Crypto Trading Guide

How to be a Successful Trader

Bloodgood
@bloodgoodBTC

Self-published
2022
Table of Contents

1 Basics about crypto, about crypto and markets, why do 5

people trade assets, basic rules, spot / derivatives

1.1 Market cycles, correlations between financial sectors, infla- 13

tion

2 Basics of Charting 19

2.1 Basics of Chart Patterns (Common Crypto Patterns) 19

2.1.1 The Double Bottom 19

2.1.2 The Double Top 20
2.1.3 The Descending Triangle 21
2.1.4 The Ascending Triangle 22
2.1.5 The Descending Broadening Wedge 22
2.1.6 The Ascending Broadening Wedge 23
2.1.7 The Falling Wedge 24
2.1.8 The Rising Wedge 24
2.1.9 The Bearish Head and Shoulders 25
2.1.10 The Inverted Head and Shoulders 26
2.1.11 The Ascending Channel 27
2.1.12 The Bear Flag 27
2.1.13 Price Action Pennant 28

2.2. Different types of trading indicators 29

2.2.1 The Stochastics Indicator 30

2.2.2 The RSI Indicator 30
2.2.3 The Bollinger Bands 31
2.2.4 The EMA/MA 32
2.2.5 The Fibonacci Tool 33

2.3 Volume Indicators 34

2.3.1 The VWAP 34
1
2.3.2 The Volume Profile 35
2.3.3 The Volume Chart 36

2.4 Candlestick Patterns 37

2.4.1 Single Candlestick Patterns (Bullish) 37

2.4.2 Single Candle Stick Pattern (Bearish) 40
2.4.3 Double Candlestick Patterns (Bullish) 43
2.4.4 Double Candlestick Patterns (Bearish) 45
2.4.5 Triple Candlestick Patterns (Bullish) 47
2.4.6 Triple Candlestick Patterns (Bearish) 49

2.5 Practical Price Action Strategies 52

2.5.1 The Swing Failure Pattern 52

2.5.2 Price Action Deviations 53
2.5.3 Price Action Ranges 54

3 Types and Strategies of Trading 57

3.1 Types of Trading 57

3.2 Trading Strategies 57
3.2.1 Investing 57
3.2.2 Positional Trading 58
3.2.3 Swing Trading 58
3.2.4 Scalp Trading 59
3.2.5 Day Trading 59

4 Order Books 63

4.1 How Order Books Work 63

4.2 Heatmaps 66

5 An Introduction to Decentralized Exchanges 71

5.1 What is a Decentralized Exchange? 71

5.2 Differences between DEXs and Centralized
Exchanges (CEX) 71
5.3 Introduction to Rollups 74
2
5.4 Methods and Means 75
5.5 On-chain vs Off-chain order books 75
5.6 Automatic Market Maker 76
5.7 DEX Aggregators 77
5.8 A Short Introduction to Using Decentralized Exchanges 77
5.9 A few DEXs to consider to reduce trading fees 78
5.10 Ways to earn money without trading 80
5.11 In Summary 80
5.12 Conclusion 81

6 Psychology 83

6.1 Understanding the Psychology of Trading 83

6.2 The different emotions that a trader faces 83
6.3 How to master Trading Psychology 86
6.3.1 Trading Journal 86
6.3.2 Trading Routine 87
6.3.3 Trading Plans 87
6.4 Understanding Human Emotions 88
6.5 Importance of Confidence, Strength and Risk
Management in Trading 89

7 Trends - DeFi, NFTs, Gaming and the Metaverse 93

7.1 DeFi 93
7.2 NFTs 96
7.3 Practical tips 98
7.4 What’s next? Thoughts on L1s, GameFi and the Metaverse 99

3
4
1 Basics about crypto, about crypto and markets, why do
people trade assets, basic rules, spot / derivatives

How We Got Here

Before you can understand what is happening in the cryptocurrency land-

scape today, you need to go back to the beginning to learn how we got
here. While the market has been around for just over a decade, a lot has
happened since its start. To understand the intricacies of crypto, you
must gain a strong fundamental understanding of the broader market.
This will be a recurring theme throughout your crypto journey, learn the
basics first and build from there. Even if covering the history of Bitcoin
and the basics of blockchains might make you feel like you’re reading a
textbook, this part is a crucial foundation before we can get into the prac-
tical aspects of navigating the markets and making money, which is what
most of the book will be about.

