I wanted to give you some good news about the crypto market. Some indicators suggest that we’re likely at a bottom and it would be wise to start accumulating at this point.

To explain why, I’m going to need to introduce a new concept: the context relevant indicator.

It also dovetails with our new course offerings over on Patreon. Presently, we are scheduling the following items to be released at a rate of 2 videos a week from among these planned courses:

• The Art of The Bubble

• Day Trader Academy

• On-Chain Trading Academy

• Signal Library

The next Day Trader Academy Video Preview is here, btw.

Our topic is to be found in the “Signal Library.”

Let’s say that you have a question, such as: is the market cycle over? Or is this an accumulation point where I should be dollar cost averaging instead?

The purpose of the “Signal Library” is to introduce you to context-relative indicators that could help you figure that out.

As the name suggests, context-relative indicators that don’t make sense on their own. Likely they need some macroeconomic indicators plus some clustering of similar data points.

To answer our question (is this an accumulation period?), let’s start with a macroeconomic indicator – the US dollar M2, which is one measure of all the US dollars in circulation (data from Fred here).

An historical analysis shows that–taken in a rough and ready way–as long as the M2 is expanding, BTC (and cryptos generally) do quite well. As soon as the M2 declines, they fare poorly.

If you look at the data below, you’ll see that the M2 stopped expanding in April of 2022 and that was the final rally before the crash. Then the supply reversed course, boosting cryptos until April of this year (highlighted in the red circle).

The M2 supply has failed to make a new all-time high and so has Bitcoin.

We do know, however, that September 18 is when the money printer is turning back on as the Fed will start cutting interest rates then. 

Here’s the catch: the Fed doesn’t simply stipulate a new interest rate. They need to take action in the market to move rates into that range. One of the key ways that they do this is by expanding the M2 supply. In brief, they mustturn the “money printer” on to lower interest rates.

With that as a backdrop, let’s look at some context-relative indicators. I’ll start with the Investor Capitulation Indicator–developed by Cathie Wood’s ARK Investments. The data for this one isn’t free (it’s on GlassNode for $800+ a month), and I am going to simplify the discussion of the indicator's use. Still, it clearly illustrates what’s at stake.

The idea is that as long as BTC’s price is below the yellow line (I'm simplifying), you are witnessing investor capitulation. Historically, buying during such periods (or holding) paid off even if the ride was bumpy.

We are plainly in a, rather long, buying period according to this indicator.

Of course, buying in too early can set you up for a world of pain. Below, you’ll see that yes, investors capitulated as early as March of 2022. Even in April of 2022 it was still too early as FTX later imploded

That’s why this is a context relative indicator. If you use it on its own, I suppose it could be a dollar-cost average signal – buy $100 a week until the period is over, for example. But I wouldn't do it.

Our aim is to identify a near term bottom. For this goal you’ll need to combine it with knowledge about US M2. Given that background, we’re less likely to be facing an extended down-turn and we might thus be witnessing an accumulation period.

I know this one costs quite a bit, so is there another indicator that’s free that we could use?

Sure, try the BTC Skew Delta 25 – for free on TheBlock.co. Basically, the idea is to bet against leveraged traders. If the options skew negative too much, then you’ve identified a contrarian buy opportunity.

Below, for example, are all the points at which the 7 day skew delta dropped below -5. Buying during those periods paid off well, historically.

The key item is to ensure that cryptocurrencies are still in a longer-term upward trajectory … so using the US M2 as a measure, you would have reason to suspect that the current bottoms indicate buying opportunities.

Anyway, it’s this sort of stuff that the Signal Library will have. These indicators, like everything in investing, require some of your intelligence to use well. Also, just because they’ve worked out historically doesn’t mean that they will in the future. But knowing which tools are out there can make a tremendous difference for your ability to trade well.

As a final point, our community is taking a new shift in direction. Starting in October or November (whenever legal is satisfied), we’re going to offer just two things: (1) an academy and (2) managed investments.

The academy will have items like the topic just covered in video form. Managed investments will execute our own strategies for you (in a fully compliant way). Everything else will be free.

Happy Trading!

                                                                               - Sebastian Purcell, PhD