Bumpy Ride

It's like being wrapped in a cozy blanket while floating in water.

That warm thought and rocking sensation sat in me as stretched on the beach in my full body wetsuit.

My muscles were going to get some work as I watched the rip pulling the water quickly to the South.

This was based on how the waves were breaking, it meant lots of paddling to stay in position to catch one just right.

The hurricane was firmly North, and the people on the beach were either wearing a wet suit or wearing a sweatshirt watching the action.

Surfers was getting tubed on nearly every drop-in. It was glorious. My excitement was high. Muscles were ready. I was eager.

Then as I started to walk towards the water, I saw a surfer take a beating...

I never considered the risk.

The wave was crashing down on some seriously shallow waters. One wrong more, I would be chewing sand for a week.

I had no business riding that wave.

And as much as it pained me, I undid my leash... Wrapped it on my board... Headed back.

It was just then that an older man came over and asked me how it was out there while looking at my board.

After I explained to him what just went through my mind, he shared some wisdom that left me feeling thankful for my decision.

And with the markets whipping around as they are, I heard a similar piece of wisdom shared within our own team by Amit. It's wisdom we should all take to heart on weeks like this.

Who Are You

One of the non-traders of our team asked a simple question in a team meeting...

When is a good time to enter.

Before he could finish his sentence, our Senior Quant Analyst, Amit, was already replying...

Stay out.

Nice and to the point. No room for misinterpretation.

Once the silence had passed, he expanded on his comment with a slew of questions to better explain himself. He asked things like...

• What algorithms are you deploying
• How many millisecond does it take for your order to get executed
• How long do you plan to be in the trade
• Will you sit in front of the chart and manage the trade until you're out

It became clear what was being said... Similar to my experience watching the hurricane swell produce overhead lefts that were way outside of my experience... Conditions like this are not for everyone. And it's best to stay out.

In this type of environment, speed is paramount. Without an edge, you're already playing catch up. Meaning the moment you place the trade, by the time it's filled and you find out where you sit, you're likely behind the eight ball.

This advice rang true. And what followed was a discussion on various tech solutions that exist, their pros and cons, along with how various analysts in the room differ in their trade strategies... And how they each look at this environment differently.

The takeaway was very much about understanding who you are as a trading. What is your style.

Through that understanding, you can better invest in YOU.

If you are a coder, what data sources do you use, how powerful is your machine, are you trading via CLI, languages, and more.

Only once you know where you stand relative to others similar to your style of trading, can you compete. To level up, you first need to better understand how to level up.

For me, I'm not in the quant side of Jlabs Digital for a reason. I'm an excel midcurver who likes to click buttons on a screen, and am nostalgic about the Bloomberg Terminal for this very reason.

It's also why I use J-AI... I'm not one to compete to catch a falling knife. So with that background, I hope you all reading can take a moment and ask yourself who you are as a trader. And whether this current environment is one you have an edge in.

Alright, enough of the boring wisdom chat... Let's check out the market and see if things are getting better or worse.

Market Update

The books are looking a whole lot better.

When finding a bottom, there needs to be some sense of strength below the current price. Otherwise, how can the structure be considered strong enough to support any future selloffs.

If we go ahead and look at how the bids on the order books looked like after Bitcoin dropped below the 200-day MA, we can see something interesting...

The order book never improved.

You can see that in the chart below. The bid-to-ask ratio is at the bottom of the image. The fact it's below the mid-line while price keeps falling suggests bids were not showing up... Liquidity was thin... Nobody was willing to defend the 200-d MA.

Price eventually dropped low enough to get the change in the books we wanted (sub-$55,000). Whether the intent of those bids or not were to get filled is another story... What we care about is merely the fact they appeared.

Now, we need to know if they still exist today, or liquidity is vanishing.

What we see is that bids have not disappeared from the book. This is a good sign if we want to see a bottom form on Bitcoin's chart.

To showcase this better, we went ahead and pulled up the bid-to-ask ratio that exists in a specific range to helps us better showcase what we mean.

In the chart below, we showcase with red dots when the books are excessively thin to the downside, relative to the upside. Green dots showcase when the bids are stronger than the asks that exist.

As we can see, bottoms can form when bids have strength - green dots.

That doesn't mean the ride isn't bumpy. In fact, as I write this, we can see price is retracing a little of yesterday's move. But at the same time, the bid strength still looks present.

The current structure of the order book looks better. That's the takeaway here.

As far as the current flow of orders, let's look at CVD for some more color there to help us think about future direction...

First up, the flow of trades happening on Bitcoin spot. Below we see small orders are showing of late. The chart is showing 5-min candles, so this is really a snapshot of the last few days. The shrimp colored line is orders between $0-$1k in size. That's the only thing with any decent trend, not one to really get behind.

Everything else is really just noise. Nothing dictating trends.

On the futures side of things, we get a slightly different story. Instead we see much more aggression happening off the recent low, and dictating the trend.

The green and blue lines in the chart below are the CVD for order sizes between $100k-$10m. It's the whale demographic. That's a good trend to get behind.

Over the last 12 hours, however, their activity has subsided. And we're left wondering if they will reappear.

That remains the question of the day.

Luckily, the books have a foundation. And I have to believe over the coming week we will see price be rangebound.

Then once and if price is ready to break to the upside to refill lost ground, we will see trends appear on the spot markets. Something that is lacking at the moment.

For now, it seems J-AI is going to take advantage of this range and scalp higher beta tokens (ie - memecoins) while building up positions in large caps.

Let's see if the books continue to remain strong into this pullback.

For those wanting to hear if the order books are improving on the heels of this essay, be sure to tune in tomorrow (Thursday) to our live Trading Pit show.

Amit will be on there sharing his "old man" wisdom along with a view of the orderflow (the quotes help give me ammo in saying I didn't call Amit old... even tho he is in fact one of the older guys on the team).

So be sure to follow the @xchanging_good account on X. That's where we will be livestreaming our show starting at 13:15 utc / 9:15 ET. You can also join the chat there to ask your questions.

Until then...

Your Pulse on Crypto,

Ben Lilly

P.S. - Vini, I'm with you. Analysts do seem to be getting ahead of themselves with an emergency meeting producing a rate cut. And doing a cut now could exacerbate the volatility. To minimize the impact of this unwind, it seems we saw it. The man in charge at BoJ tried to calm markets saying he won't scare everybody again in the near term. The Fed on their side need to do their part as well... We'll see on that in time.

Pancake Lord, it's good to have you along for the ride. Thank you for being part of the Jlabs community.