Monthly Commentary (November 2021)

Performance Update


November 2021 Performance (Normalized)


Summary


Our SBLI ended the month at -6.54% vs BTC -7.03%, Top 10 market cap-weighted at -2.38%. Our last rebalancing occurred on November 9th comprised of 96% BTC which explains why our performance is on track with BTC performance. November was rather a choppy month, with many Top 10 coins such as BTC, ETH, SOL and AVAX making all-time highs, only to reverse course after a week due to fears of the latest COVID-19 variant, Omicron, shook markets across all asset classes. Apart from AVAX, a few selected alts such as ETH made a late comeback towards the end of the month-end the month in green.


Our next rebalancing period will occur on the 10th December. As we will elaborate more on the macro trend, we expect SBLI to shift more weighting to Alts while BTC dominance is starting to see weakness and BTC itself continues to chop in a range.

 

Insights


Total Marketcap trend


The total market capitalization reached its ATH at 2.88T in November (Nov 9) following its upward momentum from October. Frankly speaking, the overall market was running quite hot quite quickly. Since then, the overall market has retraced lower and closed November with its market capitalization value at 2.38T (lower than where we started at 2.4T on Nov 1). The market quickly pulled back further in the first week of December, and now the total market cap is at 2.25T (Dec 5), back to the levels seen in early October.


It would be worth noting that we have long been forming a bearish divergence on RSI and MACD on a weekly timeframe. As we have mentioned in our previous commentary, typically divergences on a high time frame take time to play out, and we are seeing it playing out now. During the first week of November, we suggested to our readers to remain cautious as we grinded higher. Indeed, the overall market has now corrected itself below the levels seen then, hovering around early October levels. It is also worth observing how the weekly MACD on BTC will close (1 more day). The weekly MACD of BTC is usually quite trendy, once it changes its direction (positive or negative; see the chart below), the momentum tends to continue which is a reflection of its price. Weekly MACD on BTC is currently dipping into negative territory after 15 consecutive weeks of being in the positive zone.


With regards to BTC, to highlight things from a technical perspective, starting from the ugly:

  • Broke through an important structural support of 52-54k USD

  • Broke though D1 200 EMA

  • Pierced through the daily ichimoku cloud

  • Weekly MACD only started to cross / turn negative

However, not all is bad. Here are the encouraging signs that are forming:

  • Holding onto D1 200SMA (or W1 50SMA)

  • D1, D3 and W1 showing bullish divergence against RSI, as long as BTC does not dump and below 40000 on candle close.

BTC D3 Chart showing possible bullish divergence against RSI


It also appears that the BTC whales still have diamond hands as the readied capitalisation by whales that own 1000-10000 BTC has been consistent at 30%:


In summary, we are in an area where BTC needs to defend current levels of 47-48k to prevent further downside to 40k area. This early December dump could be window dressing by Funds etc so they can celebrate their holidays early; however the long term fundamentals still doesn’t change for BTC and the entire crypto ecosystem.


BTC Dominance


BTC Dominance was hovering between 42.5% to 44% (could not break the resistance) during the month of November. It is currently at 41.2%. It looks like it wants to test its all time low levels this year (40%~). This is an important level to hold and it is good for Altcoin markets on a relative basis, despite which direction the overall market will go. Its still worth noting dominance trending sideways while RSI is trending higher (possible bullish divergence). However we should continue to see BTC dominance to fade over the longer time frame, as we see Altcoins becoming more prominent and utilized in the years to come.


BTC & ETH exchange net flows


We're still see net negative outflow from exchanges from BTC and ETH, with BTC having less outflows from last month, but seeing a significant outflow change in ETH this month (2.44mm ETH outflow in November vs 418k ETH outflow in October). A huge hint in a possible thematic play for next year is in the works (pick one: Defi / NFT / GameFi )

October 2021 outflows

November 2021 outflows


Spot vs Derivatives


Previously, we wrote about how derivatives Cumulative Volume Delta (CVD) led the uptrend over spots CVD, which led the uptrend ahead of the rally in October. In November, derivatives CVD led the downtrend over spots this time around and again, was a good early indicator of where the market is heading. After seeing the open interest on both coin-margained and stablecoin-margained contracts remain sideways for the most of the month, the quick pull back on Dec 4th liquidated much of the contract positions and open interest. This could be a healthy reset as leverage is flushed out of the system. Again we would want to see the market consolidate around these levels while funding starts to turn more negative as we prepare for another possible short squeeze (similar to the fractal in July 2021).



Volatility (Options)


Market is definitely in fearful mode as skews across most short to mid term maturities are all to the put side. Are the market makers front running everyone in starting bear season early?



In terms of listed expiries December 2021 will have one of the largest expiries in terms of contract size: 3.4 billion USD. Not surprising to see the ‘max pain’ price is sitting right where spot is currently as we are writing this out: 48k. It seems the market makers really want to punish the bulls for buying such high strikes (lots of 80k+ strikes will expire worthless as spot will most likely not hit those levels by year end).



While we saw a spike in historical (realised) vol since 04 December the Implied vols have rather been rangebound for most of the rolling expiries , ranging around 85-90% for 60-90 day maturities. Perhaps derivatives traders don’t believe BTC volatility will break any higher (could this mean we have almost seen the worst that’s coming?)



Fear and Greed


Fear and Greed Levels fall to its lowest level of the past 3 months, after being at its highs for almost 6 weeks. We are back to fear levels similar to May 2021 when China ban FUD started. While we cannot guess to the extent of how long the fear will last, but is it about time we revisit the old saying: “buy when others are fearful”?



In summary, December seems to have started off on the wrong footing as the Total Marketcap and BTC broke through some key structural support. Things still look dicey on the charts but with possible High Time Frame bullish divergences starting to form, liquidations flushed out, funding reset, skew and fear/greed index all pointing to absolute fear, this 30% drop from the high could be a chance to slowly accumulate for the next possible bull run.