BTC Still In Downtrend, But Break Upwards Could Target $10k
Bitcoin – the week in review and looking ahead
When people ask me about Bitcoin, I always find it helpful to explain from which perspective I approach it, so I will do so here too. At least this time, so you have some understanding of my views. You don’t have to agree with them, but it will help you if you know my biases.
High Risk, Speculative Asset
I look at Bitcoin as a (very) speculative asset, that for various reasons, is also extremely high risk. It is speculative because, despite it now entering its teens, it still has no clear use case other than trading it. The wonderful, very promising world of crypto, has yet to produce one real-world example of a successful implementation outside of its own ecosystem or as a pilot. Not saying it won’t happen, just stating the situation today. This matters not to the believers, but it does matter to big investors. It is high risk, because of various factors. Of course, there are many examples of hacks, scams and frauds. It is important to realise that these risks are brought on by the ecosystem, not by the tokens themselves. Bitcoin may not be hackable, but the exchanges, brokers, online wallets etc are.
It is also high risk because the market is not regulated. Please note that I say, ‘the market’. I mean the ecosystem, not Bitcoin itself. I don’t believe you can or should regulate Bitcoin. I do believe that for crypto to succeed, the ecosystem that enables its use needs to be regulated. Until that happens, there will be manipulation on exchanges (wash trading, spoofing, etc), a lack of reliable information, like real trade volume or real orderbook information and exit scams.
All of this means, that despite what everyone wants to believe, the ‘institutional sector’ will not touch crypto with a 10ft pole. No banks are secretly investing in it, no pension funds, nothing of the sorts. They cannot enter an unregulated market. Full stop. Now they can try to enter (or take over) the ecosystem, but that discussion is for another time. It does bring us to the last risk I want to mention, which is the on- and off ramps. Those are simply the way you convert fiat to crypto and vice versa. At the moment, that is how crypto is being ‘monitored’. It is not easy buying 100M worth of Bitcoin, possibly even harder selling it. If you’re interested to learn more, drop a comment and I might go into it a bit deeper next time. Suffice for now that entering or exiting the market without having a major impact on price is impossible. Case in point being the 200K BTC or so that were being sold by the PlusToken scammers. It might sound like a lot, but 200K is barely more than 1% of the ‘circulating supply’ and it totally managed to cripple price. There are many reasons for that, which are also best left for another day. In conclusion: I consider Bitcoin to be a highly risky and highly speculative asset.
Week in review
The reason I started the way I did was because I think 3 major events dominate BTC at the moment: developments around mining, the PlusToken scam dump and the ‘China pump’.
The most important one is the miner’s wars. With the halvening coming up, new miners coming to market, the issues at Bitmain, etc, it is safe to assume that miners are taking positions to prepare. The miners – who print the new supply, in a way – are very powerful in this market. Big miners have an incentive to keep prices down, in order to force competition off the market before the reward halves. I will do an article on that soon too. The PlusToken scam is known to all. Rumours are that it is not the actual scammers selling, but it is in fact the Chinese government, as they have already arrested the perpetrators and confiscated the coins. I don’t claim to have any inside knowledge, but it is interesting that some exchanges are the apparent centre for the sale of these coins… Keep in mind that CloudToken might be next.
That brings us to the ‘China pump’. Now you can go ‘full on tinfoil hat’ and claim that China itself orchestrated the rumour, in order to increase the revenue of the sale of the PlusToken coins. Whether you believe that or not, it does show that the cryptoverse is a closed off information system. The only media really covering this were the crypto-media, and I doubt that they are all completely independent. In other words, for big players it is easily possible to spread rumours that benefit their strategy. This is of course also a risk. Spreading FUD, as we call it (but also false positive news) is illegal in regulated markets. Yet it is the norm in crypto. So far, a lot of words and not a single chart. What gives?
Last week in Bitcoin
Well, this all brings me to the past week, where we saw a mini version of the China pump. Let’s call it the Iran pump. Now one of the things I hear most often is that Technical Analysis is nice and all, but as it cannot predict the news, that makes it worthless. Well, I beg to differ. Price action is often caused by big players who have more, newer and better information than we do. We, simple retail traders, are always a bit behind and reactive.
If you look at the chart, you see that BTC rose by over 23% in a few days. Most of it fueled by the speculation that a war with Iran would somehow increase demand for Bitcoin. I will not debate whether or not I find that logical, we are just going to look at the timing.
The breakout of the Bollinger Band, the penetration of the cloud and the break of the 100/200 EMA, all occurred just before the press conference by Trump. It will surprise nobody that certain parties had some interest in pumping price up to (and even beyond) resistance. They were inadvertently helped by the cryptomedia, who happily jumped on board of the train because ‘news’ is why they exist. This ‘mini-parabolic’ was technically most likely to end in a bear move though.
Maybe some speculators really bought in because they figured that BTC would explode if Trump declared war on Iran (and even saw that as a possibility). Maybe it was mostly retail and smaller high-risk hedge funds FOMOing in. I don’t know. What I do know is that I was not surprised by what happened next. Turned out that the entire affair would not lead to an escalation. In fact the moment it became clear it was a de-escalation, price immediately started tanking.
