A trader's paradise is investor's hell...
So... How are yo doing? I hope all of you came through the past week unscathed but most will have some serious battle scars. Don't despair. You're not a bad trader or made poor choices if you lost over the last week. I know you will probably read on Twitter and everywhere else how literally everyone saw this coming and how they all made a fortune shorting this, that and the other thing... I call BS on all of that. To be honest, these people infuriate me. But hey ho. Twitter is for peeps with the need for ego boosts, I guess. Some traders will have made a fortune. Real day traders love volatility coz that is where they make their money. Swing traders had little time to respond. I am a swing trader and best I could do was leave the market, like I said, and all I have left are shorts on S&P500 and the AEX, which will feed me for the time being. So did I see this coming? Hell no. Read my previous post. I was expecting a rejection at 9.2 and a dip to low 7s, high 6s, yes, but 3.850? No way. I would call myself a charlatan if I claimed I saw that one coming so soon. I was expecting us to go down with legacy, but to be honest, the excessive (IMHO) reaction there took me by surprise as well. No relief bounce. Nothing. It is a bit scary. So my previous chart with a bounce to 16K is now out of the window. We can forget about that. We can spend today analysing the charts, and we will in a bit, but I think we should also address the elephant in the room. The topic I touched upon last week. Is Bitcoin (or crypto in general) a strategic, risk mitigating, long term asset. In other words, it is digital gold? Well, a lot of people will say 'no' based on the past week, but let's look at Gold and Silver, shall we?
What you see at the beginning of each 'market correction' (let's avoid the word recession for now) is that the so-called safe havens aren't safe at all. Silver got hit especially hard but gold took a nose dive as well. It is hard to find any asset-class that wasn't decimated the past week. It was an all out flight to cash. But, let's be fair, crypto took a very hard blow. What did you expect? It is an unregulated niche market, dominated by a small number of big players. Probably did not help that Asia was hard hit by the COVID-19 and even retail would sell to cash, but I don't even think that is the main cause.
If anything, BTC reacting more or less like gold & silver might be a good thing. However, we need to take a long hard look at what it will mean for crypto if this market decline continues. What if we break through the support that we are currently hovering above? The 'spring' to 3800 immediately bounced back to above 4800 and that is for good reason.
First, let's acknowledge that as long as we stay above 3122, we are still forming higher highs. 4800 would be an ideal level to hold from now on and if we do, I would actually be quite optimistic about BTC's long term (!) future. The problem is what would happen if we drop below 3122? Well, again, depending on the time frame, you can argue that as long as we don't drop below 12xx, we are still forming higher lows and we simply form a flag... A bull flag...
I did have to switch to log for that one. Is that so bad? Well, not if you're a trader or where late to the party but it might be if you bought heavily over 10K or if you're an investor in the crypto ecosystem. The latter is, IMHO, the biggest threat to the survival of a healthy market after this blows over in a few months to years (because, no: it will not be a matter of weeks!) and it also shows the weakness of the current 'market'. No regulations, no circuit breakers, nothing to protect investors. Also the dependance on miners and their profitability is a weakness in the PoW model 'as is'. At least according to me. Admittedly, that is a personal opinion. So, what is next? I really don't know. Cash is king at the moment, so I don't expect a speedy recovery of any markets, unless there is a short term miracle cure for either COVID, OPEC or the way the economies of certain countries are structured. But do not forget: these were all catalysts. The market was going to come down for one reason or another. The growth was not sustainable. So they are all excuses, not reasons. Admittedly, they are very impactful catalysts and this is a perfect storm. So, if you're a day trader and you see BTC (and cryptos) move ±10% in a few hours, you will be happy because this is what you live for. If you're a swing trader and you're caught in a long position, I will have to leave it to your own judgement. If you have a much longer horizon, my advice is always not to sell during an all out market dump, but of course, that only applies if you were wise and used money you could afford to lose... I will try to come up with a more short term update later today or tomorrow, but for now I wanted to stick to this more high level view so hopefully everyone will take a long hard look at their investment strategies.
I will leave you with one chart. Not one I am saying will happen, but it has a certain elegance, so I wanted to share it. Time will tell.
As always: trade safe, be safe.
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