I posted this explaining the BTC / crypto sell off this weekend:
BTC drop compared in USD & JPY

@Dyutiman Das has a great response with the below as we were discussing this China blackout / hash rate drop catalyst in another thread post. 
Below is my response. which im posting as this separate post so as to not have it buried / only visible to those following. This is my explanation of whats behind the current BTC price action as I, a trader in various financial markets. see it, and the best single global coincident indicator at the moment on spot BTC: stock price action of 8696 Monex Group.   

This is also addressing a broader matter I see developing within the crypto community mirroring exactly the same trap that I’ve personally experienced in my hedge fund sales  & trading roles with once great / now failed fund managers stuck on fundamental analysis for their long / short stock picking. as well as macro fundamental analysis and macro bets on USTs, yen etc. 

Feel free to disagree of course. but just showing a different angle that likely hasn’t been considered by anyone.. And thanks @Dyutiman Das for the question!

 

(in response to  BTC drop compared in USD & JPY )

@Weston Nakamura great analysis, and the round number effect is kind of eye opening.

Any thoughts on how we should reconcile this finding with the drop in hash rate? Glassnode shows that the slowdown preceded the price drop. So blackout -> drop in hash rate -> panic in Japanese retail -> trigger stops/algos at round numbers?

So the question is would the price drop happened even without Japanese retail? 

————-

(my response)


Thanks @Dyutiman Das - just wondering, did you make that chart (the notes/annotations)? Or glassnode/someone else? Reason I ask is because even in that very chart, I don’t see a correlation, let alone causation. Not to say anything of the completely non existent theoretical inverse (hash rate ↑ price ↓), but where’s the April 15 price drop? Or, why’s April 10 going the exact opposite directionally?

What I want to know as a serious question for someone who’s not at all even on the fringes of the weeds, let alone deep in, is- fundamentally, why would a drop in hash rate result in a price decline? Wouldnt it be the opposite? (and ive seen various rationalizations for both directionally, which tells me that not only is this yet another financial market that isn’t fundamental-only, if at all, but even the opposite arguments aren’t consistent with price action)

Heres what I see (or don’t see) from the lens of hash rate vs price action:

Financial markets are instantaneous. The peak was on Thursday the 15th? Why the extremely sudden on volume (as per my post above) move 4 days later on Sunday? Way way way too long of a time lag if price action& hash rate are connected at that time scale (suggesting they’re not)

Timing wise, if anything, it seems that the price sell off came “with” the POST-massive drop REBOUND (headfake) & then drop again. And again, I’m not saying that’s the case, I’m saying that timing shows the other direction:

Zooming out further, I don’t see a consistent price vs hash rate relationship (7 day mov avg or otherwise), like the late Oct ‘20 drop seemed large in magnitude ex-this latest one, no impact in either direction:  

Zooming out further yet, this looks like an absolutely historic level drop. where’s the historic level price move? And why’s there a historic level price move on a relativity (or very) stable hash rate trend? I’m sure there are a thousand “because... “ but the only one that makes empirical sense to me is “because the fundamentals are disconnected from actual market activity“

There may have once been a time when that was the case. But every single market, I don’t care if it’s crude oil futures or some fringe obscure crypto, follows one and only one law for price action: net capital in > out, price ↑, net capital out > in, price ↓. That’s it. WHY that capital goes in an out is completely dependent on its source, and not on what “should” be fundamentally. So in the early days when a greater % of the intraday flows were of those within the crypto mining (or crypto in general) community, these sort of fundamentals may have exhibited a stronger relation to price. But degrees of correlation are never static, especially with major shifts in the sources of net capital flows as asset managers and broader public get involved (and by involved I mean one way - everyone is underweight and biased long). So to anchor on an increasingly irrelevant metric is very dangerous. This reminds me exactly of the equity fund portfolio managers I used to cover as clients, who used to make a lot of money doing long/short fundamental analysis to make their market bets (a decade or 2 ago), but have ONLY underperformed / got blown up since, and yet STILL to this day do so despite company fundamentals and ticker symbols having absolutely nothing to do with one another. And they do so because they’re anchored into a methodology that succeeded once upon a time, but as the sources & behaviors of capital (passive index funds, retail, options markets etc) have changed, they have / can not - and they consciously and purposely refuse  to change because they’re stuck as being early experts (“market is being stupid and will come to me. “ ← market is never wrong and doesn’t “go to” anyone, and certainly doesn’t give a  shit about your stupid irrelevant  5yr DCF excel spreadsheet- in fact the market is actively hunting for ans picking off dinosaur fund managers like you- I know I certainly am)

As per this ↓ 

“...has ALWAYS been correlated“ ← my point exactly. If that were even true (it’s not), “has always been” = “will always be, and at the same static level, forever going forward” ? (rhetorical question)

”...for those who remember hash rate collapse of ‘17” ← again, this is the very same OG arrogance as fundamental fund managers but worse. You don’t ever say “those who remember...” implying something so far back that “kids these days weren’t even alive and around for.. and then say the year 2017 in 2021. So you mean 3-4 years ago? Yea. We fucking remember. And if we didn’t, we just need to go “back“ in extremely recent “history“ to see. And when I do, I see that chart and it seems BTC price action had peaked well ahead the great hash rate apocalypse of ‘17 and bottomed ahead as well. And looking at those very charts, the magnitude of the moves relative to one another are completely off. Shouldnt this warrant a -50% or more crash?

”already fully recovered“ + “sharpest 1 day drop“ ← without even apparently realizing, he’s disproving his own point of correlation. is this current price drop the coinciding largest single day price drop since ‘17? And if hash rate recovered, why hasn’t the market? 

