Motus Market Flash - Feb. 5th Volatility

BTC started the year with a short-lived rally from $87k to $97k but has been under pressure since.  Common support levels continued to fail, and selling yesterday accelerated BTC to its worst day in 4 years despite no obvious catalyst.  Prices fell from roughly $70k to briefly touch $60k before bouncing to $69k as of writing.

What We Know

• Selling was constant, orderly, and while short futures did pile on, this was driven by spot selling with no obvious explanation.  A majority of token sales originated on Binance, however BTC traded at a significant discount on Coinbase, offering mixed signals.

• Volumes on IBIT exceeded $10B, more than doubling prior highs, with almost a billion dollars in options premiums traded, suggesting that ETF positioning played a more significant role than in the past.

• The velocity of the selling this year is curiously extreme, with BTC falling 2 standard deviations below its 365-day moving average for only the fifth time in history, suggesting a price-insensitive unwind or forced seller.

What Comes Next

• Key levels that offer support/resistance include ~$82k, which was Q1 ’24 consolidation and November’s support, ~$72k, which was the April lows, ~$69k, which was the last cycle top, and the $68k-$58k range, representing weekly 200 exponential and simple moving averages.

• After failing to hold several key levels and ranging into the low $60k range, several signals now flash bright green:

  • Weekly RSI has fallen below 30, which marked a bottom in 2022 and 2018, and historical data shows average 1-month forward returns of ~23% with 100% accuracy.

• There has been no historical instance of a 2SD move below the rolling yearly VWAP that didn’t mark at least a short-term bottom.

• Accumulated leverage forward is dramatically skewed short, meaning further cascades to the downside won’t be leverage driven, and unwinds to the upside are potentially violent.

  

• The absence of an obvious catalyst for such an extreme move makes it difficult to predict what comes next.  While we don’t try to call exact bottoms, there is a very positive asymmetry apparent here. 

• In a risk-off environment, it’s also difficult to think the recovery would simply be V-shaped.  Short-covering may be followed by further selling.

Motus Positioning and Final Thoughts

So far this year, Motus has escaped the carnage, posting modestly positive gains, while BTC and CCI30 are down 20-30%.  Our large allocation to outperformer HYPE allowed us to raise cash recently, and we were active in deploying yesterday.  In light of the choppy environment, we are deploying slowly via scaling in and will buy any further weakness.

This is a very volatile market regime. Software stocks shed 30% since Q4, silver shed 30% in an hour, and precious metals continue to gain and lose trillions of dollars in market cap. Investors are handicapping AI capex, geopolitical uncertainty, quantum concerns, and rapidly shifting market sentiment.  Crypto is and always has been a more volatile expression of markets than other asset classes, and it occupies an outsized share of mind and TV news.  Yesterday was no different, but reports that something is “broken” in crypto specifically are not thoughtful.

While there is rampant speculation about what kicked off yesterday’s selloff, we think the most likely explanation is probably an unsatisfying one:  Retail reflexivity lower, a lack of inflows in favor of metals, Chinese viewing BTC as US-aligned and rotating out, and shorts piling on during a weak market likely all contributed.  Risk-reward forward looks good, but considering the backdrop, we are implementing with caution to keep dry powder and manage downside.