With that in mind, let’s dive right in. As you may or may not know,
onn October 28th 2008, the group or individual known as Satoshi Naka-
moto released a whitepaper for a peer-to-peer electronic payments sys-
tem that did not require the use of a third-party financial institution. On
January 3rd, 2009, the genesis block of that payment system was mined.
Today, that system, known as Bitcoin, has become the largest and most
recognizable digital asset in the cryptocurrency ecosystem.

Satoshi’s reasons for the creation of Bitcoin were vast, with all of
them stemming from a complete lack of trust in financial systems forged
by governments and financial institutions. Can you blame him? After the
financial collapse in 2008, the evidence of flaws in the financial system
were apparent more than ever. If you are reading this book, chances are
you were old enough to remember or have first-hand experience of the
harm that was caused. Odds are you share the same lack of trust in gov-
ernments as Satoshi regardless of your stance on cryptocurrencies. By
combining blockchain technology with cryptography, Satoshi created
a decentralized payment system that would be the first successful at-
tempt to circumnavigate these very institutions that abused their trust.
For years Bitcoin remained the sole leader in the cryptocurrency space
but has since inspired a budding ecosystem with an expanding number
of use cases.

5
Since the creation of Bitcoin in 2009, the cryptocurrency ecosys-
tem has flourished. The overall market capitalization has expanded from
nothing in 2009, to a high of nearly $3 Trillion at the end of 2021. While
the increase in value is exponential, the journey of cryptocurrency has
been anything but a smooth ride. If you are a seasoned cryptocurrency
owner, you have most likely become numb to volatility. Along the way,
there have been periods of extreme swings with not only price, but also
in sentiment. In the beginning, cryptocurrency had a stigma as being the
preferred currency for criminals using the dark web (anyone remember
the “Silk Road” era?). Education on cryptocurrency was lacking, and com-
pared to today, very few people understood why it was created and what
it could become.

For most, their introduction to cryptocurrency came in late 2017

during the massive bull run. Whether we bought into Bitcoin or watched
from the sideline, we couldn’t go anywhere without hearing about it. Price
went parabolic and buying Bitcoin became a trend. Shortly after, the mar-
ket flipped to bear, and prices corrected by over 80%. For many, this was
their first time getting involved with cryptocurrencies, and many fortunes
were made and lost. Prices remained low for years, shaking the tree of
first-time investors. Many sold at a loss and moved on. Others held on
with hopes and a belief that things would turn around. During the down
years, all of those invested in cryptocurrency were left wondering if 2017
was just a flash in the pan or the start of a revolution. Any convictions
that investors had during the bull run were being tested as hard as they
possibly could.

Bitcoin failed to crack new highs for years. The hysteria surround-
ing digital assets subsided, that is until 2020. With the arrival of Covid in
2020, governments around the world printed a record amount of money.
The record level of money printing resulted in many becoming fearful of
monetary policy and flocked towards Bitcoin to escape the world of fiat.
Perhaps this is what brought you to the market today, anon. The fears of
financial institutions wrecking the economy like they did in 2008 were
now back in play. Combining these fears of excessive money printing
with the scarcity of Bitcoin, the price went parabolic and started a new
bull run. This bull run will have its unique characteristics, with it ultimately
being remembered as the first cycle where digital assets started to be-
come adopted by traditional markets.

6
The Basics of Blockchain

Blockchain and Bitcoin are two terms that are often used synonymously
but are two different concepts. It is important that you understand how
they are intertwined but also understand what makes the tech behind ev-
erything work. Blockchain is the digital infrastructure that Bitcoin is built
on. Blockchain is the technology that creates confidence in the whole
system. While people often discuss Bitcoin as the first cryptocurrency,
you may be surprised to know there were prior crypto attempts as early
as the 1990’s. Satoshi even referenced these attempts in his blog posts,
sharing his belief that the failure of those attempts stemmed from their
centralization. Basically, Satoshi said they had the right idea but didn’t
know how to execute it.

