-setting committee chose to keep interest rates unchanged. Central bank officials insisted that they depend on upcoming data, and if inflation does not show signs of sustained decline, they may still raise rates further. Despite the inflation rate being well above the 2% target, the central bank has chosen to pause rate hikes in the last two meetings. According to CME's "FedWatch" data, following the employment data release on Friday, the market further reduced the likelihood of a rate hike in December to 10%.

We believe that this earnings season for U.S. stocks has seen many instances of revenue falling short of expectations, coupled with downward revisions in employment numbers and rising unemployment rates, indicating that the possibility of further tightening is very low, and rate cuts may be back on the agenda next year. However, it ultimately depends on the progress of economic data fundamentals. In the context of stagnant or shrinking revenue, consumer trends may not be sustainable in the coming quarters, and high interest rates will have a substantial impact on the U.S. economy, which we will continue to monitor.

Fundamental Analysis

Accumulating Risks at High Levels

1. Bitcoin Has Realized Net Gains

Realized net gains are an indicator of the net profit or loss realized by all investors in the Bitcoin market. When realized net gains are greater than zero, it means the entire market is currently selling at a net profit. This year, the price at which Bitcoin has been sold has significantly exceeded previous highs and reached new peaks. This indicates that a large amount of capital is exiting the market, a situation that typically occurs when investors believe the market may be extremely overvalued or is likely to decline.

2. Long-term Holders Are Exiting

Bulls taking profits, along with a decrease in the total supply held by long-term holders, indicates that many long-term investors seem to be choosing to be more conservative after a rapid rise, liquidating some assets to buy back in during future declines.

This shift in strategy among long-term holders may suggest their pessimistic expectations for the market in the short term, and a temporary "surrender" also indicates that the current market may soon enter a phase of short-term adjustment.

Pullback or Impulsive Rise

The liquidation chart shows that the chips around $35,000 are much denser than those around $34,000, indicating that the intensity of short liquidations is significantly higher than that of long positions. If bulls cannot maintain strength, it will be difficult to push higher.

However, facing such dense short positions and significant liquidations, if bulls show sustained strength, another wave of short-squeeze impulsive gains is inevitable, and significant volatility will return.

In this regard, we continue to recommend buying spot on dips, and if engaging in futures leveraged trading, it must be done with particular caution. The risks typically increase significantly when using high leverage to short. Engaging in high-risk leveraged trading often requires careful strategic planning and rigorous risk management. It is crucial to manage risks appropriately during trading, especially when market volatility increases.

Technical Analysis

Bitcoin

On the daily chart, we are consolidating within a flat bullish flag pattern, which is a continuation bullish pattern that typically has a high probability of breaking upward. If this pattern breaks, the target will be around $50,000 (equal to the previous upward movement). So if we break upward, the target price will be $40,000. In recent weeks, sentiment and narratives seem to have overwhelmed any major selling pressure. We are monitoring for a sustained, high-volume breakout above the $35,000 flag pattern top to signal the next potential upward move.

Zooming into a shorter time frame, the situation is essentially the same as the daily chart. We have a very flat upward trend acting as short-term support, pinning Bitcoin between the $35,000 resistance and the trend line. If we break below the trend line, the bullish flag pattern will become invalid. However, we still have the $35,000 support below, and if this support holds, we may see some form of sideways consolidation. Therefore, breaking below the current trend line does not necessarily indicate the end of the current uptrend.

As support sources in the cryptocurrency market gradually emerge, we have noticed a recent surge in open interest for Bitcoin futures at the Chicago Mercantile Exchange (CME). CME is one of the oldest and most trusted commodity exchanges in the U.S., and it is the preferred exchange for large U.S. institutions to gain exposure to Bitcoin.

From the charts above, we can see a comparison of changes in open interest (OI) between CME and Binance and OKX. During the recent bullish trend, CME saw a 50% ($1.5 billion) increase, while the combined increase for OKX and Binance was less than $1 billion, equivalent to less than 20%. The increasing participation of institutions has made CME the second-largest exchange for Bitcoin open interest (OI).

