Bitcoin - Respecting the Ecosystem
Updated
Honestly, I just wanted to put in the word 'ecosystem' because it's such a buzzword in these ICOs I'm seeing. However, I like to think it's much more applicable in the case of this analysis.
The market has been choppy. In fact, that's an understatement. Amanda Bynes' plastic surgeon wouldn't touch this market. Overall, though, we're in a bear market. Plain and simple. Isn't looking good for stocks, either, and that much is certain. The question that seems to be on everyone's tongue is how it will affect the cryptocurrency market. Is this the black swan event that will bring many over to crypto? Or are we going to see smart money exit pump for the hills?
Keeping this very important question in mind, we'll use Technical Analysis and a fundamental understanding of the Bitcoin Market to analyze what certain price levels mean, as well as the lowest possible prices, explained with reasoning.
A major player in this market that I see so many analysts overlook are the miners. They essentially hold up the network. They provide the intrinsic value of Bitcoin. And, yes, there is intrinsic value. Hardware Costs + Electricity Costs + Opportunity Costs (the computing or hashing power could be attributed to mining another coin, performing another task, or you could sell the GPUs since they are scarce at the moment). On top of that, you have the implications of the Network Effect adding a premium on the open market. However, we're going to focus on the intrinsic value setting a price floor for Bitcoin.
Bitcoin is currently forming a massive bull flag under classical charting principles (yes, I'm aware the spike down to sub 6k may nullify the flag under certain standards, but I see the immediate response bounce as validating a shakeout more than a bull flag invalidation). Looking over the wall street psychology cheat sheet, I'd venture to say we're around denial. I didn't see enough capitulation with $6000. You can find a copy of the psych cheat sheet here, in case you aren't familiar with it. steemit.com/cryptocurrency/@cryptoj215/psychology-of-a-market-cycle
Based on Wyckoffian Logic, we had the low volume rally on the inclination to touch the bull flag upper-trendline, and almost immediately reject it to continue the sell off. Effectively, we're going to see the price mark down under the same logic, which you can find a nice summary of here: swingalpha.com/free-education/richard-wyckoff-trading-method/
The ride from 10 to nearly 20k (20k on some exchanges, especially when the Kimchi premium was still around coindesk.com/bitcoin-price-kimchi-premium-eroding/) was the buying climax. I still don't believe we've seen the selling climax quite yet.
Here on the chart, I'm going to use some of these concepts to explain some of these highlighted areas and what they mean for the outlook of 2018. I'm open to critique and discussion in the comments below. In addition, I'll happily elaborate on any point made which I did not explain enough.
Current Mood: Neutral leaning bearish
I know, I know. I tweeted a few days ago that I was cautiously optimistic. However, the third white soldier quickly turned to a spinning top (generally a reversal signal that needs confirmation).
Please keep in mind that, Long-term, as a crypto advocate, I'm incredibly bullish.
The reason I'm *cautiously* bearish is we haven't printed a lower low yet. On the daily, our most recent swing low was higher than the previous 6k drop. So, unless we break the previous swing low (indicated by the arrow and accompanying line), we're sideways at the very least. HOWEVER, our recent swing highs have been lower and lower, with our most recent swing high failing to break the median on the bearish pitchfork (more analysis on the pitchfork below).
The market has been choppy. In fact, that's an understatement. Amanda Bynes' plastic surgeon wouldn't touch this market. Overall, though, we're in a bear market. Plain and simple. Isn't looking good for stocks, either, and that much is certain. The question that seems to be on everyone's tongue is how it will affect the cryptocurrency market. Is this the black swan event that will bring many over to crypto? Or are we going to see smart money exit pump for the hills?
Keeping this very important question in mind, we'll use Technical Analysis and a fundamental understanding of the Bitcoin Market to analyze what certain price levels mean, as well as the lowest possible prices, explained with reasoning.
A major player in this market that I see so many analysts overlook are the miners. They essentially hold up the network. They provide the intrinsic value of Bitcoin. And, yes, there is intrinsic value. Hardware Costs + Electricity Costs + Opportunity Costs (the computing or hashing power could be attributed to mining another coin, performing another task, or you could sell the GPUs since they are scarce at the moment). On top of that, you have the implications of the Network Effect adding a premium on the open market. However, we're going to focus on the intrinsic value setting a price floor for Bitcoin.