IMHO, that is the smart money selling. I was watching the press conference and the price action live. Especially in the last 5 minutes, where almost loving words were spoken about Iran, price fell immediately. See the arrow on the chart for the start of the press conference. The big bear candle is the end of the press conference.
Does that mean TA can predict the outcome of press conferences? Well, no, of course not. What it can predict is the most expected outcome of an event. At least the smart money’s expectations. They do not (wash) trade the asset up before the event, unless they expect the event to have a negative effect on price. Buy the rumour, sell the news. Of course, more happened since. Why did we not give the entire 23+% gain back? Well, there is the shooting of the airliner and the subsequent unrest in Iran that may fuel the fire a bit longer and could have caused price to stabilize around the daily 200 EMA. Maybe we just needed the Iran pump to establish a new baseline. It is literally impossible to name and address all the factors. Iran was definitely one in my view. There are also people who solely trade on other inputs, like Open Interest or funding rates. Or who look at S/R levels and they don’t consider news to be relevant at all. I agree nor disagree with any of them. I am mostly an S/R trader myself, but I thought looking at the week in Bitcoin from this perspective would make for a more interesting read.
What lies ahead?
For this first article, I want to start with the slightly bigger picture and have a look at the monthly. Most important thing for me, is to see the bottom trendline holding for now. Also encouraging is the touch of the trendline giving quite a strong reaction. Please note that BTC can still go to 6.5 this month without the trendline breaking. I would not like it, but it can definitely happen. So, it doesn’t mean we go to 10K from here and the only way is up. Not at all.
However, I am a simple man and it doesn’t look alarming to me. I have no direct reason to expect a drop below 6K based on this chart. Doesn’t mean there aren’t plenty scenarios that would justify a drop. Problem with TA is that you can make a chart say anything you want and be technically correct. TA is not intended to predict the future; it is intended to look at all possible futures and decide what you will do if one of them plays out. And to be able to identify which future it will be, earlier than most.
Now for the look at the daily, I picked the linear chart. Again: not picking sides here, but it best illustrates what I am mostly looking at. I am trying to keep it clean, so I left out all kinds of indicators. Some of which you may find extremely important (and for good reason). I even left off the volume. All this just to talk about 2 lines, 1 fib level and an x that marks a spot.
Let’s start with the two lines. First there is the upper resistance line that, in linear, perfectly follows PA except for one time, when it gets broken. That was the blow off top, related to the China pump: X marks the spot.
Now why do I ignore what is so clearly an important ‘high’ on the chart? Well, I have many charts where I don’t, but I decided to show you this one. The reason is that it the blow off top is clearly an outlier. To confirm that, you can extend the support line of the triangle we fell out of, which is the second line. You can see that they intersect at the point where most of the move up climaxed, not where the blow off top ended. That in my mind makes it reasonable to say this upper resistance line is at least one of the resistance lines to take into account. And one we broke and retested perfectly as well, not that long ago.
Next are the fib targets for the retrace of the 3.2 to 14K move. Again, in linear, we see that the biggest support is around the well-known 65% retrace, the overshoot of the 618. In the last few months there’s been talk of algos being programmed with the 707 as their target instead, with the logical overshoot being 75%. The 707 is the square root of 50% and although that in itself is not a Fibonacci number, it is important if it is being used to provide algos with targets.
If so, it could very well be that the correction ended in a stalemate between the 618s and 707s. It can also still go deeper to the 768 or the 886, but based on the monthly, I would consider those less likely for now. Not by much though. Next week
What I will be watching this week is mostly if we see a stronger break of the diagonal support line (red dotted line). Technically it broke already, but the lackluster volume suggest that demand may outweigh supply.
Another scenario is that price creeps back up to the top resistance of the broadening wedge. If we break that resistance line, we could argue that we broke out of a bull pennant. Despite having to overcome some strong areas of resistance (around the teal coloured lines), 10K could be a realistic target for the bulls. They have a lot of work to do though and something to prove. That would indicate a trend reversal. Expect heavy fighting and not a quick run up.
On the bear side I would be watching a stronger drop from the current level of 8071 and a possible break of 8K. If that happens, it could go all the way to 7.7K and if price breaks that, we are in for an entirely different scenario. One that could see us reverse back even further.
Important to note is that we are still in a down-trend. No new higher high has been established and the blow off top I mentioned before, makes that a hard target to achieve. Trading against the prevailing trend is always risky.
Now, I realise there are a million different ways to analyse PA. Some of you will love Elliott Wave theory, some will hate it. Some will say that (E)(S)MAs are the only way to gauge the market. Some will swear by Bulkowski. S/R is really hip nowadays. Not to mention TD Sequential, Harmonics, trading the cloud, etc. I cannot possibly address them all, so I tried to keep this overview as neutral as possible. If you like to see a particular method used more, leave a comment. I hope you found it interesting and useful and I look forward to your comments and remarks.
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