So, again, I’m not even at an amateur level of understanding mining. Thankfully we’re not talking about mining. we’re talking about financial market asset price behavior, for which I DO very much have a high degree of expertise, competency and understanding of. Which I’m not saying i understand and csn explain every market‘s behavior, I’m saying I have the ability to approach and identify/eliminate drivers of price action far above the “avg” market participant  (at the so called pro institutional level).

As to your question of Japan retail & would this have happened absent Japan retail. the answer is I have no idea what would’ve been because history doesn’t allow us to see 2 outcomes all else equal. 

but that obvious point aside,  thats a very solid approach and way of thinking - identifying and splitting up/analyzing from a source and behavior of capital perspective. 
All I can say is, having watched / actively traded this particular market (btcjpy & btcusd) for the last 4-5 years and financial markets for a decade, from a source of capital perspective at this moment for btc, sharp selling begets selling, but if sharp enough selling actually awakens heavy buying from the systematic community, of which s lot of the institutional flow is derived. The active retail community can be split into leveraged and non, majority of participants the latter, the majority of % of flow being more balanced. Margined retail are stop loss users or margin call forced sellers (effectively the same exact  market function as a stop loss) , which trigger one another in succession. Non levered retail are asset accumulators and by and large are never net sellers, they’re net buyers during sell offs. The fact that this happened during Japan hours at Japan round number levels (stop triggers as well as resting buy limit orders) simply means Japan triggered the global algos during a period in which global asset accumulators other than East Asia were absent, and the relative lack of liquidity allowed for a very sharp one way directional move. The longer the sell flow continues, the more it’s depleted of sell supply, and at some point, one of those round number buy limit levels will outnumber the diminishing sell flow, and smack the market the other way for now buying triggering buying. However, on the initial way down, stop limit orders are triggered (if it trades down to $x stop level, then sell at $y limit) ←  this sets up for the post rebound re-reversal back down again halfway up to recovery. all of this happens in a flash automated, human beings aren’t involved here by snd large, and these are global systematic flows included. (people aren’t sitting around on a Sunday waiting for a sharp sell off to manually buy into with a split second response time). 

Japan retail stabilized the market and sustained it for hours later, buying. But because it occurred during illiquid times (as opposed to say a Wednesday 9am EST = 3pm Europe = 10pm tokyo/Seoul = 9pm HK/singapore when the world is simultaneously awake/on line and biased long), BTC market dropped farther than it would otherwise have, or didn’t rebound back to flat as a freak flash crash episode. and because it stayed double digit % down, Europe and US wake up to see what happened "overnight" for additional selling, which was also met by buying that keeps keeps levels more or less net flat when knocked down. 

So your question should actually be- if japan retail were absent BUYING into downside (somehow), what would have happened? prob a much sharper decline in waves as EU & US come on line to see -30%, -40% overnight action. 
But due to the relative lack of Asia’s time zone overlap that EU ↔︎ US share, Japan (and Korea SG HK AU MY etc) can set the directional tone. CAN. Not “always is/will”). 

So one question to now (and always) ask during these times in which we’ve identified Japan retail as the leader of global flows waiting to go long until confirmation of bottom is in, what’s Japan active retail appetite look like?

At this moment, if I could only pick one single global indicator for BTC immediate term price action among anything anywhere, it would be what the stock price action of 8698:JP Monex Group is.

Monex is a tokyo stock Exchange listed major online retail brokerage which also offers crypto trading, which thereby makes it an excellent indicator for global retail risk appetite- becsuse as mentioned Japan’s unique time zone influence as well as its actual highly underestimated capital firepower size (who would ever think of Japan retail being long TSLA?)

8698 Monex is not only highly highly correlated to btc, but it itself has OUTperformed BTC YTD. Monex Grp has been the best BTC proxy listed on any stock Exchange globally, they’re almost interchangeable. (interchangeable as in- intraday BTC behaves the same as Monex if not led by Monex, and due to having the same cohort ownership + the company  biz fundamentals itself is dependent on retail trading activity)

and on the right side chart you can see what happened last Friday into the weekend of the crypto sell off. Monex was coming off a mini blow off top at cash open was held but testing its ¥1,000 level during cash trading hours. that top in Monex led BTC spot (I purposely put in BTCUSD vs Monex in the middle chart even though the same thing as BTCJPY, to remind that BTC trades at all hours, and that BTC isn’t just USD denominated).  Monex price behavior shows Japan retail appetite as geared for profit taking on crypto space heading into the weekend of the Sunday BTC drop. 

So, on Sunday around noon in Tokyo, with these 2 nearly interchangeable assets of BTCJPY & Monex group, it seems that profit taking resumed into illiquidity.

I’ll also say that the longer BTC doesn’t snap back higher, the longer it won’t (if that makes sense). Right now there are a ton of levered and some non levered longs with their fingers on the sell button waiting. They don’t want to sell because they think that the minute they do, that’ll be when the market suddenly surges to rebound thereafter “as it always does” - so they’re waiting with fingers on the trigger. But the more time that passes without that expected rebound, the greater the risk of some just saying “fuck it- I’m out” and sell, triggering stops, ans once these trigger finger sellers start seeing the next leg of the move is further to the downside, they pull the trigger and make it self fulfilling. 

I won’t say don’t watch hash rates- watch whatever you want. But know how to identify what actually matters to financial markets price action and maybe more critically, what doesn’t matter.  This is why I’m saying let’s not give the CCP a free win they had nothing to do with but would love to take.

(See original post on BTCJPY round number levels:   BTC drop compared in USD & JPY)