Descending The Well of Hope: Is 4-Digit Bitcoin Next?
Updated
You may have come across the phrase: "Climbing a wall of worry." This describes the phenomenon whereby the market continues higher and higher, despite overwhelming evidence that it shouldn't be climbing at all. Take a look at the stock market during the pandemic. Imagine climbing up a looming wall, worried that you'll fall off any moment because the wall looks unstable. Riches await on the wall's other side, but of course only if you manage to climb successfully down once you reach the top. This symbolizes a successful long term trade - you are able to successfully navigate the descending portion of your journey by selling at the right time and reducing risk.
The Well of Hope is my attempt at illustrating the opposite phenomenon, as it applies to people who remain stubbornly bullish on Bitcoin and cryptocurrencies. To those individuals, overwhelming evidence seems to suggest that price will eventually go back up. For instance, long term holders continue to accumulate and inflation is out of control (this is what Bitcoin was designed for, right?)
Nevertheless, clearly Bitcoin's finite supply is a pretty pointless metric because the Bitcoin code can be forked, and endless other cryptocurrencies can be created, which essentially makes the supply of all cryptocurrencies combined infinite and inflationary, much like the fiat monetary system itself. The market also seems to require inflationary stablecoins to remain liquid. Bitcoiners' complaints about the fiat system are valid, but their solution often results in circular arguments and logical fallacies, in my opinion. There's more on that in some of my other posts.
Now, imagine climbing down a well to find water because a bunch of nearby villagers told you a pool full of gold exists at the bottom, but you do not yet have a pulley or bucket to retrieve any water. As you go deeper and deeper, you keep expecting to find water and gold, but you remain empty-handed. Eventually, you are so deep that it is almost impossible to return back to the surface. In the end, you find no gold, even though everyone told you that there would be some. Unfortunately, there isn't much you can do once you reach the bottom, because you expended all your energy getting down there. This differs from the wall of worry because you cannot successfully climb back up. When you climb the wall, you have a choice to let go and fall back at any time, even though you might die or get seriously injured.
This is meant to illustrate what I believe to be the inherent value of Bitcoin and other cryptocurrencies, which is essentially nothing. There is no Gold at the bottom of the well. Likewise, it's very possible Bitcoin never returns to all-time high.
So, how does this translate to the chart? Well, if we are indeed descending a "Well of Hope" with no precious gold at the bottom, then we can expect Bitcoin to complete a full-retrace of its recent bull market rally. Many still hope to purchase Bitcoin at sub-15k levels, such as 13.8k, 112K, or 10k. However, I think there is a greater than 50% probability that Bitcoin has seen its absolute high in terms of purchasing power.
Note: Even if the dollar goes to zero (as many Bitcoin pundits expect) and Bitcoin is worth $5 Million per coin, its purchasing power can still be almost nothing. If the dollar is worthless, than something worth $5 Million is ALSO worthless.
This means I think it's more likely Bitcoin continues descending the well of hope, with the next stop being below 10k. The last wave down took BTC from 48.2k to 17.6k - cutting price by almost 2/3rds, or nearly 66%. A similar proportional drop from 24k would place Bitcoin in the $8-9k zone on its next wave down.
I have been speculating about a relief rally heading into the final quarter of 2022 for markets, but there is also the possibility this does not materialize, if things fall apart quickly for heavyweight companies this week. As shown on the righthand chart, Bitcoin has failed at both the 9 week EMA and the 200 week MA. This is incredibly bearish. In my last analysis, I wrote about how those resistances must be cleared. Particularly after last week's close, the chart has never looked this bearish in the asset's history. Finding resistance at the 200 wee MA is very troubling indeed. In addition, the daily MACD is dangerously close to flipping back to red, just near the zero line, showing serious failure to produce bullish momentum. Here is my most recent post:
I'm also still watching Tron (TRX), which suspiciously still has not dropped from its highs, unlike almost every other crypto out there.
