July 31, 2021

The Bitcoin Tide is Turning

Bitcoin market conditions change amid whale buying, short squeeze, and bullish news developments

Quick take;

  • Bitcoin market conditions are changing as whales purchase below $30k and a huge short squeeze follows
  • Positive news is beginning to have a greater impact on upside price movements, indicating that Bitcoin is entering more bullish market conditions
  • There is still significant hurdles to be overcome if Bitcoin is to reclaim record highs but the odds that a local bottom is in are significantly higher

Disclaimer: Nothing in this piece is financial advice. It is strictly educational information. Take responsibility for your own financial decisions.

Since my last analysis piece, the odds that a local bottom is in have raised drastically. In the last market outlook, I gave roughly even odds for a bull case and bear case. If anything, I was more convinced of the bearish case given that BTC was trading close to its yearly open and a drop below that would have likely catalyzed a significant sell-off.

At one point, it looked like the bearish case was unfolding and I got caught offside on a couple of leveraged short positions. I wasn’t the only one that was caught offside as roughly $757 million in short-side liquidations took place during the following rise.

As it stands, my bias has changed to bullish. I will look to enter leveraged long positions on any low-volume pullbacks. I will reassess if we have a couple of significant dumps but as it stands, the odds of Bitcoin returning to the low-$50k range are much higher.

However, for Bitcoin to reclaim record highs, there are still a number of significant levels to be overcome. We will cover these levels. But first, let’s consider why the tide has been changing.

Smart money buys below $30k and huge short squeeze follows

For those of you who regularly follow my analysis, you will know that I put significant emphasis on what the smart money is doing. Smart money generally consists of institutions, whales, and funds with sophisticated trading strategies.

When it comes to smart money, Alameda Research is one of the biggest players in the game. After the drop below $30k, as my dumb money was scrambling to take short positions in anticipation of a dump, their smart money was buying up BTC.

Sam Trabucco, a quantitative trader at the firm, revealed that Alameda had begun accumulating at sub-$30. Some of the noted reasons for the accumulation was a speculated overextension to the downside due to the recent barrage of bearish news and overexposure of leveraged short-side position which would provide fuel for significant upside movements. As it turns out, Sam was spot on.


The subsequent rise was followed by a short squeeze whereby speculators who were leveraged short were liquidated, providing additional upside pressure. Over $1 billion in short-side liquidations have been catalyzed since Bitcoin formed its local low below $30k with each liquidation providing further fuel for the upside price trajectory.

(Source: Bybt.com)

This indicates that the last leg down was predominantly driven by leveraged speculators in the derivatives. If it were driven by significant selling in the spot market, price would be more likely to maintain prices in the low-$30k range and below. However, the fact that such a significant amount of liquidations occurred as price recovered from this point suggests that such low prices are not Bitcoin’s natural territory.

The impact of news as a directional indicator

Another indicator that Bitcoin market conditions have changed is the impact of news on the price of BTC. When conditions are bearish, bullish news tends to have little impact while bearish news can catalyze significant downside movements. The vice-versa is also true. When conditions are bullish, positive news can spur significant jumps while negative news has little impact.

It seems that we are entering the territory of the latter. Bullish news related mainly to Amazon has been accompanied by significant upside movements whereas negative news from US Congress has not even been registered by the price movements.

The significance of big-percentage price movements

The distribution of price movements has a nonlinear distribution. Small price movements will occur frequently and have low significance on directional bias while large movements occur infrequently and carry higher significance on directional bias. A daily movement of 10% is not ten times as significant as a 1% daily price movement. It’s hundreds or thousands of times more significant in terms of the information in yields in relation to future direction.

The recent price movements have been significant and yield greater information regarding the future outlook of BTC than the last month and a half of low-volume ranging. In terms of price movements, Bitcoin recorded it’s largest seven-day increase since the Tesla-driven jump of February and volume has been consistently higher.

(Source: Tradingview.com)



With that being said, there remain some significant hurdles to be overcome before Bitcoin can reclaim all-time highs. If Bitcoin can surpass the seller liquidity in place around $42k, there is high odds that it will be able to continue appreciating towards the low-$50k range.

However, more selling pressure is anticipated around this point. If price can sustain prices above the low-$50k range, the odds of an all-time high recovery along with further increases rises considerably. At this point, I will be looking to go heavily long and ride it to the top and beyond.

That’s just my take and the anticipated levels of seller liquidity are primarily based on rudimentary chart analysis. So reread the disclaimer and DYOR. To summarize, my short-term bias is bullish and I believe there is high odds that the local bottom is in. However, there is still significant hurdles to be overcome if Bitcoin is going to reclaim all-time highs and we may see some volatile trading around these hurdles.

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Some other things

  • I recently jumped on the Compass Mining and Stephan Livera podcasts to discuss the state of Bitcoin mining in North America. If this is a topic that interests you, they are available here and here.
  • The US Congress is proposing a bill that could stifle the US cryptocurrency industry. The bill is being opposed by Compass Mining, the Texas Blockchain Council, and the Chamber of Digital Commerce. This will be an interesting development to monitor.