Blockchain is the public record where anyone can view a trans-

action between two wallets and come to an agreement that previous
transactions are correct. When it is referred to as a “trustless” system,
it means you don’t have to worry about trusting a 3rd party to be on their
best behaviour. Transaction data is added to blocks, and when the blocks
are full, they get added onto a continuous chain. Each previous block is
confirmed to be accurate by the network of computers all around the
world. The success of cryptocurrencies can largely be attributed to the
decentralization that blockchain has to offer. They are decentralized be-
cause control of the blockchain would require a group or individual to
own a majority of the mining power, which is practically impossible. This
is the reason why the Bitcoin network has never been hacked.

While Bitcoin is its own blockchain, not all blockchains involve

Bitcoin. Blockchain isn’t even exclusive to cryptocurrencies, as they have
been used in other areas such as healthcare, voting and aiding in supply
chains. Blockchains are host to several different ecosystems such as
Ethereum, Avalanche, Solana, and many other Layer 1 Blockchains. Each
blockchain has their native currency, and when projects are built on top
of these blockchains they can use native coins or develop a use case for
their own tokens.

Proof of Work Vs. Proof of Stake

With each blockchain, there is a native coin which has its own tokenom-
ic structure. Coins are brought into circulation through different means.
Rather than being created all at once, coins are generated over time
7
through Proof of Work (PoW), or Proof of Stake (PoS). The reason coins
are created over time stems from security reasons. As blocks are cre-
ated, rewards get paid to those creating them. By paying the computer
network rewards in coins, these payment structures incentivize people
to run these miners and nodes which provide security. In both PoW and
PoS systems, network security comes from multiple computers coming
to a consensus that transactions are accurate and truthful. When these
computers verify everyone is acting truthfully, and get paid for it, every-
body is happy.

Bitcoin is a PoW network, with high-tech miners set up around

the world processing transactions. For a decentralized network to run,
security is incredibly important. Generally speaking, PoW is considered to
be more secure by many as ownership of the native asset is disconnect-
ed from control over producing blocks. In PoW blockchains, the miners
use expensive equipment, and are typically run by companies or inves-
tors who have the financial means and time to set up shop. PoS net-
works involve running validator nodes and staking tokens, with a specific
minimum amount necessary to stake in order for a validator to produce
blocks (and these coins can then be “slashed,” that is taken away if the
validator acts maliciously). PoS coins are easier for most people, as you
can earn rewards with a few mouse clicks by delegating your coins to a
validator, without having to set up any infrastructure yourself. If you are
someone who doesn’t want the hassle of building a setup for miners, PoS
coins are great for earning passive income with staking rewards. When
deciding what coins you want to buy, ask yourself if you prefer security or
passive rewards, and then understand how each coin functions.

Bitcoin Leads the Way

While Bitcoin has retained market dominance since its creation, the per-
cent share has decreased over the years. From 2009 to 2016, the mar-
ket cap of Bitcoin ranged from 95-99% of the overall market cap of the
cryptocurrency ecosystem. As of 2022, the current Bitcoin market cap
is around 40% of the overall crypto market. You should not view this as
dwindling faith in Bitcoin, but rather an increase in the number of crypto
projects that have drawn interest from enthusiasts. Faith has remained
strong, which is evidenced by Bitcoin becoming one of the top 10 most
valued assets in the world. If you’re ever curious if Bitcoin is poised to
take on the banks it was created to fight, know that it only took 12 years
to become valued more than any bank out there.
8
When talking about projects other than Bitcoin, these will com-
monly be referred to as “altcoins”. Altcoins were ultimately developed
not to be competitors to Bitcoin, but rather to try and join the fight against
traditional finance and maximize the opportunities of blockchain technol-
ogy. Bitcoin was developed to be a payment system, but it was quickly
realized that Bitcoin was not capable of processing transactions at a rate
that could replace traditional finance on its own. Once this flaw was re-
alized, other projects set out to help create a system that could be used
on a larger scale. Bitcoin became seen as a store of value, while other
projects sought to not only circumnavigate banks, but replace them all
together.

Projects like Ethereum aimed to have a blockchain that allowed

for decentralized applications known as dApps. These applications
opened the world to decentralized finance which is also known as DeFi.
This was created to give every person a chance to become their own
bank. Typically, when we put money in the bank, the bank can then loan
that money out to another customer (or that’s at least a very simplified
version of how it works). We then earn an incredibly small amount of in-
terest on our money that can’t even keep up with inflation. When the bank
loans it out, they collect interest at a rate much higher than what they pay
to the depositor. The reason for this is a bank has a lot of staff, buildings
to operate, and ultimately, they just have a lot of costs.

