Alpha Mail #57
Follis, short squeezes and the impact of ETH price on NFTs.
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Follis is a full-time crypto trader, Twitch streamer and content creator. Former lawyer with a background in investment funds and financial regulation.
You can get 90% of a trade right and still lose money.
JIM TALBOT: HOW BIG IS THE SQUEEZE?
I believe the anticipation of a correction is baiting shorts into selling LTF market structure breaks only to get mean reverted and squeezed. As long as we keep seeing this happen, the squeeze can continue.
If sellers decide not to take the bait, I expect a decent correction of maybe 10/11%.
After the recent short squeeze into 23k’s, shorts have been less confident in taking the trade, and there are a few signs of momentum loss.
Enough to where I wouldn't be too comfortable taking the long trade before seeing a flush.
There was a good drop in OI on the last move, which makes me think there's perhaps not enough juice to squeeze in the immediate future.
I'm waiting to react to any change; I’m not particularly interested in a short.
If shorts start taking the bait here again, then I would back a potential move up into the 26/28k region.
I think this price point is where you would test sideliners’ resolve. A good area to generate liquidity.
The only two levels I'm particularly interested in seeing a reaction are marked here:
Regarding what I'm looking for, if decent short positioning enters at one of these levels, I will back the move up to higher targets.
If the market fails to trap sellers in these zones, then I think we are at risk of a strong move down based on the low participation levels seen so far on this move.
So far, we haven't seen significant FOMO; it's been predominantly a large player/players pushing price with good volume and buy pressure through Binance.
If this entity can’t sustain the move to force the FOMO needed to sell into, I think the potential to unwind into thin books could be more impulsive than the move up that we saw.
CBS: ETH up, NFTs down?
Or is it a little more complex than that?
In recent weeks we’ve seen a strong NFT run, all while ETH was relatively flat in terms of price.
However, since ETH has started rallying with the rest of the market, discussions are being raised again on how NFTs are affected by ETH pricing.
This is a relatively complex topic, but we can break it down by simplifying the thought process and providing some simple flashbacks to the bull market.
That’s where we’ll start. When ETH was trading at its all-time high levels, the NFT market was still thriving. Thousands of $s were traded each day, and speculators continued to ply their trade.
In simple terms, we know through history that the underlying $ value of ETH doesn’t seem to matter.
But, when the price of ETH was plummeting, the value of NFTs also plummeted, which has always been a strange connection in my opinion. Why offer a discount on a discount? If the price of ETH is reducing and is now cheaper in $ terms, why do the assets priced in ETH also discount themselves? It’s a double-saving for prospective buyers, so I won’t complain too much.
Perhaps the best view on this is that NFTs are vehicles simply for the accumulation of ETH. NFT pricing in ETH, as represented through large Punks sales, is relatively standard but fluctuates significantly with $ value.
Punk 4156 sold when 2,500 ETH was worth $10.25 million. Two months later, the 2,500 ETH that 5577 sold for was worth $7.7 million. 4464 sold on July 12, a value of just $2.6 million.
I believe it comes down to an individual perspective more than a market-wide acceptance of what should happen to NFT pricing.
Some investors will prefer to cash out into $ and will consider their portfolios entirely in $s. As sellers, they may be more willing to accept a lower ETH value on their NFT if it means a higher $ value. Some investors will think entirely in ETH, and reducing the value of their NFT in ETH is something that wouldn’t be a consideration for them in their goal to continue stacking more.
ETH in $ terms will impact the market; from what we’ve experienced so far, it seems as though the correlation comes from downtrending ETH value with downtrending NFT value. When ETH is uptrending it feels as though the market is far more individualistic with its expectations and movements.