When can I buy the bottom? It's like "waiting for the fish to die in the market"

Metrics Ventures, a secondary fund in the crypto market, released a September market observation guide:

1. The overall market was sluggish in September, with many indicators at low levels for the year. Bitcoin and Ethereum chip data showed a large loss, chips were thrown out, and contract positions fell sharply.

2. MVC buying operation. **We conducted moderate buying operations in mid-September, buying about 20% of the Ethereum position. The transaction price was around $1,600. This was mainly based on the following positive signals: After three months of volatility, the potential selling pressure was released to a certain extent; market sentiment showed panic, etc.

3. The main contradiction in the market is still the lack of funds, which cannot be solved now.

4. The monthly report "Waiting for the fish to die in the vegetable market" is a metaphor for our current investment strategy. Before determining the trend, we will remain patient and wait for the real configuration point to appear.

This article is a review and commentary by Metrics Ventures on the overall market conditions and market trends of the crypto asset market in September.

The title of this monthly report comes from a famous joke. An old lady went to the market to buy fish. She stood by the stall and kept staring at the fish. The vendor was puzzled and asked the old lady which fish she liked and why she didn’t buy it. The old lady said that the same fish, a live fish was 13 yuan and a dead fish was 3 yuan, and she was waiting for it to die - this is similar to the mentality of all secondary investors who hold a lot of cash in the market now. They just sit on the sidelines and observe quietly, waiting for the live fish to die before they rush out to buy the bargains.

Of course, our mentality is similar. The lively token2049 conference in September was especially like a vegetable market. Some of the fish in it had white bellies, and there were still some fat and plump big and small fish struggling. In fact, everyone knew that they would not be able to jump for much longer.

We made some position building activities in mid-September, mainly buying about 20% of ETH, with an average transaction price of around US$1,600, because the position building signals we had been observing showed some marginal changes in sentiment and chip levels.

From the perspective of chips, we can observe that as the market falls, Bitcoin is hoarded in the chip-intensive area of ​​$29,000-$30,000 and begins to move to the $25,000-$26,000 line, indicating that the previously locked-in disks due to the expectation of Bitcoin ETF passing and the favorable expectation of XRP/DCG lawsuit are surrendering, cutting losses and throwing out chips, and the existing funds on the market provide relatively supportive buying. ETH also has corresponding chip characteristics. At present, the proportion of ETH chips that have realized losses on the chain is close to 50%, which is similar to the characteristics of previous panic bottoms, and also indicates that the bloody chips at the spot level are being thrown out. (Through the observation of on-chain data, we also found that on September 10-11, Arbitrum experienced large-scale whales cutting losses, with a general loss of 30-40%, which also means that since June, the patience of large investors and whales for the market has finally come to an end.)

From an emotional perspective, market sentiment also quickly turned pessimistic.

From the above chart, we can observe that after nearly 11 months of market adjustment, more than 97.5% of short-term BTC chips are in floating losses. The drop from $30,000 to $25,000 does not seem to be a huge absolute drop, but the pain of selling at a loss is actually very severe. This level of market clearing should be able to bring about a market cooling-off period of about 1 month.

From the data of contract positions, in early September, the BTC contract positions on Binance platform alone dropped from a peak of $4.81B to $2.88B, a drop of about 40%. In early January 2023, when the market was at its most depressed, this figure was $2.52B, and in March, when the US banking crisis hit, this figure was about $2.85B, indicating that the failure of a series of favorable expectations in mid-September did greatly destroy the confidence of players in the market, and had a strong cleansing effect on market leverage. Moreover, throughout September, the OI position of the contract recovered slowly, the fee rate was medium, and it was basically in a depressed mood where no one dared to open long or short positions.

If we look more carefully, we can roughly observe from the hourly market of BTC in the figure below that the narrow fluctuations in the market in September are really hell mode for contract funds. There are frequent gate-drawing phenomena, and positions are liquidated when the price rises and falls. It is even more pitiful that the price rises first and then falls. Therefore, it is obvious that the sentiment of Bitcoin at $27,000 is actually more depressed than that at $16,000. The deep bear characteristics are obvious. The whole September and even October are in the stage of fluctuations to digest the selling pressure of locked-in positions.