Microstrategy has also experienced a harsh rejection at the 200 week MA, as it has been labeled as "overvalued" by investors. It has a long way to fall, should shares collapse in similar fashion to the dotcom bubble pop. The double-whammy of a recession (declining demand for their product) and Bitcoin's collapse could put MSTR in serious trouble.
What About The Bullish Scenario?
It still exists. In the short term, the futures market seems to be biased to the sell-side, so we could see a short squeeze. Bitcoin must reclaim the 9 week EMA (orange) and the 200 week MA (teal). It also must show a bottoming structure. So far, this resembles previous bear flags. The resistance is incredibly strong. Here is a recent post where I outlined what Bitcoin needs to accomplish in order to look bullish long term again. This is a tall order, and seems very unlikely at the moment.
But, as we know, Bitcoin tends to do what most people think is very unlikely. This means we see 100k this year, or we plunge back to 6k and lower. One of the main reasons sustained upside seems unlikely is that the futures market seems to be largely influencing price. Open interest has been leading the market for months now, and these traders are biased to the long side. This tells me the market is being propped up by derivatives, since not enough liquidity exists in the spot market. The lack of liquidity in the spot market is a result of a supply shortage from sellers on exchanges and a lack of dollars on the sidelines due to pressures from inflation and demands from debt amidst rising interest rates. More evidence for this is that open interest has been consistently decreasing as price decreases. If the futures market were biased to the short side, we'd likely see open interest increase as price heads lower. This was something that happened last summer, and what helped me anticipate the short squeeze. Recently, open interest has consistently skyrocketed on every bounce, as traders are eager to time the bottom. This is a very different situation from the summer of 2021.
Although....what if there is no bottom?
Welcome to the Well of Hope.
This is meant for speculation and entertainment only, not as financial advice! This only represents my opinion and feelings at the moment. Before making any significant financial decisions, please consult a professional financial advisor who can work with your own needs, risk tolerance, and financial circumstances.
-Victor Cobra
The Well of Hope is my attempt at illustrating the opposite phenomenon, as it applies to people who remain stubbornly bullish on Bitcoin and cryptocurrencies. To those individuals, overwhelming evidence seems to suggest that price will eventually go back up. For instance, long term holders continue to accumulate and inflation is out of control (this is what Bitcoin was designed for, right?)
Nevertheless, clearly Bitcoin's finite supply is a pretty pointless metric because the Bitcoin code can be forked, and endless other cryptocurrencies can be created, which essentially makes the supply of all cryptocurrencies combined infinite and inflationary, much like the fiat monetary system itself. The market also seems to require inflationary stablecoins to remain liquid. Bitcoiners' complaints about the fiat system are valid, but their solution often results in circular arguments and logical fallacies, in my opinion. There's more on that in some of my other posts.
Now, imagine climbing down a well to find water because a bunch of nearby villagers told you a pool full of gold exists at the bottom, but you do not yet have a pulley or bucket to retrieve any water. As you go deeper and deeper, you keep expecting to find water and gold, but you remain empty-handed. Eventually, you are so deep that it is almost impossible to return back to the surface. In the end, you find no gold, even though everyone told you that there would be some. Unfortunately, there isn't much you can do once you reach the bottom, because you expended all your energy getting down there. This differs from the wall of worry because you cannot successfully climb back up. When you climb the wall, you have a choice to let go and fall back at any time, even though you might die or get seriously injured.
This is meant to illustrate what I believe to be the inherent value of Bitcoin and other cryptocurrencies, which is essentially nothing. There is no Gold at the bottom of the well. Likewise, it's very possible Bitcoin never returns to all-time high.
So, how does this translate to the chart? Well, if we are indeed descending a "Well of Hope" with no precious gold at the bottom, then we can expect Bitcoin to complete a full-retrace of its recent bull market rally. Many still hope to purchase Bitcoin at sub-15k levels, such as 13.8k, 112K, or 10k. However, I think there is a greater than 50% probability that Bitcoin has seen its absolute high in terms of purchasing power.
