Sentiment remains in the toilet, especially among retail investors. But the macroeconomy is in good shape, actually.
Trump couldn't possibly have dented the macroeconomy yet, but he did remove the overhang of regulatory risk. Is there any surprise that there might be bargains among the major L1 currencies?
Let's start with the macro data.
1 VIX Term Structure
This one is a bit wonky, but it's easy to read. Basically, traders take bets on the direction of the S&P 500 -- which is notably affected by inflation just as cryptos are. So, they're aware of the same risks.
If the series of blue dots move up sequentially, that means that traders have an optimistic outlook for each of the following months.
Right now, that curve suggests that market participants (betters) have an optimistic view.
2 Crypto Panic
The Coin Market Cap fear and greed index is hovering in the 35 range -- about as bad as the pre-election run-up when Bitcoin dropped below its 200-day moving average.
Each time the fear gauge reached this range, it was followed, though not immediately, by a rally.
This level of fear against what looks like a strong macroeconomic backdrop implies that the selling might be over done and we could find some bargains.
3 Is Bitcoin A Bargain?
That depends on your time horizon, of course. But for the trader, the $BTC is priced such that it might decline 17.3% before reaching that 200-day moving average.
You want to look for a price within 10% of that range to make your risk-to-reward ratio favorable--typically. It's a rule of thumb.
I won't even talk about $ETH, since its price is below the SMA 200.
4 Solana is a Bargain?
This is not financial advice. Always DYOR.
From a risk-to-reward standpoint, however, $SOL has moved into a relatively favorable range. It's price could decline about 7% before reaching that SMA 200. Call that your risk.
It might rise better than 3x that decline (21%) to reach local highs too. That's your reward.
A bet on $SOL is thus mathematically favorable if both possibilities are equally likely.
5 Binance ($BNB) Is A Bargain?
It's not as sexy a chain as it was in the last cycle, but its price currently sits about 5% above its SMA 200 line.
You have more than 2x the potential gain given recent highs.
This represents a 2:1 Reward to Risk ratio -- again a good idea if both outcomes are equally probable.
6 Concluding Thoughts
If you are willing to treat trades as bets, this is a nice time to start taking positions on some majors.
I didn't even discuss $CRV, which sits just marginally above its SMA 200 -- perhaps the best R/R of them all.
But remember, these are trades. You need to be ready to sell quickly if the market declines. We also don't really know the probability of either direction (up or down) so we can't say these are bargains using the rules of rational choice theory. We can only say they are potentially good R/R trades.
DYOR. NFA.
Happy Trading!
-Sebastian Purcell, PhD
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