Not only are the spot and contract sentiments in the market depressed, but even the on-chain meme market that the industry's extreme left players like to hype has completely cooled down. As shown in the figure below, the ETH network Gas base hit a new low this year. ETH has rarely entered an inflationary state since the completion of the Merge, which is even colder than the freezing point in December 2022. From the backtest of the Mempool transaction data we monitor, the activity of tokens without transaction taxes has dropped sharply.

Not only that, in September 2023, DEX transaction volume has not exceeded 30B, which is not as good as 40B in December 2022, and it has recorded a record low in DEX monthly transaction volume since 2021. This is also in line with the market sentiment we intuitively feel. The market heat of BTC at US$27,000 is even lower than that at US$16,000.

When we observed that the locked-in shares were being sold at a loss and the sentiment was extremely low, we chose to enter the market to buy the bottom on a small scale. This does not mean that we believe that the market will have any significant rebound opportunities in the short term, but that the current position has released bloody spot chips (the proportion of realized loss chips is high), the leverage has been cleaned up more thoroughly (the position is close to the lowest level of the year, and the long and short positions are relatively low), the sentiment is extremely low (the volume is weaker), and the market has given a signal of a tendency to take over. The current position has a good risk-return ratio. As a long-term configuration, the price is reasonable. Even if there is a possible risk of a sharp drop in the short term, we can stop loss at a price with a clear target and minimal cost.

It happens that some screenshots about the BTC calendar effect have been widely circulated in the market recently. The main idea is that the cryptocurrency market has a high probability of performing very well in October every year, and there will be a vigorous Alt Season. The calendar effect is just a metaphysics, and we do not have much optimistic expectations for the market in October.

At present, the market has barely taken a breath from the reduction game. The total market value of the top five stablecoins has not dropped significantly in the past month. At most, it can be regarded as an upgrade to a stock game. In this case, the market is more of an oversold rebound, with limited room for growth, and the driving force for the rise is also at the spot level. Since all players in the market generally have low positions, there is some buying power for short covering. Through market research, we found that secondary institutions and individual investors with a fund size of over 100 million US dollars all choose to make small-scale bottom-fishing with a fixed investment mentality.

If there really is a so-called alt season, due to weak market liquidity and low market capitalization, some short-covering funds may bring huge gains, but there will also be a large number of altcoins competing for funds, resulting in a very drastic rotation of themes and poor market sustainability. It is estimated that no significant money-making effect will be generated, and the value of participating in short-term trading is low. If you do not escape fast enough, you will become an unfortunate exit liquidity.

The market has froze, with volatility hitting new lows one after another. The proportion of locked-up long-term chips has slowly increased, and short-term investors have repeatedly chased highs and sold at losses, leaving us in a state of numbness where we can neither go up nor down - the main contradiction in the market is still the lack of funds, and this contradiction cannot be resolved now.

The core constraint of the main contradiction still lies with the Federal Reserve. The Federal Reserve suspended interest rate hikes at its interest rate meeting in September, but the market interpreted this as interest rates will remain high for a long time. During the National Day holiday, it was the critical point for the US government to close the budget resolution for the new fiscal year. U.S. Treasury yields rose back to the 2008 level, U.S. stocks, gold and crude oil plummeted, the U.S. dollar rose, and overseas markets were severely shaken. Signs of liquidity tension have emerged - this is also the main consensus in the current crypto market. Those whale players who have not lost all their money and are staring at the fish pond off the market are generally waiting for the collapse of the U.S. stock market in 2023Q4-2024Q1, using the collapse of the U.S. stock market or the interest rate cut as a signal to confirm that the fish has completely died (the ghost of 312 memory is echoing).

We keep paying attention to this, but we still want to emphasize that since 2023, we will not use macro information to guide investment decisions in the crypto market. We are not macro experts. The end of the interest rate hike cycle does not mean the beginning of the interest rate cut cycle. Each interest rate cut is only cut after risks appear. This is not a priori signal; at the end of each interest rate hike cycle, a bubble will burst in a corner of the earth, and this time it may not be the US stock market that will burst; whether it will collapse or not, and when it will collapse; all these things are of little help to our decision to "shuttle or not".

In short, the market is short of money now. We don’t know where the money will come from for a while. What we need to face more is that Bitcoin may fluctuate sideways indefinitely within a 15% fluctuation range. Fish, fish, when will you die?

In summary, the cryptocurrency market is still in a downturn in September, and we remain cautious. Before the market funding situation improves, volatility and shocks may continue. We will continue to pay attention to the fundamentals, make timely allocations, and patiently wait for the real buying point.