(Source: coinglass)

The recent influx of funds has primarily been driven by institutional investors entering the cryptocurrency market. This view is supported by a recent report from CoinShares, which showed a significant increase in inflows into Bitcoin funds and products last week, reaching the highest level in four months.

In the past week, approximately $340 million flowed into cryptocurrency funds in the market. Notably, 87% of these investments were directed towards funds that hold Bitcoin for the long term, 7% went to Solana, and 4% flowed into short-term Bitcoin funds. Interestingly, only two types of funds experienced outflows, namely Ethereum and multi-asset funds, and these outflows were relatively small.

(Source: CoinShares)

Altcoins

In this major market movement, some altcoins have seen their prices double or triple, leading many to ask whether "altcoin season" has returned! Typically, when Bitcoin starts to become active at the beginning of a potential bull market, altcoins do not outperform Bitcoin. This is because altcoins usually act as direct leveraged versions of Bitcoin. In the early stages of a bull market, there is a heightened risk aversion, and people only want to buy Bitcoin.

However, as the market changes and evolves, more and more companies feel that investing solely in Bitcoin is not risky enough, and they begin to formulate strategies around some altcoins and their fundamentals. For example, Vaneck, one of the best ETF providers in the trade finance (technology) sector, has released a valuation analysis of Solana (link). This shows that an increasing number of traditional financial participants are not only interested in Bitcoin but also in altcoins.

Having discussed so much, let's take a look at other quantitative factors. Bitcoin's dominance is declining while its price remains stable, indicating that the entire crypto market is rising without Bitcoin driving it. So who is driving this increase? The answer is some strong-performing altcoins. At the same time, we are also seeing an increasing number of altcoins showing a sustained upward trend, indicating that the rotating funds among various coins are not coming from the same source but rather from new inflows. Therefore, while it is still uncertain whether we have entered the so-called "altcoin season," we can indeed see that some altcoins are showing strong momentum. If you are willing to take on more risk, investing in fundamentally strong altcoins may yield greater returns.

News

Sam Bankman-Fried Found Guilty

A U.S. court has officially confirmed the viewpoint that Bitcoin advocates have maintained over the past year: SBF was involved in fraudulent activities. He was found guilty on seven counts related to wire fraud and conspiracy.

This ruling has significant implications for alleviating institutional investors' concerns about Bitcoin and the broader "crypto" market. As we gradually approach the end of the bear market, one of the most important lessons learned from the events involving companies like BlockFi, Celsius, Voyager, and FTX is that any centralized custodian must conduct asset proof. Legal actions against fraudulent exchanges and individuals in the industry should ultimately distinguish between legitimate and illegal (fraudulent) exchanges. Pionex has fully supported this since its inception, and we have been striving to operate legally in compliance with local regulations.

Trading Recommendations

Bitcoin

Futures | Spot

Last week's trading strategy did not reach the expected entry price; instead, we observed a narrow upward consolidation along the trend line. The technical analysis section outlines a short-term trading strategy involving buying when the bullish flag pattern breaks. To execute this trade, wait for the breakout and establish a long position after the daily closing price exceeds $35,500. If you prefer to enter earlier, consider buying when the 4-hour candlestick closes. It is important to note that this earlier entry method carries more risk, as you sacrifice confirmation signals for a potentially more favorable entry point.

The risk in this scenario is that if Bitcoin fails to maintain the breakout and closes below the trend line, which is around $34,500. The first target for this trade is set at $37,000, and the second target is $40,000. This trade setup offers a 3:1 risk-reward ratio, making it a potentially attractive opportunity.

Structured Products

Last week, we recommended buying the dip product at $32,000, and since the current price is significantly higher than the buying price, it has ultimately yielded about 10% annualized returns. For those with a higher risk tolerance who wish to achieve high returns, we recommend continuing to buy the dip product at $32,000, with a duration of 5-11 days. $32,000 is the previous peak for Bitcoin this year, and we believe it is the first strong support. If Bitcoin can maintain above this level, we will achieve high returns from this structured product. However, if the price falls below this support level, investors should be prepared to respond to potential losses.