Note: Even if the dollar goes to zero (as many Bitcoin pundits expect) and Bitcoin is worth $5 Million per coin, its purchasing power can still be almost nothing. If the dollar is worthless, than something worth $5 Million is ALSO worthless.
This means I think it's more likely Bitcoin continues descending the well of hope, with the next stop being below 10k. The last wave down took BTC from 48.2k to 17.6k - cutting price by almost 2/3rds, or nearly 66%. A similar proportional drop from 24k would place Bitcoin in the $8-9k zone on its next wave down.
I have been speculating about a relief rally heading into the final quarter of 2022 for markets, but there is also the possibility this does not materialize, if things fall apart quickly for heavyweight companies this week. As shown on the righthand chart, Bitcoin has failed at both the 9 week EMA and the 200 week MA. This is incredibly bearish. In my last analysis, I wrote about how those resistances must be cleared. Particularly after last week's close, the chart has never looked this bearish in the asset's history. Finding resistance at the 200 wee MA is very troubling indeed. In addition, the daily MACD is dangerously close to flipping back to red, just near the zero line, showing serious failure to produce bullish momentum. Here is my most recent post:
I'm also still watching Tron (TRX), which suspiciously still has not dropped from its highs, unlike almost every other crypto out there.
Microstrategy has also experienced a harsh rejection at the 200 week MA, as it has been labeled as "overvalued" by investors. It has a long way to fall, should shares collapse in similar fashion to the dotcom bubble pop. The double-whammy of a recession (declining demand for their product) and Bitcoin's collapse could put MSTR in serious trouble.
What About The Bullish Scenario?
It still exists. In the short term, the futures market seems to be biased to the sell-side, so we could see a short squeeze. Bitcoin must reclaim the 9 week EMA (orange) and the 200 week MA (teal). It also must show a bottoming structure. So far, this resembles previous bear flags. The resistance is incredibly strong. Here is a recent post where I outlined what Bitcoin needs to accomplish in order to look bullish long term again. This is a tall order, and seems very unlikely at the moment.
But, as we know, Bitcoin tends to do what most people think is very unlikely. This means we see 100k this year, or we plunge back to 6k and lower. One of the main reasons sustained upside seems unlikely is that the futures market seems to be largely influencing price. Open interest has been leading the market for months now, and these traders are biased to the long side. This tells me the market is being propped up by derivatives, since not enough liquidity exists in the spot market. The lack of liquidity in the spot market is a result of a supply shortage from sellers on exchanges and a lack of dollars on the sidelines due to pressures from inflation and demands from debt amidst rising interest rates. More evidence for this is that open interest has been consistently decreasing as price decreases. If the futures market were biased to the short side, we'd likely see open interest increase as price heads lower. This was something that happened last summer, and what helped me anticipate the short squeeze. Recently, open interest has consistently skyrocketed on every bounce, as traders are eager to time the bottom. This is a very different situation from the summer of 2021.
Although....what if there is no bottom?
Welcome to the Well of Hope.
This is meant for speculation and entertainment only, not as financial advice! This only represents my opinion and feelings at the moment. Before making any significant financial decisions, please consult a professional financial advisor who can work with your own needs, risk tolerance, and financial circumstances.
-Victor Cobra
Note
It's looking like Bitcoin could be building the rally I've been speculating about, leading up to the end of the year. It's really hard to say what will happen next. Below, I've drawn three scenarios. The pink is what bulls would want to see, if Bitcoin is to achieve new highs eventually. The yellow is more in line with what I've been thinking. Purple has price breaking down sooner rather than later. Note
It looks like markets are continuing to push slowly higher into the fall, which is something I've been speculating about. Let's see if Bitcoin can produce a bottom here. The main difference between my opinion now and back in 2019 is that I no longer believe in cryptocurrencies, so I haven't been accumulating. Otherwise of course I would have been buying some of these lows.
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