With dapps, users can now lend their crypto out and earn a much
higher interest rate because dapps are lines of code and don’t require
nearly as much money to run. Savings accounts offering 0.02% interest
are getting dropped for stablecoin accounts offering 5-8% interest or
more. This idea of borrowing and lending sparked a new use case for
digital assets. With users flocking to these new platforms, networks ran
into issues of congestion when processing transactions. This led to de-
velopment of projects like Polygon as well as many Layer 2 solutions that
help compress transactions to speed up the network and lower gas fees.
As the market shows, new ideas lead to new projects which often come
with their own sets of issues. The market has become very adaptable
with many projects fixing these problems as they arise. This mechanism
is what has led to the symbiotic growth of the whole crypto economy.

When it comes to understanding crypto markets, keeping an eye

on Bitcoin is a must. Bitcoin is not only the most valuable asset, but it
tends to reflect the state of the whole market. When it comes to crypto
tax regulation, governments talk about Bitcoin. When it comes to institu-
9
tions wanting to start gaining exposure to cryptocurrency, they are often
referring to Bitcoin. When cryptocurrency is being discussed as a whole,
it is usually in reference to Bitcoin.

Know Your Why

While many people buy cryptocurrency, the reason for the purchase will
vary depending on who you ask. Before you decide on buying into cryp-
tocurrency, you must reflect on why you truly want to own a digital as-
set. On some level, all those who buy in to cryptocurrency are hoping
to increase their personal wealth. With the performance of crypto over
the last decade, there has never been a wealth generating asset like it.
There are countless rags to riches stories where people have obtained
life-changing wealth. For many, crypto rescued them from a career with
no potential for financial freedom. Who wouldn’t want to get involved
with new tech that is making people wealthier beyond their dreams?

While everyone wants to become wealthier, there is a subset of

enthusiasts who get in for additional reasons. Many see the current fi-
nancial system the same way Satoshi saw it and want less power in the
hands of those who continue to abuse the system. Maybe you are one of
these people. Centralized financial institutions have created a system to
try and make the people dependent on them. Some enthusiasts buy cryp-
tocurrency to send a message to those running the financial system, as
well as taking back their own freedom. When getting involved in crypto,
chances are that you will at some point be down in terms of investment
value. Trading cryptocurrency is not an easy task, your convictions will
be tested. Before you do anything in the market, it is important to ask
yourself why you are doing it. That’s the only way that you’ll have the per-
severance necessary to make it.

Rules To Follow When Investing

A wise man once said, “a goal without a plan is just a wish”. When learn-
ing about investing in cryptocurrency, it is crucial to always have a plan.
Unfortunately, this is much easier said than done. With the bull runs over
the last few years, crypto has naturally garnered the attention of the
masses. Everyday people hear stories of early investors making tremen-
dous profits and want to learn more about the crypto space. However, it
is not as simple as buying crypto and watching your net worth drastically
10
increase. As you will learn in this book, trading is not only about analysis,
but also about controlling emotion. Looking at the Bitcoin price chart,
the price movement from $0 to $69k would make someone think crypto
investing is easy money. However, in that time frame, people have lost
their fortunes countless times due to a multitude of reasons. The goal of
this book is to help you not only generate wealth, but also help you keep
it. In many ways, that’s the hard part.

When first buying crypto, you need to follow a series of basic prin-
ciples. One of the more common rules you should follow is never invest
more than what you can afford to lose. Assets can depreciate rather
quickly and for periods of time. If you are too heavily invested, you can
quickly find yourself in a financial hole. If money is needed to pay for the
essentials and you must sell your assets at a loss to cover costs, you
will get burned. Managing your risk will also help reduce the emotional
aspect of trading, which will make it easier to make clear decisions.

