BitcoinShort
BTCUSD - The Blockhain Crash
Updated
To start off this little essay I'd like to start off with a disclaimer - I'm no visionary and unfortunately still incapable of exact event-prediction, therefore this analysis is a pure digression through my thoughts and an exposition of ideas and my current bias in the whole crypto-sphere.
I've grown to become a believer that Trading Analysis without a background of research on the current political and economical state of affairs is a blind attempt at finding direction in the repetitive cycle that a trend leads to its own continuation until a reversal happens. Through my trading experience I've seen myself exiting early positions in trades purely due to the fear of reversal as key points (TP zones) were being targeted). This has always felt somewhat counterproductive and while I don't dismiss TA as an accurate way to set targets for profit and to cut losing trades short, I also think that it needs some form of validation to increase your awareness towards the move with higher probability. This is achieved by understanding the mind of the key investors and the overall sentiment across the world.
So lets begin, shall we:
- The crypto-sphere is in a very similar stage to the the tech startups of the late 90s. The overall understanding of the technology and its potential it's still very shallow and its potential overestimated. Cryptocurrency startups raise millions of dollars on the basis of a (quite-often poorly constructed) white paper exposing the theory behind their proposed blockchain technology. Revolutionary ideas for sure, some of them with a working product already but the number of business cases is still lower than low. The excitement and customer confidence in this new technology is what increases demand for the purchase of what a lot of the retail investors see as the equivalent of equity in a company, while in actuality these coins are pure stores of value. This has led to a massive discrepancy between real value and perceptual value. While the uptrend was definitely a sign of reflexivity in which the trend increases buyers and buyers will continue the tend, by January a state of doubt/reality check started to make an appearance. We're now seeing reflexivity applied to the downtrend. It was triggered by a fear that cryptos are still in an early stage and in risk of being obliterated by big financial corps/regulatory measures, yet currently we're seeing a strong downtrend increase sellers and that therefore continuing the trend. There's an embedded bearish state of mind in investors and a belief we're heading lower. This will more than likely be the reality
- From a political standpoint we're seeing the western worldwide moving to an aggressive right-wing mentality. We're seeing protectionist regulations being implemented (most recently the US tariffs on Alluminum, steel and quite possibly on Chinese imports)/immigration and border control taken to extremes (Brexit, dismantlement of coalitions, states and cities trying to become independent...), all this suggests we're heading towards trade wars or at least trade restrictions until the smoke settles and new coalitions have been formed. We're witnessing an exhaustion of the current political and trade partnerships.
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I've grown to become a believer that Trading Analysis without a background of research on the current political and economical state of affairs is a blind attempt at finding direction in the repetitive cycle that a trend leads to its own continuation until a reversal happens. Through my trading experience I've seen myself exiting early positions in trades purely due to the fear of reversal as key points (TP zones) were being targeted). This has always felt somewhat counterproductive and while I don't dismiss TA as an accurate way to set targets for profit and to cut losing trades short, I also think that it needs some form of validation to increase your awareness towards the move with higher probability. This is achieved by understanding the mind of the key investors and the overall sentiment across the world.
So lets begin, shall we:
- The crypto-sphere is in a very similar stage to the the tech startups of the late 90s. The overall understanding of the technology and its potential it's still very shallow and its potential overestimated. Cryptocurrency startups raise millions of dollars on the basis of a (quite-often poorly constructed) white paper exposing the theory behind their proposed blockchain technology. Revolutionary ideas for sure, some of them with a working product already but the number of business cases is still lower than low. The excitement and customer confidence in this new technology is what increases demand for the purchase of what a lot of the retail investors see as the equivalent of equity in a company, while in actuality these coins are pure stores of value. This has led to a massive discrepancy between real value and perceptual value. While the uptrend was definitely a sign of reflexivity in which the trend increases buyers and buyers will continue the tend, by January a state of doubt/reality check started to make an appearance. We're now seeing reflexivity applied to the downtrend. It was triggered by a fear that cryptos are still in an early stage and in risk of being obliterated by big financial corps/regulatory measures, yet currently we're seeing a strong downtrend increase sellers and that therefore continuing the trend. There's an embedded bearish state of mind in investors and a belief we're heading lower. This will more than likely be the reality
- From a political standpoint we're seeing the western worldwide moving to an aggressive right-wing mentality. We're seeing protectionist regulations being implemented (most recently the US tariffs on Alluminum, steel and quite possibly on Chinese imports)/immigration and border control taken to extremes (Brexit, dismantlement of coalitions, states and cities trying to become independent...), all this suggests we're heading towards trade wars or at least trade restrictions until the smoke settles and new coalitions have been formed. We're witnessing an exhaustion of the current political and trade partnerships.
