Reasons To Be Bearish On Crypto - Why The Market May Be Dying
What happened?? Victor Cobra is now bearish, so that's a buy signal, right? Well...let's see. I would, of course, be happy if the market turned around here, but this is really a creative piece where I'm writing about all my current doubts. Certainly take this with a grain of heavily salted salt. I like to be silly, especially in my videos. But this is a serious post. In this analysis, I'm giving all the reasons why I'm starting to become doubtful of continued growth for cryptocurrencies, as they are now. Even if one is going to be optimistic, they still arguably only look somewhat neutral, if only primed for slower growth. I've talked about the slow growth scenario a number of times in recent weeks. Here, I will attempt to make a bearish argument. This is analysis, not trading advice. I'm just trying to look at the overwhelmingly bearish signals in order to remain objective, even though I've been "long term bullish" on this market. Feel free to skip the first part, as it's mostly me ranting about my perception of economic problems. It's a bit political, so if you don't care for politics, just skip to the second part where I talk TA.
Part I: Context
First, I'm going to provide a little context for where we are. I'm going to focus this mostly on the U.S., because it's where I live, and many of these problems are visible to me every day. The United States also often serves as a role model for many other nations. The global economy is tied to American "prosperity," for better or for worse. When a nation has the largest military and financial control, it has a lot of influence. Right now, we are (in my opinion) getting very close to the end of the longest stock market bull run in history. However, the "largest bull run" title may not be entirely accurate. We experienced parabolic growth throughout the industrial revolution. The 1929 stock market crash was a major correction from all that greed, debt, and unsustainable growth since the mid-1800's. I believe our current global economy is in a similar predicament. Wages haven't grown in decades, while the rich continue to get richer and are taxed less over time. Labor is taxed higher than ownership, meaning that as people continue to spend 40-60 hours a week trying to support themselves and their families while paying off massive credit card, medical, housing and student loan debt, the rich are paying less taxes on their assets, many of which they inherited or grew by making it big at a younger age. And guess what? People even pay taxes on their debt, in the form of Interest! This is what led to the housing crash of 2008 - subprime mortgages, where the effective tax rate increased as time went on, forcing people into foreclosure before they even knew what was happening. This scammed even more people of color out of ownership.
On top of this, a black American family (on average) owns roughly 10% as much wealth as the average white American family. The reason why almost every crypto "investor" in the U.S. is a white male is fairly obvious: They have much more financial freedom and liquidity. Cryptocurrencies are a speculative new "asset class." There's also the fact that the average American doesn't own stocks. Stocks are increasingly owned exclusively by the wealthy. But if the majority of Americans don't even own stocks, how could they have the extra capital to buy crypto, which can't even be used for anything in their daily lives? When universal basic income was tested in California, people spent the extra $500/month on necessities, because many Americans can hardly afford to support themselves and their families. While poverty in the United States affects people from all ethnic backgrounds, people of color have relentlessly been given the short end of the stick by those in power---and they make up as much as 30% of the population at this point, including black and hispanic populations. Discrimination and financial oppression affects communities all across the globe. I'm just using the example from the U.S. since it's my home.
You may wonder why I keep talking about the ever-increasing racial wealth gap and the widening income disparity. The reason is simple - if crypto is meant to be a gateway towards financial inclusion, the people who need it the most won't be able to own a significant piece of the pie. Many people who buy crypto think it's a solution, but as it stands now, the only people who can afford to buy crypto are those who have the most money and least responsibility --- statistically white males in the U.S. This is in part why I have been a supporter of XLM in the past. They openly distribute cryptocurrency to anyone with...hey, wait a second....to anyone with...Internet, a valid ID, time on their hands to create a wallet....hmm? Seems like that still excludes many people. The intention is there, but the execution? Not so sure. I want to emphasize that I'm speaking from experience here; I am a young white male who owns crypto, and who has believed (perhaps to a fault) that cryptos can make a positive impact on certain societal problems. The only reasons I could afford to buy crypto are because I have no student loan debt (so I was able to save at my previous job), and my family is comfortable financially. I must emphasize that I am no longer buying. I've reached a goal and I now wait for boom or bust. Many people like me continue to hold on to crypto, with the dream that it will provide some extra financial freedom. I even have had fantasies of giving my crypto away if it increases dramatically in value. But will it actually play out that way? Not so sure.