Doing research on what to buy is often overlooked. People say

“DYOR” (Do Your Own Research) all the time, but many are guilty of hit-
ting the buy button before looking into a project. Bitcoin and Ethereum
are two of the biggest names, and yet many involved in them do not fully
understand their purpose. As you go down the list to smaller cryptocur-
rencies, the education on each project becomes minimal. Unfortunately,
very few people take the time to research projects and buy after hearing
recommendations from others. Sometimes, investors will look at top 10
or top 20 projects and think those projects are too big to fail, without re-
alizing how the top 20 crypto projects are constantly changing year after
year. If you don’t know about what you buy, you won’t have any reason
to know why prices should go up or why they could go down. Are the
tokenomics inflationary or deflationary? What is the goal of the project?
Is there a use case for the token? Being bullish on crypto won’t make
you bullish on every project out there. Doing research will help you know
what you own, and keep you from falling victim to the many scams and
dead-end projects that lurk in the markets

When buying cryptocurrency, know the timeframe you plan on

holding your assets for. When you learn about technical analysis, you will
be developing strategies on when to enter a position and when to exit. If
you are a long-term investor, the day-to-day price action should have a
minimal effect on your strategy. Longer term investors will tend to dol-
lar cost average and maybe add a little extra on dips. For day traders or
swing traders, when to enter and exit a position will become much more
11
crucial as you will learn in later chapters. When trading you will experi-
ence days where price action is shooting upwards and at a rapid pace.
By having a strategy, it will reduce the risk of FOMO (fear of missing out),
which often leads to buyer’s remorse. Likewise, when prices are falling,
investors can panic sell at the bottom, leading to increased losses and
pain while watching the price start to rise without owning the asset. Not
all trades will be successful but finding a strategy will improve chances
of successful returns over time.

Spot / Derivatives

Since their creation and growing rate of acceptance, there have been
different ways to increase exposure to cryptocurrencies. The original
and often preferred method of purchase by crypto enthusiasts is “spot”
trading. If you have purchased cryptocurrency before, chances are you
have done this. With spot trading, cryptocurrency can be bought or sold
immediately, resulting in one party now having ownership of a coin or
a token. This transaction is visible on the blockchain (if it was made on
a decentralized exchange; otherwise it’s only visible on the centralized
exchange that you’re using) and gives direct ownership of the crypto that
was purchased. The owner can then trade the currency at a time of their
choosing or put it in any wallet they choose. The advantages of trading
on the spot market include buying and selling at a desired price, direct
ownership of the asset, and the ability to get in and out of trades quickly.

With derivatives, buyers are getting exposure to an asset without

owning the asset itself. These methods of trading are often used to hedge
for protection against a price move you did not expect, or to speculate
and help maximize gains on a price move you did expect. The derivative
market has grown tremendously over the years as cryptocurrency has be-
come respected as a legitimate asset class. Derivatives trading will likely
be used by a more experienced individual who tends to have more funds
to trade with. With derivatives trading involving futures contracts, traders
will use margin to try and maximize profits. Leverage should only be used
by a trader with experience, and never with amounts that would drain an
account in case the trade goes the wrong way. Derivative trading has
many benefits such as gaining exposure to an asset at a cheaper price,
offering protection on price moves that weren’t anticipated, and maximiz-
ing winning trades. Derivatives and spot trading will be discussed in more
detail in later chapters.

12
1.1 Market cycles, correlations between financial
sectors, inflation

Predictor of Future Trends?

When studying cryptocurrency sentiment and price action, Bitcoin has

been the leader of how the market will move. As referenced earlier, Bit-
coin controls the largest market share of all cryptocurrencies. By studying
the data of past cycles, we are trying to gain a competitive edge on under-
standing how the market will move. Typically, these cycles are analysed
in 4-year increments due to the halving cycle schedule of Bitcoin. Even
though crypto projects can be on different blockchains and have nothing
to do with each other, they are typically correlated to Bitcoin. When look-
ing at price charts you will often be able to find charts that look like “x”/
BTC. These charts will show the price of a crypto project in relation to the
price of Bitcoin. We use these charts as a measuring stick for a token to
compare its strength or weakness relative to Bitcoin. Within each cycle,
some projects will flourish, and others will fail. Not only is it important to
compare other cryptocurrencies to Bitcoin, but it is important to see how
Bitcoin is performing compared to other financial markets.