Bitcoin is currently forming a massive bull flag under classical charting principles (yes, I'm aware the spike down to sub 6k may nullify the flag under certain standards, but I see the immediate response bounce as validating a shakeout more than a bull flag invalidation). Looking over the wall street psychology cheat sheet, I'd venture to say we're around denial. I didn't see enough capitulation with $6000. You can find a copy of the psych cheat sheet here, in case you aren't familiar with it. steemit.com/cryptocurrency/@cryptoj215/psychology-of-a-market-cycle
Based on Wyckoffian Logic, we had the low volume rally on the inclination to touch the bull flag upper-trendline, and almost immediately reject it to continue the sell off. Effectively, we're going to see the price mark down under the same logic, which you can find a nice summary of here: swingalpha.com/free-education/richard-wyckoff-trading-method/
The ride from 10 to nearly 20k (20k on some exchanges, especially when the Kimchi premium was still around coindesk.com/bitcoin-price-kimchi-premium-eroding/) was the buying climax. I still don't believe we've seen the selling climax quite yet.
Here on the chart, I'm going to use some of these concepts to explain some of these highlighted areas and what they mean for the outlook of 2018. I'm open to critique and discussion in the comments below. In addition, I'll happily elaborate on any point made which I did not explain enough.
Current Mood: Neutral leaning bearish
I know, I know. I tweeted a few days ago that I was cautiously optimistic. However, the third white soldier quickly turned to a spinning top (generally a reversal signal that needs confirmation).
Please keep in mind that, Long-term, as a crypto advocate, I'm incredibly bullish.
The reason I'm *cautiously* bearish is we haven't printed a lower low yet. On the daily, our most recent swing low was higher than the previous 6k drop. So, unless we break the previous swing low (indicated by the arrow and accompanying line), we're sideways at the very least. HOWEVER, our recent swing highs have been lower and lower, with our most recent swing high failing to break the median on the bearish pitchfork (more analysis on the pitchfork below).
Note
In addition, the recent swing highs (red arrows) were testing the neckline of the double top. Based on classical charting, these are normal retests and we continue downwards from here.So, what happens next?
Let's look at some conditions and scenarios.
1. We break the upper trendline and start looking bullish.
2. We get rejected at the upper trendline again and continue down the channel.
3. We continue lower without testing the trendline again.
IF we go with option 3, then two more scenarios ensue:
3.1: We bounce off of most recent swing low, or above, and look for a double bottom.
3.2: We print a lower low, furthering our conviction of the bear channel, and venturing out of the support channel of the pitchfork into the extremity zones. We can they say we are beginning to head for the capitulation I believe we're destined to hit.
I'm going to focus on 3.2 before we go into the what happens after that. Let's look at potential bounce zones.
We could form an even double bottom in conjunction with the sub-6k rundown. This could even run congruent with a bounce of the bottom trendline, sending us catapulting out of the bull flag.
The white zone is the zone most people were calling for, and the price floor of mining in the United States (whom have become an increasingly prominent player in contributing hashing power to the network).
A price floor, in this case of analysis, is the breakeven price bitcoin has to be for miners to continue operations. If price were to fall below this level, miners would discontinue operations, as it'd be economically sound to purchase them on the open market rather than continue to try and mine the same bitcoin. You can see estimates of mining costs by countries here : marketwatch.com/story/heres-how-much-it-costs-to-mine-a-single-bitcoin-in-your-country-2018-03-06
4850ish looks like a solid candidate for a nice bounce. I really love when fundamentals match up nicely with TA. This zone is a nice support/resistance area, historically speaking. I would expect a fair amount of capitulation here, as well.
Note
Alternatively, we could travel lower into the critical channel of the pitchfork and start tackling the intersection of the upper and lower trendlines with the long-term log resistance (dating back to March 8th, 2015) trendline. Again, it's funny how this all lines up with fundamentals and economics. At these levels, we really start seeing major players shutting their operations, and either accepting the loss or seizing the opportunity to buy bitcoin at a better price on the open market. At these levels, almost everywhere in the US and Europe are better off shutting down their mining equipment until the market finds equilibrium again. Even China is starting to sweat, with price coming awfully close to the estimated mining costs of one bitcoin (also, keep in mind, that breakeven is also LIKELY above this price as there are other costs to consider outside of hardware and electricity).In an efficient market, this is the absolute low. I'm going to be like that family that sold everything and start camping until the market recovers. Any prices at this point I expect to be nothing more than a wicking zone. A daily candle shouldn't close here, these prices should be snapped up, especially with such a strong fundamental year ahead of Bitcoin (and already, honestly). This orange zone is the buying opportunity of a lifetime for me.
Again, doubt we break lower than this orange zone, and I expect these prices to be so brief you may blink your eye and lose the opportunity.
Eventually, though, we break out of the bull flag, and that's when the real fun begins.
Note
Forward Looking Zones Bold Red: Bitcoin is dead.
If we stay in this critical mining cost efficiency zone, it means most of the network participants have abandoned operations. Difficulty will adjust, and we'll see miners begin to be economically incentivized to return, but 2018 will be the new 2013. The bear market will be long, and many people will be lost. I'll pour one out for you.