Now let's talk about stocks again for a minute. The stock market was originally designed to be an inclusive form of prosperity. Sound familiar? Who buys stocks anyway? Not the average American. As clearly evidenced by economic data, the stock market eventually became a tool for the rich CEO's to continue pumping their salaries by initiating buybacks, cutting wages, and cutting corners. Human greed took over. No longer inclusive, the stock market has failed to provide prosperity for all Americans. Likewise, cryptocurrencies are falling down the same deadly black hole. In 2017, the "CEOs" of "blockchain companies" made out like bandits, as everyone who was frustrated with the stock market and wealth disparity latched onto the idea as a revolutionary solution to all our systematic problems. Money poured into crypto, and the profits were only made at the top of the ladder, and by the few lucky individuals who happened to buy early. Since then, cryptocurrencies have arguably experienced their longest bear market as regulation clamps down, and investors get more risk-averse with their money. Now, the surviving blockchain companies are continuing to hope for some sort of boom, but investors appear to be getting fatigued, even with the stock market. What will these crypto companies do if new money continues to shy away? They will have to shut down eventually. Their blockchains will continue running though, perhaps serving as a ghostly reminder of an infrastructure that they once hoped would change the world. This is the dystopian outcome.
Speaking of investor fatigue: Even the marijuana industry, which was supposed to be the "next big thing" has completely flopped for investors. If I had bought weed stocks in the last two years, I'd actually be at a greater loss than I am with crypto! Most weed stocks are now back to IPO price or below. This tells me that big smart money is no longer flowing into "promising" value generators. Weed sales alone have fallen short of expectations, meaning that we could also be seeing retail buyer exhaustion. Big money is scared, and for good reason. When you build a castle and block everyone else out, you're alone in your tower, and the last thing you can do is cry or jump out of a window. Or...maybe try to make friends with those you screwed over. That's the more human thing to do, right?
Part II: Technical Analysis
Now onto the analysis. As you can see in the above Bitcoin chart, we are still in a bearish channel, with a long term support line directly below us. Here you can see the pink trendline zoomed out, and from where it originates on Bitstamp. It currently lies in the low $7K zone.
After the October 40% pump, we've retraced most of that move. This is the same thing that happened last fall! We had a massive short squeeze in October, which then completely retraced, only to dump 50% weeks later, towards the 200 week Moving Average. On the above chart, all the major supports are outlined up until the 200w MA (light blue).
Aside from Bitcoin, other cryptocurrencies are failing in very sensitive areas, and may just continue their slow, painful declines. Here's Ethereum versus Bitcoin. Even as it looks like it's clearing its 2 year downtrend, it still has to face ANOTHER downtrend. It really never ends.
XLM is still in a 2 year long bearish channel, even with its 50% supply burn. It has now been rejected well over 10 times.
The linear chart for BNB shows how much room it has to fall. The 9w MA just crossed down over the 50w MA. The last time this happened, BNB declined 50%. The coin began in 2017 below 10 cents. It's still worth well over 100x its initial value.
LINK is the only cryptocurrency that has NOT corrected much from its ATH yet, but I expect it to decline back towards $1 at least, if the market continues to look weak. We've seen this pattern a bajillion times with cryptocurrencies:
Even NEO, which has done fairly well over the last several weeks, has been rejected at a long term downtrend.
Looking at the TOTAL crypto market cap, we are still in a downtrend channel, and have just broken down below the long term trend yet again. If we cannot get back above this trend soon, I think the market can move sideways or down for a very long period of time. My upside projection is drawn on this chart, but I don't expect that to play out if we cannot break the downtrend soon:
Alts are also now breaking their long term trend again, which I think needed to happen anyway, since their growth was so extreme:
Recently, I made a comparison of cryptocurrencies to early AMZN stock. Unfortunately, cryptos are looking weaker. If we were to see the Amazon stock comparison play out, we'd want crypto to make one more leg up before breaking their trendlines, in my opinion. In the main chart for this analysis, I created a pink circle, where I think some sort of major price action could occur.
Even though this post is very bearish (as I warned in my opening paragraph), the bullish possibility remains, but ONLY if the downtrends I mentioned in this analysis are cleared. Until then, I will remain skeptical, and at most neutral. This is not financial advice. This is only my opinion based on my own observations and values. It is meant for speculation, education, and entertainment only.
-Victor Cobra
Part I: Context
First, I'm going to provide a little context for where we are. I'm going to focus this mostly on the U.S., because it's where I live, and many of these problems are visible to me every day. The United States also often serves as a role model for many other nations. The global economy is tied to American "prosperity," for better or for worse. When a nation has the largest military and financial control, it has a lot of influence. Right now, we are (in my opinion) getting very close to the end of the longest stock market bull run in history. However, the "largest bull run" title may not be entirely accurate. We experienced parabolic growth throughout the industrial revolution. The 1929 stock market crash was a major correction from all that greed, debt, and unsustainable growth since the mid-1800's. I believe our current global economy is in a similar predicament. Wages haven't grown in decades, while the rich continue to get richer and are taxed less over time. Labor is taxed higher than ownership, meaning that as people continue to spend 40-60 hours a week trying to support themselves and their families while paying off massive credit card, medical, housing and student loan debt, the rich are paying less taxes on their assets, many of which they inherited or grew by making it big at a younger age. And guess what? People even pay taxes on their debt, in the form of Interest! This is what led to the housing crash of 2008 - subprime mortgages, where the effective tax rate increased as time went on, forcing people into foreclosure before they even knew what was happening. This scammed even more people of color out of ownership.