(next comment)
Note
- Consumer confidence and Business confidence are at their highest in decades. Meanwhile, we're seeing many economies weakening. From the ongoing credit crisis, with an ever increasing debt in most countries, to levels of uncontrolled inflation across the western countries which is leading to progressively increasing interest rates. This will obviously reduce liquidity and therefore availability of money to be invested in. China, Canada and Hong Kong are on the brink of a banking crisis and Japan has had to keep its negative levels of interest rates as a means to try and increase its inflation rate (albeit being a strong economy). A decadent CLI (not yet below 100 but going there) has seen the BCI cross over above. This signals that businesses are outpacing economic growth. Since markets strive to equilibrium we should witness a correction across the stock market and the crypto market alike.- Google has recently forbidden adverts on cryptos and facebook has shared similar policies. Bond yields have been rising for the past year (a tremendous growth on the US 10Y bond yield), which alongside a stock market correction should lead to investors shifting to risk-free investments. Moving money to an unregulated, unproven market like the crypto market is an unreasonable and unlikely assumption to be made.
All this said, looking at the charts we can still expect a move to the downside for bitcoin. Most altcoins have crashed below 80% of their ATH, yet bitcoin is still hovering above the 61.8% level. I strongly believe we will not only break below the .618 but head down to the .786 level. The overall sentiment is bearish and with no added buy volume (this is dependant on the performance of other markets, but especially the stock market) the bearish trend should continue and possibly steepen. If the .786 level breaks then we could see a similar result to the dotcom crash with bitcoin ending at below 90% of ATH value and many altcoins being obliterated from the market.
Go short, it'll take a lot more effort for bitcoin to shift to a long sentiment in the current state of affairs.
Note
We now have broken out of the falling wedge, and I expect a move up to channel resistance (if volume keeps up - this is still counter-trend trading so act with caution) and touch the 0.5 fib level (roughly at 9.7k level), before a move down.There's the idea/belief that this hike in price was caused by the "good news" from the G20 meeting - personally, as far as a vague statement that "cryptos more than likely won't harm the whole economy/we do not wish to impose new regulations, but rather adapt the existing ones to the crypto market" goes, this may sound like a change in speech for the crypto world, but truth be told we hadn't seen actions against this statement so far, so it doesn't actually change anything. Secondly, the economy downturn we are on the brink of experiencing, the possibility of trade wars (as mentioned in previous comments), the risk of undergoing a credit contraction phase (hike in interest rates across the westernised countries, the fact we are at a high level of household debt - and cryptos have already stopped accepting credit cards as payment) - all these outweigh the "good news" we may have had. So I do feel the hike will be short lived rather than the restart of the bull trend.
There's no worse FUD than good news that don't follow through.
Note
There's a likelihood we're going down now to test the 7500 level and/or the rising wedge. The break of the rising wedge would be a massive step and could trigger a sell off with high volume. Currently we're seeing a doji forming on heiken ashi on the 4h TF, followed by bearish confirmation, RSI is on overbought region and we've formed a double top on the 8600 level. Safe level for a short with good risk to reward ratio.
Note
This rising wedge seems to be close to breaking, the volume is decreasing and the 0.382 level is now acting as resistance, alongside channel resistance. I don't invalidate a move higher to the 9200 level where it'll encounter a big daily resistance level, but I find it very unlikely a move upwards beyond that judging by current volume and RSI levels. A break above 9300 would mean a rally up to the 10k becomes open and likely. In the meantime I maintain a bearish bias and I believe a short in this position with a 9300-9400 SL is a reasonable call. First TP target would be 7400 at the bottom of the downtrending channel, touching the rising TL.
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