Not All Cycles Are Alike

When observing market cycles, it is important that we don’t only look

at prices, but that we also study the outside factors that could be influ-
encing the market. Keeping up to date with news is a must. Are coun-
tries banning crypto or making it legal tender? Are governments making
changes to monetary policy? Are financial institutions adopting the use
of crypto? When looking at the price chart of Bitcoin, it is hard to under-
stand how the market landscape changed along the way. Back in 2009 it
was incredibly difficult to buy crypto, there was minimal belief that crypto
could revolutionize the financial market, and users were in constant fear
of governments making attempts to significantly hinder the growth of
digital assets. If you were involved in the early days, you remember the
never-ending FUD storm.

In comparison, the landscape of today’s market has stark differ-

ences. Buying cryptocurrency is easier than ever, many are starting to
see the change crypto can create, and the attempts by governments to

13
provide regulatory guidelines show that governments believe digital as-
sets are here to stay. Veterans of the game watch new investors come
in each cycle like proud parents watching them go through the ups and
downs of their first bull run. With each cycle, you need to understand
all the outside factors that create fear or excitement in the markets. In
future cycles, there will be a different set of issues that will need to be
resolved, and cycles will continue to build off of previous ones.

Bitcoin Tokenomics

The tokenomic structure of Bitcoin has led to price movements that many
traders try to use to predict future price movements. Generally, when cy-
cles are talked about, they are referencing every 4 years (2012, 2016,
2020 etc.), because every four years Bitcoin has its “halving cycle”. This
halving cycle means that block rewards to miners are cut in half, leading
to increased scarcity as it becomes harder for miners to obtain coins
and release them into the market. With Bitcoin being capped at a limit of
21 million coins, and 19 million coins already being in circulation, only 2
million coins are yet to be mined. With the halving rate kicking in every 4
years, it is estimated that the final coin won’t be mined for over 100 years.
Additionally, millions of coins are estimated to be lost from the earlier
days (by people that permanently lost access to their wallets).

With a hard cap on the asset, many view this as a hedge against
inflation. After the arrival of Covid, banks printed a record amount of dol-
lars, leading to record high inflation that is being seen in 2022. Central
banks never cease to amaze us, do they? With a record watering down of
fiat, many sought to find an asset that could not be manipulated. In small-
er time frames, Bitcoin price can enter a bear market where losses in
Bitcoin price led to more losses than an increase in inflation would. How-
ever, someday Bitcoin will stop increasing its supply, where the same
cannot be said about traditional fiat. Bitcoin’s inflation will stop complete-
ly, while fiat is a runaway train in the opposite direction. This poses the
question; would you risk a few months or years of negative returns for a
chance at generational wealth? Or would you prefer to park your money
in fiat and have it diluted - slowly but surely - for the rest of your life?

Digital Gold?

Bitcoin is commonly referred to as digital gold. Gold is a commodity that

14
has previously been sought after as a haven in times of high inflation with
the main reason being its scarcity. A finite supply of gold is tied to the
money supply. When too many dollars enter the circulating supply and
gold supply remains unchanged, the value of gold would rise. When Bit-
coin was first introduced it was seen as an alternative payment system
but has since garnered attention to some investors as a store of value.
Bitcoin not only has scarcity, but it is much more transferable than gold.
If you’ve ever owned gold, you probably wondered why it has value and
what you can do with it. Very few people have been able to pay for any-
thing with gold, and most involvement with gold stems from buying or
selling jewellery. Sending gold from one place to another is inconvenient,
as seen when governments need to move gold in and out of vaults.

When it comes to a price comparison over the last 10 years, Bit-

coin has drastically outperformed gold in terms of price performance. At
this point buying gold seems like an old strategy that hasn’t evolved with
the times. While gold returns have remained stagnant over the past de-
cade, Bitcoin’s price has increased over 400,000 %. One could argue that
the larger market capitalization of gold made it more difficult to increase,
but it remains clear that Bitcoin is gaining ground and at a very rapid
pace. With Bitcoin sitting at a market cap that is about 10% of gold, many
believe a fair price for Bitcoin is when its market cap is equal to that of
gold.