On top of this, a black American family (on average) owns roughly 10% as much wealth as the average white American family. The reason why almost every crypto "investor" in the U.S. is a white male is fairly obvious: They have much more financial freedom and liquidity. Cryptocurrencies are a speculative new "asset class." There's also the fact that the average American doesn't own stocks. Stocks are increasingly owned exclusively by the wealthy. But if the majority of Americans don't even own stocks, how could they have the extra capital to buy crypto, which can't even be used for anything in their daily lives? When universal basic income was tested in California, people spent the extra $500/month on necessities, because many Americans can hardly afford to support themselves and their families. While poverty in the United States affects people from all ethnic backgrounds, people of color have relentlessly been given the short end of the stick by those in power---and they make up as much as 30% of the population at this point, including black and hispanic populations. Discrimination and financial oppression affects communities all across the globe. I'm just using the example from the U.S. since it's my home.
You may wonder why I keep talking about the ever-increasing racial wealth gap and the widening income disparity. The reason is simple - if crypto is meant to be a gateway towards financial inclusion, the people who need it the most won't be able to own a significant piece of the pie. Many people who buy crypto think it's a solution, but as it stands now, the only people who can afford to buy crypto are those who have the most money and least responsibility --- statistically white males in the U.S. This is in part why I have been a supporter of XLM in the past. They openly distribute cryptocurrency to anyone with...hey, wait a second....to anyone with...Internet, a valid ID, time on their hands to create a wallet....hmm? Seems like that still excludes many people. The intention is there, but the execution? Not so sure. I want to emphasize that I'm speaking from experience here; I am a young white male who owns crypto, and who has believed (perhaps to a fault) that cryptos can make a positive impact on certain societal problems. The only reasons I could afford to buy crypto are because I have no student loan debt (so I was able to save at my previous job), and my family is comfortable financially. I must emphasize that I am no longer buying. I've reached a goal and I now wait for boom or bust. Many people like me continue to hold on to crypto, with the dream that it will provide some extra financial freedom. I even have had fantasies of giving my crypto away if it increases dramatically in value. But will it actually play out that way? Not so sure.
Now let's talk about stocks again for a minute. The stock market was originally designed to be an inclusive form of prosperity. Sound familiar? Who buys stocks anyway? Not the average American. As clearly evidenced by economic data, the stock market eventually became a tool for the rich CEO's to continue pumping their salaries by initiating buybacks, cutting wages, and cutting corners. Human greed took over. No longer inclusive, the stock market has failed to provide prosperity for all Americans. Likewise, cryptocurrencies are falling down the same deadly black hole. In 2017, the "CEOs" of "blockchain companies" made out like bandits, as everyone who was frustrated with the stock market and wealth disparity latched onto the idea as a revolutionary solution to all our systematic problems. Money poured into crypto, and the profits were only made at the top of the ladder, and by the few lucky individuals who happened to buy early. Since then, cryptocurrencies have arguably experienced their longest bear market as regulation clamps down, and investors get more risk-averse with their money. Now, the surviving blockchain companies are continuing to hope for some sort of boom, but investors appear to be getting fatigued, even with the stock market. What will these crypto companies do if new money continues to shy away? They will have to shut down eventually. Their blockchains will continue running though, perhaps serving as a ghostly reminder of an infrastructure that they once hoped would change the world. This is the dystopian outcome.
Speaking of investor fatigue: Even the marijuana industry, which was supposed to be the "next big thing" has completely flopped for investors. If I had bought weed stocks in the last two years, I'd actually be at a greater loss than I am with crypto! Most weed stocks are now back to IPO price or below. This tells me that big smart money is no longer flowing into "promising" value generators. Weed sales alone have fallen short of expectations, meaning that we could also be seeing retail buyer exhaustion. Big money is scared, and for good reason. When you build a castle and block everyone else out, you're alone in your tower, and the last thing you can do is cry or jump out of a window. Or...maybe try to make friends with those you screwed over. That's the more human thing to do, right?
Part II: Technical Analysis
Now onto the analysis. As you can see in the above Bitcoin chart, we are still in a bearish channel, with a long term support line directly below us. Here you can see the pink trendline zoomed out, and from where it originates on Bitstamp. It currently lies in the low $7K zone.
