October BTC Scenarios
Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only, and should not be relied upon as a basis for investment decisions. Chris Keshian may maintain positions in any of the assets or projects discussed on this website.
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As BTC volatility continues to compress, the market is primed for a significant move. I think one of the below three scenarios will play out. In each case, I predict we ultimately go lower. The question is whether we squeeze up first or not, and how a squeeze would play out.
Case 1 - Breakdown this week
In the event of another higher than expected CPI print, I could see markets selling off this week. This could be compounded by poor earnings reports.
See the below chart from 2018. After the market sold off throughout the year, volatility compressed in September and October, and an expansive downside move followed.
You can understand why, after BTC traded down all year in 2018, some investors might finally capitulate at the end of the year in order to lock in a capital loss to offset gains elsewhere in their portfolio.
In this case, the above selling could push the price down to a point where the buyers who stepped in repeatedly at $19k finally sell their positions (more about this $19k level in my previous post).
While the downside move in 2018 led to a -50% drawdown, I do not think an outcome of that magnitude is as likely in 2022. As shown below, there are multiple support levels at which I expect market participants to step in. I think the likelihood of $14k region forming the ultimate bottom is high. While we could wick lower into the $10k-$12k range, I think this will be front-run by the large pools of capital that are now interested in bidding BTC. I would be happy if I established a BTC cost basis of approximately $14.5k. While I do think we will go lower than that, I think the RR below $19k is so high, that I would rather begin building my long term spot positions on the next move down and sit underwater, than attempt to capture the final 20% move and risk missing out on these depressed levels.
Case 2 - Short squeeze and then resume downtrend
In the event of a lower-than-expected CPI print this week, and stronger-than-expected earnings, I could see the market rally from here. Given the short open interest, I think a rally would trigger a brief short squeeze into the end of November.
In the event this squeeze gets interpreted by the market as a bullish signal, and the downtrending market structure is broken, I can see participants becoming overly bullish and buying into the rally late. As such, this rally could get as high as the $24-$26k region, at which point I think it will be heavily sold. As this happens anyone who bought the rally would be forced to sell, so after this squeeze plays out, I think we unwind and resume the downtrend.
Case 3 - Sweep the lows, short squeeze, and resume downtrend
This scenario is similar to Case 2 above, though in this scenario we first sweep the lows at $17.5k, and then squeeze. I could see this materialize if we get higher-than-expected CPI and lower-than-expected earnings.
In this event, the market would break down and bears would step in on the short side. This could incite the short squeeze outlined in Case 2, followed by the ultimate breakdown to form a final accumulation zone.
While these scenarios all end with lower prices, I remain long term bullish on BTC, and plan to buy into these lower levels.