With gold being an instrument used to combat inflation, many

naturally assume that digital assets like Bitcoin can also be used to com-
bat inflation. In a first-world country, inflation puts stress on consumers.
In a third-world country, it can even go to the level of hyperinflation, which
leads to much more significant strain. For someone in a country experi-
encing hyperinflation, any payment they receive in their country’s fiat gets
watered down to the point that it is practically worthless. With countries
who have experienced this, many citizens have begun to use Bitcoin to
try and dodge the exponential devaluing of their fiat. Chances are that
no matter where you live, you have been on heightened alert at inflation
becoming irreparable by central banks.

BTC Enemy of the Dollar?

As discussed earlier, digital assets can be seen as an actual currency

rather than just an investment vehicle. In forex trading, two fiat pairs are
traded against each other, and bets can be placed on which fiat will out-
15
perform the other. Maybe you come from a forex background and are fa-
miliar with this sort of trading. With BTC and other digital assets, it would
be reasonable to think of these as currencies and how their strength or
weakness compares to traditional fiat. If BTC is viewed as the enemy of
the dollar, then one could assume that a strong dollar is bad for BTC, but
a weak dollar is good for BTC (which reflects patterns in the traditional
stock market).

When trading, we can use the dollar index (DXY), which will help
us see the strength or weakness of the dollar. With the dollar being the
world’s reserve currency, the sentiment of it will tell us about the broader
picture. In times of economic uncertainty, many flock to the dollar and
this can be seen on the DXY chart with upwards movement. The strength
will surge as people try to find safer areas to invest. With this behavior,
one can conclude that we are in a risk-off environment during strength in
the dollar, and vice versa. While Bitcoin has performed well and many see
its potential, it is still considered a speculative, risk-on asset. Currently,
during times of risk-off investing, digital assets struggle. When the DXY
shows weakness, this can suggest the market is in a risk-on environment.
This is the sweet spot for a crypto market bull run. During the recovery
of markets after March 2020, many stocks experienced record growth.
In that same time frame the DXY showed weakness. While the DXY and
BTC may not be in a perfect inverse relationship in terms of price action,
a correlation can be seen on a macro scale and a correlation in sentiment
can also be observed.

Market Money Flow

Over the past few cryptocurrency cycles, certain trends have been ob-
served in how money moves through the market. Understanding the mon-
ey flow of the market will help you in timing your investments as well as
understanding when to sell them. When a market turns bullish and buyers
are rushing to buy digital assets, Bitcoin will be the first coin to move.
Usually, this sort of movement is kickstarted by a Bitcoin halving event
or a major event involving central banks. With new investors pouring into
the markets, they are going to want to start with what is considered the
biggest and safest name.

Bitcoin was most likely the first crypto you purchased and the one
you know the most about. That sort of recognition garners the most buy-
ing pressure. When the market cycle kicks off, all eyes are focused on
16
Bitcoin which leads to a tremendous parabolic move. This move marks
the start of a bull cycle. Sentiment of the market is generally euphoric
as everyone is watching their net worth increase. During this parabolic
move, other altcoins will typically rise as well, but not by a that much.
However, once investors start locking in profits from their Bitcoin gains,
they will be looking to invest money in altcoins that were lagging behind.
A general rule of thumb is that the larger the market cap, the lower the
return on investment - as well as the risk - since it takes more money for
the price to move. As you go down the list into smaller market caps, there
is a potential for larger returns.

Before Bitcoin made its parabolic move in late 2020, it was trad-
ing around 8-10k a coin. With its parabolic move, prices spiked to around
65k. A 5-7x return in only a matter of a few months is very impressive.
Many saw this move as a validation in the crypto market. With this new-
found confidence in the market, many looked for other coins to invest
where gains could be even greater. This led to purchasing of altcoins,
with the leading altcoin being Ethereum. Ethereum saw even greater
gains around the 10x mark. As investors started to find success with
big names, they put profits into smaller alt coins, where returns could
be as high as 50-100x due to smaller market caps requiring less capital
to move price. As the bull markets move, money flows from the biggest
projects to the smallest ones, as investors try to maximize gains and be-
come comfortable with more risk. In times of bear markets, Bitcoin mov-
ing to the downside can destroy an altcoin even if the project is doing
very well fundamentally. With Bitcoin price falling or remaining stagnant,
it hinders confidence in the markets and 5-10% losses for Bitcoin can
lead to massive losses for alts. Understanding money flow will help you
analyse the current state of the market, which will be a crucial factor in
deciding on which trades you are going to make.

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