Akhokhar86

Spotting Euphoria Part #2 (BTC)

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
On 12/7/17, when BTC was trading at ~$18K, I wrote on my FB for all my crypto friends:

"Can't wait for an opportunity to short Bitcoin ."

Naturally, many of my friends laughed and said I was crazy to go against this "powerful revolution." They cited many crypto analyst that said BTC was going to hit $100K by June 2018 (Tom Lee's of the world, etc.).

Again on 1/17/18, when BTC was trading at ~$11K, I wrote:

"BTC looks like it wants to go to $6K (some support around that level)."

Many said I was "insane" if I thought it would go that low, they said it was a time to double down and go even longer!

Suffice to say that BTC went lower and people continued to say "buy the dip, buy the dip, etc.," and they've been dead wrong. Confidence began to fade and selling pressure eventually took over. The euphoria phase was over.

What happened?

Back then, while I understood the bulls perspective and am sympathetic to the cause, something bigger was developing that many crypto bulls seemed to completely ignore. As a technical analyst, two things became evident that drove my short thesis:

1. FOMO was extremely rampant. Just go back and read the crypto subreddit - it was full of lambos dreams. Investors (many of whom never bought a single stock before) ran into crypto thinking it was the easiest investment decision of our time. I saw a coin like NANO go from $3 to $30 in less than 3-4 days. It was the Dot.com bubble all over again, but most didn't want to believe it (yet I knew, nothing goes up in a straight line forever).

2. Wall Street got hold of BTC and was able to short it. This was huge news. As soon as I heard that the futures market would allow buying and selling BTC , I knew the peak was in. How? Simple: Wall Street doesn't care about "stories, dreams, revolutions, etc" they only care about making money. They knew that a ton of "weak hands" around the globe had just driven the price of BTC up 1000%+ practically overnight. It was the juiciest bubble Wall Street has ever seen -- and they knew exactly how to end it; they've created and popped many of them.

**overlay the NASDAQ bubble with the BTC bubble and you get the same picture**

On 6/6/18, I wrote:

"$6,500 has served as a floor and we are now hovering at that level. However, given price action and volume , it is likely to test the next level on the downside of $5,900 (due to lack of “whales” stepping in). If it can’t hold this level, BTC could see a significant drop around the $3,000 level."

Well, sure enough, BTC hit $5.9K and and has since bounced and is trading at ~$6,480.

So what would I write for my friends this time?

7/5/18:

"This recent upward price action is likely to fade (see low volume ) -- don't get caught in yet another "dead-cat bounce." Right now, the risk reward is not in you favor. Wait for institutional money to come in."

My big takeaway that I've learned over the years is this:

Begin successful in the market isn't about buying at the lowest price and hoping it will go up, but rather, it's waiting and buying at the most optimal point where momentum is on your side. This means that you should actually let the price go higher (get more expensive) and break through resistance levels "before" jumping in. You have to wait for the price action and volume to "prove" that it can sustain itself before stepping in. Many investors failed to realize the significance of the phrase "follow the money."

The real money isn't coming in (yet).

Today alone, Tom Lee (one of the biggest crypto bulls on wall street), cut his year-end BTC price target by 20% to $20K.

Spencer Bogart from Blockchain Capital (early investor in BTC ), said last week that BTC prices will likely go lower over the next 200 days due to fund redemption.

I also have been asked to manage a $300K crypto-portfolio at my firm. I'm not buying yet.

Fact is, there's a lot that needs to happen in order for BTC to sustain an upward trend. The regulatory framework is key.
Comment: Today is a perfect example of a "dead-cat bounce." Everyone gets sucked into thinking "this time is different." However, the light volume during this run-up suggested this was weak hands (retail investors) jumping in, not institutional money.

BTC will likely touch $3K before "whales" enter this space. Wait for strong volume before stepping in. Almost every analyst here is far too optimistic in assuming BTC is headed much higher short-term. Every indicator suggests otherwise.

I'll post the day and time I will go long BTC (may never happen). Just following the momentum.

Cheers!
Trade active: This statement that came out from Goldman today (a firm that is looking into a $BTC trading desk), pretty much sums up my current view on $BTC:

"We expect further declines in the future given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency," Sharmin Mossavar-Rahmani, Goldman's chief investment officer of the private wealth management group, said in the report published Friday.

"Our view that cryptocurrencies would not retain value in their current incarnation remains intact and, in fact, has been borne out much sooner than we expected." Mossavar-Rahmani said.

"Such declines will not negatively impact the performance of financial assets because cryptocurrencies represent just 0.3 percent of world GDP as of mid-2018," she said. "In fact, we believe that they garner far more traditional media and social media attention than is warranted."

Makes you wonder why Goldman is looking into setting up a "trading desk."

Again, euphoria is easy to spot.

https://www.cnbc.com/2018/08/03/goldman-...

Comment: In my next update, I going to share my takeaways from meeting with VeChain's CEO Sunny Lu on Sand Hill Road a few months ago.

For now, I just wanted to share this:

Here's what our government/regulators are dealing with at the moment regarding BTC and why ETFs/401K plans have yet to come into fruition:

1. Research suggests that "A concentrated campaign of price manipulation may have accounted for at least half of the increase in the price of Bitcoin and other big cryptocurrencies last year." https://www.nytimes.com/2018/06/13/techn...

2. Analysis was recently put out by MIT that showed that the cost of securing BTC could ultimately be the thing that constrains its growth: "Bitcoin’s inherent economics could keep it from ever being very important": https://www.technologyreview.com/s/61159...

3. The Bank for International Settlements just told the cryptocurrency world it’s not ready for prime time -- and as far as mainstream financial services go, may never be: https://www.bloomberg.com/news/articles/...

4. How Bitcoin Fueled Russian Hacks: https://www.wsj.com/articles/how-bitcoin...

5. Fed Chairman Powell says cryptocurrencies present big risks to investors: https://www.cnbc.com/2018/07/18/fed-chai...

6. Bitcoin is still too 'unstable' to become mainstream money, UBS says: https://www.cnbc.com/2018/08/02/bitcoin-...

7. Goldman Sachs sees more price pain ahead for bitcoin: https://www.cnbc.com/2018/08/03/goldman-...

These are just a few basic articles that address many of the present issues (should give a good overview). I like to follow the data, the price action, and momentum. I don't really care what happens long-term -- just objectively evaluating this space as an active trader/investors. Everything suggests lower prices from here.

Would love to hear your thoughts/analysis.

Cheers!
Comment: Breaking News: SEC punts on Bitcoin ETF decision to 9/30.

BTC down slightly on the news: https://www.coindesk.com/sec-delays-vane...
Comment: Top technical analyst says it could be "Game Over" for Bitcoin if it breaks a key level.

"Jeff DeGraaf is one of the most respected chart technicians on Wall Street over the last two decades. He has been ranked the number-one technical analyst by Institutional Investor Magazine for over ten years across his career. In 2014, he became a member of Institutional Investor's Research Hall of Fame."

"This time last year, Bitcoin traded at ~$3,400 — as markets began their ascent that brought Bitcoin’s price to around $20,000 in December 2017."

https://www.cryptoglobe.com/latest/2018/...

https://www.cnbc.com/2018/08/09/top-tech...

My personal take is if BTC breaks $5,800, and can't hold at the least at $5,000 (last level of support) -- there's about +90% probability that it's going to touch ~$3K. I will consider being a buyer at that level, but of course, as a technical analyst, I'd have to see the right signals in place.

I will definitely let everyone know the day and time I go long. May never happen or could happen sooner than even I expected. I let the charts tell me what to do.
Comment: Today, the SEC rejected two Bitcoin ETFs:

"...the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission's Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange's rules be designed to prevent fraudulent and manipulative acts and practices."

https://www.coindesk.com/sec-rejects-7-b...
https://www.cnbc.com/2018/08/22/sec-reje...

Again, even you are a bull, the SEC's decision on the ETF is critical for sustained price appreciation. It's much better to wait for this decision then to jump in now hoping things will change. If the ETF gets rejected again in Sep, BTC will not have a real positive catalyst through the end of the year.

Ironically, crypto-bull's best friend right now is -- The government.
Comment: One year ago today, I said to short Bitcoin. (https://twitter.com/khokhar_ahmad/status...).

Today, I'm saying it's still short. The early investors are about to get tested. The ones that didn't sell yet, will do so soon, to avoid not being millionaires. Many of them don't care about Satoshi, and many more just got lucky. Times up.

Congrats to those who've followed along this year and avoided buying all those "dips."

If I ever come across a buy signal, I will update this thread. It's likey we won't get one in 2019, but I never let my 'gut' get in the way of facts.

Cheers!

Comments

Grayscale investments has now bought up 1% of all BTC... I think that totally makes OLD market performance history.. with all the institutional money pouring in you can't look back at past performance. and I doubt Wall Street Can or Will Wait years to make money.
Reply
@pedro17, "with all the institutional money pouring"

Where? Did they buy months ago or today? I work with institutional money and get to speak with large money managers -- no one is interested in stepping in here.

However, a few managers are interested in Bitcoin around ~$1000.
Reply
I have to agree. I saw your chart posted somewhere else. People are drawing moon arrows straight into the sky based on zero TA and are getting listed at the top of tradingview. At this point sometimes I just throw up meme charts. I wrote up a detailed look of the pattern and this is exactly what my idea is here.
Reply
Akhokhar86 achtung360
@achtung360, Thanks for sharing and providing rationality. Agreed. It's pretty amazing (and sad) to see those straight arrows where people think it's just going to the moon, for no reason.

Cheers bud!
Reply
Phahaha hilariously weak. Press Play to enjoy his nice "short" .
Reply
not sure this current rejection is not unexpected
Reply
Akhokhar86 Larrycrypto
@Larrycrypto, Price action suggest it was expected. The big one is in Sep (imo).
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