bitcoin bottom

Three Things to Consider Before Calling the Bitcoin Bottom

Most of us remember the time of great crypto bull run, where everyone was talking about moons and lambos.  We heard about yacht parties funded by Bitcoin early adopters, and even condos bought entirely with Bitcoin.  Then came the great crypto winter, where in the span of one year, nearly all of Bitcoin’s gains were wiped out.  Every cryptophile wants to call the Bitcoin bottom, but there are some facts we should consider before the lambos rev their engines again.

Institutions

For the longest time, large institutions such as Goldman Sachs, JP Morgan, UBS and more rebuked cryptocurrencies, often citing them as scams or a joke.  Either way, they were not convinced in the least that digital assets were here to stay.  Gradually, these larger firms started to join the crypto bandwagon, with everything from crypto trading desks to offering their clients exposure to cryptocurrencies in their investment portfolios, or allowing them to purchase Bitcoin or larger altcoins directly.  The problem with big institutions joining the cryptocurrency community, is that they don’t, nor have they ever, played fair.  It’s well known that large institutions manipulate stocks, oil, gold, and just about every tradable asset.  We can bet that they’ll use every clandestine trick they have to drive the price of cryptocurrencies down so that they can get in at a good price, and control the market afterwards.  We can bet that these shenanigans will come when we least expect them, and when we feel we are the safest.

Whale Watching

Bitcoin and other Cryptocurrencies don’t react to market events like traditional assets such as stocks and bonds.  For example, the price of oil can fluctuate a full dollar (100 ticks) or more on inventory data.  Stocks can rally hundreds of points on good economic data.  Bitcoin however “ain’t got time for that”.  Sure cryptos will move off regulatory updates, central bank chatter on digital assets, positive words from government officials, a certain altcoin being added to an exchange, and other notable factors.  But the main movers are whales.

The first sharp decline in the cryptocurrency market came in January, which shook out a lot of weaker hands.  The next wave blew up more accounts.  Every subsequent wave shook out more and more people, until trading became thin on even the biggest exchanges causing liquidity to draw up.  Then we started seeing the famous ‘Bart Simpson’ pattern, where the price of Bitcoin would all but flatline, only to be followed by a massive rally in one candle, just to be smashed down moments later.  Such behavior is not caused by block orders of a few Bitcoin, but hundreds or thousands, or more.  One must be very wary of these reticent whales.  It can be tempting to FOMO into a trade on a large candle, but this commonly results in your position getting smashed moments later.

The Technicals

No one can deny that the rally seen by Bitcoin and other cryptocurrencies like Ethereum, Ripple, and even Bitcoin Cash was truly epic.  That is, in part, exactly the problem.  Because the surge in price was nothing short of prolific, crypto assets rarely spent any time at any price point.  They were simply too busy ‘mooning’.  But the time spent at a particular price point for any asset is important in forming levels, or areas of support and resistance.  Levels are important for trending assets because we can count on them for support when the asset inevitably retraces.  A lack of levels is called a vacuum zone, and this is the exact reason Bitcoin was able to crater from $5500 to $3500 in less than a week.  It simply didn’t have any significant support anywhere in between.

Under these circumstances, we can gain some insight from Fibonacci levels, a helpful tool that allows us to infer levels of support and resistance based on ratios between two points we feel are significant in some way.  Doing this on a week chart sheds some light on the situation.  Using this analysis, we can see that $4800 was really the only significant support for Bitcoin.  We are hovering dangerously close to another significant level at $3000, which is also psychologically significant because it is a nice round number.  Beyond that, however, there are really only two significant levels to offer any support in the $2000 handle, at $2450 or so and about $2000, another nice round level.  Armed with this knowledge we can set up entries on buy and hold positions in Bitcoin, or know when we may want to bail on existing positions.

Conclusion

I’ve been a crypto enthusiast since reading the original Bitcoin whitepaper in 2008.  While I want nothing more than to see cryptocurrencies more widely adopted into the mainstream, and for Bitcoin to find its bottom and ascend to new heights once more, as a realist, I am simply not convinced we are there yet.  At this point, the remaining crypto HODLers need to HODL together for warmth to endure this long and harsh crypto winter.  We have a long way to go.

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