Weekend Flash Crash on BTC leaves Altcoins untouched during pivotal moments leading up to September's rate cut

Executive Summary 📊

During the weekend, and following into Monday's price action, BTC saw an orchestrated flash crash by market makers due to the low liquidity/order depth during the weekend. This led to one of the largest immediate liquidation events in over a month!

During this event, which majority of liquidations taking place over ~15 minutes, ETH was partially affected, contributing to a Swing Failure from trying to make another ATH above 3900, however, altcoins were barely affected, telling us that is was an isolated event.

It's important to watch for this week's price action as this flash crash would be a catalyst for what comes next. There is a lot of indication that we may retrace towards the weekend highs; however, due to the fragile positioning in the market at the moment, it's important to watch for further signs of weakness (e.g lack of OI increase and aggressive long delta interest on the bounce up).

This Week's Catalyst: GDP Growth Rate Report on Wednesday

Key Risk: Failure to see demand for higher levels of BTC could signal a drop to 107K.

Primary Trade Setups💡

Weekly Action Plan 📊

*🔥 = High Impact

• Wednesday – GDP Growth Rate QoQ 2nd Est 🔥🔥🔥
  • Expected: 3.1% (prior: -0.5%)
  • This is extremely important and a precursor requirement to rate cut certainty in September. The current figure is extremely positive, so we want to prevent too much of a negative surprise (e.g <3%)
• Friday – Core PCE Price Index MoM
  • Expected: 0.3% (prior: 0.3%)
  • What this means: Personal Consumption Expenditures. It resembles a key indicator for consumer inflation in the US.
• Friday – Personal Income MoM
  • Expected: 0.4% (prior: 0.3%)
• Friday – Personal Spending MoM
  • Expected: 0.5% (prior: 0.3%)

BTC Vol of Vol

• As we've been researching BTC's Realised Volatility as a way to predict pricing, the edge in cyclical behaviour has eroded due to BTC's price maturity, however, a new pattern seems to be emerging around Vol of Vol, which is literally the volatility of the volatility in the market (a derivative).
• What we can understand here is that historical peaks in Vol of Vol do tend to signal large market reversals. While we're not quite there yet, we may look to reach this around the mid/end of September where we can expect a larger shift in sentiment in the market, which changes the current market structure.

• Considering the same for ETH, due to the price action consistency, Vol of Vol is at extreme lows, and historically, when ETH is at price extremes (like it is now), a reversal in Vol of Vol (at extremes) does also suggest a macro reversal for ETH, or at least a larger deviation in price action.
• We're taking this very much as "Research" rather than concrete analysis, however, given this history, we can also expect a big shift in ETH's sentiment over the next few months, with a high possibility of a much larger retracement.

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BTC Summary

• Changes since the weekend: We had a massive flash crash for BTC, failing below our ~114K key support, resulting in one of the biggest liquidation events for BTC in the past month. This move occurred over the weekend due to the tighter order book depth/liquidity, allowing for market makers to move prices much more easily. We've now reached a prime opportunity for longs to come in. We continue to see Open Interest increase from these lows, with aggressive shorting starting to be absorbed, giving us the chance to have a short squeeze towards the weekend highs. However, considering the current MTF trend in BTC price, we want to be wary of a further rejection around the 114.4K Weekly VWAP target, as this may very well launch us towards 107K or lower in the coming days.

• Bias Recap: BTC traders must be a little numb with the ongoing price action, consistently under-performing ETH and incrementally altcoins. For example, during this last flash crash, altcoins were impacted very little, and recovered extremely fast!
  
  Going on from this, our bias is starting to tend towards the bearish side; however, this is the last scenario where we see us recovering above 117K, from these current lows. It's often said in trading that when those are fearful, that's the moment to place your entries, and it's exactly right in this scenario – it's a perfect entry point, but caution should be taken on taking any other longs if we come below 111K, until we touch ~107K.
  
  Currently, the low set does fit with our Fib support levels, with it being a perfect reaction from the macro 50% retracement level, with 107K being the next 66% level.
• Line in the Sand: We'd want to reclaim our 114K line in the sand this week; otherwise, we can expect a much larger downside. Current sentiment is at risk.
• Context Links: GDP Growth Rate announcement this week. Market needs to re-stabilise from market maker disruption over the weekend (flash crash). Volatility ahead.
• Options Max Pain: (reminder) 116K Max Pain level for Options on the 29th of August.

• Options Open Interest: Also note that Open Interest on options is extremely skewed towards ~140-150K on calls compared to puts, with the majority expiring at the end of September, and December!
• Opposing Ideas: We'd like to look for shorts from ~114.4K (Weekly VWAP target) as a reaction from there, with little aggression interest to move higher may suggest larger downside.

ETH Summary

• Changes since the weekend: ETH made another ATH above 4900 during the weekend, however, it lacked acceptance, shortly followed by a sharp correction towards the Fib support of last week's rally! There is still ongoing downside risk for ETH right now, looking towards the 4420 Weekly VWAP level as a preferred zone to take new longs, allowing us to ride a new wave of strength towards 5100. However, as we come towards the end of the month, with lots of options contracts unwinding towards the end of this week, we want to be cautious, as we project downside risk over the next few days to extend towards ~4200, the ongoing Monthly VWAP. If there is sudden interest in long CVD, we can consider entering longs earlier.
• Bias Recap: There is a lot of aggressive shorting and open interest being taken off the table (longs taking profits and exiting), which wasn't the case the last couple times we attempted to break these highs. This does put us in a more cautious scenario, slightly more bearish, with us liking the idea of taking shorts ~4750 on a dead-cat rally which lacks the open interest increase to push ETH to new highs. You can essentially open your longs at our target below, and then reverse into shorts if we lack strength, which is probably the best idea for this week to consider! Upside potential does extend above 5100, with the possibility of reaching 5,800 if there is continual institutional interest, however, as we come into September with more active trading on by Wallstreet, we may start to see more regulated/tempered price action by ETH, adding more difficulty to making new highs! A break below 4380 would make us target 4200, and as low as 4000 (our current line in the sand from a more macro perspective in terms of trend).
• Line in the Sand: We must stay above 4000 to maintain our current bullish momentum for ETH.

Altcoin Summary

• Altcoin Market Outlook: The current state of altcoins is extremely strong, especially following yesterday's BTC flash crash, which had little impact on alts. We're looking for a continuation in this steady trend for alts leading up to the expected rate cut in September, where we may get further volatility. It does also seem like a lot of altcoin performance may be tethered to how well Ethereum performs as well, so keep an eye on ETH Spot ETF flows in conjunction with our Altcoin Performance chart. It's definitely a time to hold your alt bags and make gradual profits. It's also important to pay attention to the ongoing BTC Dominance behaviour and how BTC price action reflects on the altcoin market. It could be the case that we do see a rise in BTC Dominance leading closer to the rate cut due to higher "implied volatility" expected by traders, so some may want to take some risk off the table.

Risk Management Framework ⚠️

Bull-Market Discipline (Weekly Reminder)