Faded Red: Meh. Probably good for alts.
Here, we're still below the previous swing low, which will likely be our new resistance. We may even be below the sub $6000 drop, which will also serve as heavy resistance. Going back up will take a while, bitcoin will go sideways in this zone, and investors will probably turn to alts to get their massive gains again. Staying in this zone too long, though, will see us undergo a dotcom-like consolidation. Think about it, how many of these 1500+ cryptoassets are actually used today? Like are practical, not just speculative. Answer: Very few. speculation will flee after some exit pumps, and we'll see who comes out on top as the Googles, Amazons, and Apples of crypto (hint: Bitcoin is one of them). Anyways, it's probably good for alts in the short-term. Med/Long term, alts going to have a rough time if we stay too long.
Faded Green: Healthy bitcoin, start your alt engines.
This is a healthy range, imo. We have a nice premium, network participants remain largely in tact, and we get some nice ranging action from Bitcoin. It will look very much like the beginning of 2017 where we ranged between $725 and 1300ish before Bitcoin went on its MASSIVE bull run. We saw Ethereum, Ripple, and other major alts start us off, then those med/small caps follow behind in an even more exaggerated way. This is when we get those bitcoins back we lost in liquidation from this choppy market. I'd be most excited for this range, I think.
Bold Green: Bitcoin is King. FOMO runs rampant. Alts in disbelief with bears.
This is likely if we break the bull flag and don't print a lower low than the current swing low. Again, never has there been so much media attention on bitcoin, and such strong fundamentals backing it. CRYPTO WAS TALKED ABOUT AT G20. NATIONS ARE TRYING TO MAKE THEIR OWN DIGITAL CURRENCY (Which I refuse to call crypto because it's just a digital, nation-centered currency. Not decentralized. Missing a major point of crypto, ya dinguses). Bitcoin will exude its power and crush most of the market outside the large caps with actual purpose. We'll see consolidation, as well as who is really here with an actual addressable problem they are a solution to, or pose actual competition with bitcoin. Regardless, we'll see FOMO again. And it will be in a bigly way. I don't think this is healthy for Bitcoin in the long run, but that's an assumption I need more data on before I say it with confidence.
Also, at these levels, Parabolic Trav comes back from hibernation with a Bob Ross wig on. With a shit-eating grin, while petting a squirrel he rescued from near death, he softly says, "you missed the big picture," and him and McAfee have huge banquet because John's dick is saved.
Alright, that sums up my analysis. Thanks for reading! Drop it a like, give me a follow on here and twitter (@Bitcoin_Bryson), and feel free to shoot me any comments, concerns or questions on here or Twitter.
Note
PS: Here's a zoomed out chart so you can see where the long term log-resistance came from. Note
PPS: I'm aware I could have made this more fancy. I love the Ichi cloud, fibs, pivots, VPVR, RSI, Stoch, MFI, etc. However, I didn't want to congest the chart and wanted to keep the critical elements on and easy to read.
Note
4/10 Update:Well, a lot has happened since this posting! The lower low from the blue arrow was printed with force, which means we're looking at more downside. We've gone sideways between this $6600-$7200 range, and as much as I this range to be forming the order block in which we head up, I'm still leaning bearish. Even more so than before. That previous swing low of roughly $7250 is now acting as resistance, and the one time we breached it was immediately followed up by a bearish marabuzo. If you're a breakout trader, this certainly isn't the kind of market conditions that fit your style.
Note
Here's the chart showing the resistance and where we are in the pitchfork (that has held up incredibly well). As we entered the bearish .5-1 channel of the pitchfork, this furthers our case for a bear market.
Note
So, where do we go from here? I think $6000 is imminent by the end of the week. This could play out as a double bottom with the most recent extreme low. If you're looking to add to your cold storage, I think this is a favorable price to start scaling in, especially if you have a 2-5 year mindset. We do have a pretty solid order block around 5950-5500, so this could absolutely bounce here. I think this would be the most ideal situation to keep the market in solid condition.I'm still sticking to my guns from earlier and saying we go even lower. However, I've adjusted the areas of interest slightly. The next orderblock would start around $4500. I expect that, if we break this next OB+, we at least wick into this strong OB area. I'll have my remaining capital set for bids in this area.
This bear market has shown no signs of slowing down. Every time bulls get happy, bears completely eradicate any hope. It certainly feels like 1 step forward, 2 steps back. One thing that may help us move up is tax season is close to ending. I've had SO many people just figure out their tax liability, and it has definitely put more selling pressure on current holdings.
For the time being, though, bear it is. Stay safe!
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