After the October 40% pump, we've retraced most of that move. This is the same thing that happened last fall! We had a massive short squeeze in October, which then completely retraced, only to dump 50% weeks later, towards the 200 week Moving Average. On the above chart, all the major supports are outlined up until the 200w MA (light blue).
Aside from Bitcoin, other cryptocurrencies are failing in very sensitive areas, and may just continue their slow, painful declines. Here's Ethereum versus Bitcoin. Even as it looks like it's clearing its 2 year downtrend, it still has to face ANOTHER downtrend. It really never ends.
XLM is still in a 2 year long bearish channel, even with its 50% supply burn. It has now been rejected well over 10 times.
The linear chart for BNB shows how much room it has to fall. The 9w MA just crossed down over the 50w MA. The last time this happened, BNB declined 50%. The coin began in 2017 below 10 cents. It's still worth well over 100x its initial value.
LINK is the only cryptocurrency that has NOT corrected much from its ATH yet, but I expect it to decline back towards $1 at least, if the market continues to look weak. We've seen this pattern a bajillion times with cryptocurrencies:
Even NEO, which has done fairly well over the last several weeks, has been rejected at a long term downtrend.
Looking at the TOTAL crypto market cap, we are still in a downtrend channel, and have just broken down below the long term trend yet again. If we cannot get back above this trend soon, I think the market can move sideways or down for a very long period of time. My upside projection is drawn on this chart, but I don't expect that to play out if we cannot break the downtrend soon:
Alts are also now breaking their long term trend again, which I think needed to happen anyway, since their growth was so extreme:
Recently, I made a comparison of cryptocurrencies to early AMZN stock. Unfortunately, cryptos are looking weaker. If we were to see the Amazon stock comparison play out, we'd want crypto to make one more leg up before breaking their trendlines, in my opinion. In the main chart for this analysis, I created a pink circle, where I think some sort of major price action could occur.
Even though this post is very bearish (as I warned in my opening paragraph), the bullish possibility remains, but ONLY if the downtrends I mentioned in this analysis are cleared. Until then, I will remain skeptical, and at most neutral. This is not financial advice. This is only my opinion based on my own observations and values. It is meant for speculation, education, and entertainment only.
-Victor Cobra
Comment:
Correction - as my friend pointed out, more Americans own stock now than they did in the 1980's, but that doesn't mean that they own a larger portion of the stock. Actually, despite more Americans owning stock, they own less of it. To me, this is indicative of corporate abuse of the desperation felt by lower income investors.
Comment:
Also, some of the things I've written here may not be entirely accurate. A lot is based on things I have heard or read, as well as basic observation. Feel free to critique/comment.
Comment:
Despite the bearishness of this analysis, let me again be clear - we CAN break these downtrends. We've successfully broken and retested the downtrend on the linear chart (something I didn't even realize until now). In the early part of this year, when Bitcoin was still below $4K, I used the linear chart pretty often for this very reason. These trends generally break on the linear chart before they break on the log chart. If this current level holds, I think the bullish scenario could be back on.
Comment:
A break back into that wedge on the linear chart would be very bad indeed.
Comment:
So obviously we’ve dropped since yesterday. The most important areas to watch out for are 1) the bottom of the downtrend channel and 2) the uptrend for Bitstamp & the 50w MA (mid-$7100 zone). For a bullish scenario, I’d like to see buyers front run one or both of those supports. Ideally, I’d like to see buyers step in BEFORE we get to the bottom of the downtrend channel, as that could indicate some sealing seller momentum. If those levels break, we can test deeper levels, perhaps with some long liquidations. Perhaps even a V-bottom reversal could be in the cards in that case. Haven’t seen one of those in a long time.
Comment:
Weakening seller momentum*** I don’t like autocorrect.
Comment:
Seeing some buyers step in here. Again, a bullish scenario would be back in play only if our major downtrend is cleared. But this becomes more likely if bulls start to push price back up before we even have to test lower levels. That means we can reverse anywhere between here and those lower supports. Be careful trading!
Comment:
We also have negative funding, which is often at least a short term bullish signal.
Comment:
Buyers have now front-run the bottom of the bearish channel, and one of the major target areas between $6.8K and 7.1K has been reached. There should be some buyers stepping in here, particularly since we're now BELOW the long term trend (pink) for the first time since 2011! As long as bulls take us back above soon, we can avoid testing the 200w MA (4900-5000 level). We're also now entering my pink circle, where I think a crucial moment will occur.
Comment:
Now it may be safe to say that the bottom of the bearish channel has been hit. No real strength from bulls so far. Perhaps we even need to have a capitulation event BELOW the channel.
The BLX chart shows some room for downside towards $6.3K.
Comment:
Forgot to post my update here. We found support at $6500 (before the 6300 level I was looking at) and had a failed breakdown below the channel support:
