goldbug1

Bitcoin - Next Leg Higher or Flushing of Longs to Come?

Long
COINBASE:BTCUSD   Bitcoin / U.S. Dollar
As Bitcoin takes out the upper boundary of the current consolidation many may be thinking this is the next leg higher, but is it? Looking across TV, and all the fly by night Furus, it is clear that most are looking for that next leg higher. We are now back to the days of throwing Rockets on charts, titles with Moon in them, and all the Furus who were bearish at $4500 are now LONG. Hell nothing can go wrong here right?

Not so fast my friends.

Technicals:

With Elon adding Bitcoin to his profile, the market got a little fuel breaking the boundary and pushing into the 38k level, which we mentioned is an area we may see selling pressure pick up. Well look at that, it did, and not only that Bitcoin is now trying to hold the upper boundary.

Now retest of the upper boundary are common, but that is only from a technical standpoint. How it retests the boundary is also significant as it provides some insight into order flow. We did not push 38k, get some lingering and then a drawn out pullback to retest the boundary, it retested it within 24 hours which is a sign there are still active sellers looming.

To add to this there have been several broader long setups over the past month, along with a lot of buying the dip plays, which can lead to a crowded trade. For every seller there is a buyer, and most of the selling is probably from those in at lower levels, with most of the buying from those that are jumping in late to the game.

That can't end badly right? Well it can, and if we get a swing below 30k, selling pressure can heat up.

The bullish case here is still 32k. If 32k continues to hold, it would be a sign that buyers are still active in the area, and if there is no one left that is interested in selling, well we get that next leg higher. Markets top when there is no one left to buy, and markets bottom when there is no one left to sell. Price action provides clues into how strong the order flow is in either direction, not some random pattern.

I do not want to discount patterns, as many patterns do occur that have relevance. There relevance is in the tendencies for the market to go through the same emotional fluctuations and repeat the same actions, and most do not even realize this is due to emotional trading. They are too caught up with emotional bias to recognize they are part of the herd themselves.

Sentiment drives markets, and most participants allow emotions to dictate trades not technicals. They look for technicals to verify their own biases. This leads to patterns evolving that are similar with equities that attract similar participants. Case in Point Gold and Bitcoin participants are very similar. So lets look at a recent pattern evolving.


Little comparison with Gold's recent consolidation. Keep in mind last year when Gold made its huge run the herd stepped in pushing it to a new high before going through now what has been 5 months of consolidation. Now Bitcoin moves faster than Gold , but the patterns are eerily similar.


Like Bitcoin Gold have several long setups that failed to evolve to a higher high. Consolidations are similar because emotional tendencies of participants are similar in like assets. From the initial buy the dip, to the several higher lows that failed to break out, to the failed high, Bitcoin is following the same pattern (so far) as Gold .

The question obviously is, do we get the same capitulation over the next couple weeks we saw in Gold that retested the upper end of the prior consolidation? I don't know, neither does anyone else, all we can do is look for clues, and this is just one of them.

So it is reasonable for Bitcoin to pullback for a final flushing of all these late longs to 20k. Who would have though Gold after pushing 2000 would fall back to the 1770 area? It did and it can pullback to retest that area once again, same goes for Bitcoin . But are there other clues?


Many hedge funds and larger institutions along with the pension funds, insurance funds, and others that rely on hedge funds to provide some safety net during market sells are getting simply destroyed here. Companies like GameStop, which is heavily shorted, are simply creating liquidity issues for many of these institutions.

As they target the list of companies like LGND , KOSS, AAL, AMC , SPCE , WKHS and the numerous other heavily shorted companies, liquidity can become an issue. For example if you are long GME at $90, your risk is only $90, but if you are short at $10, your risk is unlimited. Why we do not short individual companies in the first place. You can be wiped out.

The other issue is leveraged longs and long call options. Won't go into how Call Options can effect the market, but leverage is about 2-1 3-1 for most brokers. You can buy 100k worth of stock for 50k, but if you are wrong and it pulls back 50% you are margined out. IF shorts get margined out, Calls are assigned, and then longs get margined out, the liquidity issues can have ripple effects in the financial markets.


The stock market has been in a position where a catalyst can create a broader sell off and we may be already seeing this happen. As brokers increase margin requirements, it can trigger liquidation of other assets in accounts that have to adjust their portfolios to meet the new requirements by selling stocks.

This can have a domino effect where shorts are leveraged out, there is no one left to buy, the late longs into these stocks then get margined out, leading to a liquidity issues and it ripples through all asset classes INCLUDING Bitcoin and Gold .

The last clue I will go over is simply market sentiment:

Looking at the "crypto currency" posts on TV, there are more longs and rocket ships than likely buyers left. DOGE coin is up 800%, and we are starting to see the crap coins of crypto gaining momentum. Where were these buyers at the low? They were all talking about zero, now they are calling for moon shots.

In short, Bullish sentiment is simply too high for my liking, and though the herd can be right, I never want to be positioned with the herd, I want to take the opposite side of the trade. Looking across the chart art, which is about as bad as an acid trip in the 80's, there are too many longs that are using useless indicators, oscillators, and the abundance of crap they use, to confirm their bias.

Yes confirmation bias that I want Bitcoin to be long, and here are some indicators that confirm my bias attitude.

So though there is potential for Bitcoin to swing to 45k from here, I am hesitant to be jumping in with both hands. How I am handling it is buying a little Bitcoin every day as I posted a couple weeks ago. BUT IF we get a pullback to under 27k I am going to start increasing my adds, to double every day.

Though I am long in the long term, I am hesitant to be jumping on the bandwagon, that is simply too full. Want to buy when all the Furus on TV are calling for 12k, not when they are posting moon charts. In addition, though markets are independent, when the $@#t hits the fan, equities across all markets are generally effected.

We have built up a decent cash position in our crypto portfolio and will be looking to buy the dip. If it does not dip, we have a plan to trade around our current inventory positions.
Since we created the portfolio back in April of 2018, starting at a 20% loss, we are now up 192% since and are sitting on a 20% plus cash position.

This was a 3 year plan to take a losing portfolio, full of a bunch of crap coins, and turn it green along with removing all our initial risk capital. Seeing we have removed about 66% of our initial risk, we are sticking to our plan and not getting deterred by all the hype surrounding the space. We are looking for opportunity, not hype, we are being cautious, not optimistic, we are prepared, not reacting.

You can keep trying to get rich quick, or take the long path to creating wealth. Too many are looking for the next GameStop and these are once in a life time trades. Stop looking for the needle in the haystack and focus on harvesting the hay. Sure it is more work, takes longer, is not as exciting, but tell that to our account now ;).

Whether we push to 65k from here, or capitulate back into the low 20's we have a plan and strategy to execute. Most simply are shooting from the hip and will continue to miss out on the larger picture.

Ohhh I forgot one more point which is also a sign that we may get a leg lower. All the bear trolls seem to be absent from my prior posts ;)

Comments

very detailed / fresh intel for spot/future traders, appreciate it!
200 coins
+2 Reply
Thanks for sharing your wisdom again goldbug !
Couple thought on the whole situation:
When millennials and Zoomers are locked up and can't buy computers or new PS5 or Xbox to push their way out of depression they will start gambling on the phone - the only available device that they have because they are board and they need endorphins. as soon as stimulus music stops there will be no profit chairs left .... and all of them will be sitting on the floor but not in there own home but in the tent. That is sad ... all generation has been sold out for tiny wages eating up by double digit inflation and slaved thru the mobile happiness...
Some thought from my friend: "Wall Street Bets is a fking psyop. It's so obvious Wall Street pump & dumpers are behind this thing and they are getting even richer hijacking this populist narrative. Look at the billions being traded in OTM calls in some of these squeeze stocks. Not a chance in hell that is the "little guy" reddit traders. This isn't "the people" vs "the suits". Its suits vs other suits. The biggest firms like BlackRock are getting rich of this hysteria. Fking joke people have fallen for this like it's some revolution. The ruling class knows how to take your anger and channel it into counterproductive nonsense."
+12 Reply
goldbug1 STPAUL007
@STPAUL007, I agree that this is going to end badly for those late to the game, the suits will adjust they are not stupid, and when the music stops, those left holding the bag are going to get crushed! I keep hearing hold the line, if I happened to be in that trade I would have been the hell out of town before 100, going to end badly.
+3 Reply
"Leave the last 10 percent for others" - attributed to Rothschild.

Thank you for your article. Comparison to Gold is interesting. It may be a good idea to look at Bitcoin price action in 12.2017-01.2018, almost a mirror of the current situation (well, except for the Elon pump tweet which is already compensated for).

Sold 80% of the portfolio in BTC 36-40k range, ETH 1300-1450 range.
Let the market prove itself now. Goes higher? Great. Crashes soon? Great too ;)
+10 Reply
goldbug1 alter.daemon
@alter.daemon, Thank you Alter, agree, let the market prove itself first!
+1 Reply
ich1baN alter.daemon
@alter.daemon, why? Terrible choice in my view. Why trade yourself out in the beginning of a bull market? Think the risk is way too high to not have 100% exposure to btc/ eth especially as history shows these 30%-40% drawdowns can and will end when those who think they’re savvy at timing the shorter timespans end up getting priced out when btc inevitably takes a massive surge higher.... with a TSLA or APPL kind of company on the verge of announcing a position of reserve assets in btc or a major US city like Miami that will announce a 1% exposure into btc, you’ll see flood gates open from major pensions. Now you know the risks... good luck as btc will rip higher in coming weeks and as you lose extreme pricing power and the slippage gets worse every day.
+2 Reply
@ich1baN, another Nostradamus, right? know the future for sure, right?
I got my few hundreds % profits already and I'm good with that, waiting for even more has his name: it's a greed.
the time for buying hard assets (for cold wallet) was during the last 2 years, not now.

btw it's not that I am out of market 100%. If there is breakout out of 40k my own automated bot will take care of the rest based on margin trading. Not going to keep the bags later, hoping for reversal, waiting for another secular bull market to come (which may never come as we are clearly at the end of the bigger picture economic cycle).

btw. btc is highly speculative, risk asset. You will get to know it when that sorry bubble on wall street finally bursts. and technically btc is a shitty blockchain, will end in a dustbin of history imo. new protagonsit will appear, some appeared already. all those evangelist praising the crypto-mania hadn't even experienced what a real bear market look like.

frankly, I think you are clearly trying to rationalize your standing. Still, I wish you all the best and good luck. Peace.
+5 Reply
ich1baN alter.daemon
@alter.daemon, I wrote a very long response but it never posted... this is annoying. I will just write the conclusion - MOST traders and you were probably a part of this mix called for BTC to correct 30-40% before it surpassed the previous 2017 ATH of $20k ... I along with only a very limited number of other traders called for BTC to not only slice through that ATH but to continue much higher before any meaningful correction needed to occur.

You will see once again, my view will carry out - it's about probabilities and understanding market structure - when I say my view, it goes without saying that I am making a forecast but your rebuttal of calling me a nostradamus is extremely weak as you're doing the very same by selling most of your position - pot calling the kettle black.
Reply
@ich1baN, I wasn't and I am not calling anything. I don't know what will happen. I just manage here and now, adjust, rebalance my risk. And I want my money elsewhere now. Simple. And I have never called your view "terrible choice" as you were so 'kind' to call my decision to partly get out now with 500% profits. And that was "extremely weak" on your part. Whatever. Good luck to you.
Reply