Well well well, it appears that crypto has yet again failed to begin a "proper" bull market, despite many indicators showing that we could be seeing one emerge quite soon. Unfortunately, I was incorrect in my assumption that these moving averages would hold. I did say recently that I expected more consolidation, to give them a chance to catch up, but this wasn't quite what I was expecting. As I've mentioned, there is always a possibility that cryptocurrencies have just been a sort of weird offshoot from the recent tech bubble, as well as the bubble in traditional markets. I also wrote an extensive post detailing precisely why cryptocurrencies could fail, and why blockchain cannot fix our near-term economic problems. Here is that post:
The reason why this article's title begins with "Is The Jig Up" is simple. The "jig," guise, grand illusion, or whatever you might want to call it, is that cryptocurrencies would see more demand during an economic crisis, and more broadly, that they can revolutionize both communal and personal finance. Now that stocks have topped out and we've seen the largest drop since the great recession, we can clearly see that investors are not flocking to Bitcoin or its ilk to escape the "big, bad banks". This is to be expected. When initial fear sets into a market, people flee to cash to make sure they have enough in case things get worse. Even though I forecasted the failed rally in stocks, and even though I even predicted this drop (well before coronavirus), I should have figured that crypto would perform poorly in this case, at least initially. What we can see now is that cryptocurrencies are perfectly following the stock market. The green box shows where they started performing in tandem. We can see that the two asset classes are often not trading together day-to-day, but it's clear right now that the same force is driving price action for both. This is fear due to the virus.
On the weekly line chart, when you remove biases, it seems actually fairly reasonable to expect crypto to just dump back to those 2018 lows. The fact that this looks reasonable is what is giving me caution here, and why I may reduce my crypto exposure soon.
We can also see that (as I mentioned in my last video), TOTAL wicked right off the previously broken log trendline on the monthly chart, so growth appears to really be slowing down for the market. Interestingly, this is the highest monthly volume EVER for this particular index. This might be extremely bearish or bullish, depending on how it closes.
There's still a little bit of hope. Zoomed out, crypto has not gotten close to December 2018 lows, when compared with stocks. For now, the sector is outperforming. But this may not last if we venture below $7K again.
On the bullish side of things, we don't usually see these descending channels or broadening wedges break DOWN. So if we go by historical price action, we may actually see a big bounce relatively soon. We may need to drop another 5% or so towards the $198 Billion level first. We need to get back above the important $230B level rather quickly and HOLD. Bitcoin is also resting right on the broken downtrend channel.
Is The Cryptocurrency Narrative Ruined?
It might be too early to say, but I think substantial damage has been done to the image of cryptocurrencies as an alternative financial system, at least in the short term. Because they're trading so closely with traditional markets at this time, it means that one cannot expect them to be a "hedge" in their current state. It also means that even if stocks bounce soon, crypto might start underperforming because "the jig is up," so to speak. Betting on cryptocurrencies here would be potentially betting that interest rates go negative and our entire fiscal system spirals into chaos, causing alternative assets like cryptocurrencies to skyrocket. This isn't completely unrealistic, however. The current economic crisis can easily start to cause some real pressure on banks, and ultimately this could shift the narrative over to crypto.
People who are into crypto are inherently deranged. I've come to accept this, because I am certainly deranged. My girlfriend would attest to that. The reason we're deranged is because we're betting on an entire restructuring of the financial system, into something that's more cooperative and trustworthy. The problem with this narrative is that things really may need to get very ugly before we get there. We want a huge shakeup. We want people to fear the banks. What needs to happen for people to fear the banks? Many people would need to lose an enormous amount of money, and many lives would need to be ruined. Until that utopian vision that may come afterwards, we could see drastic declines in crypto prices. How could Bitcoin decline to $4K even with the halving? Miners capitulate. The cost to mine becomes too high, and they give up because there's no longer enough demand to support their operations. Then, a supply and demand squeeze happens at the same time, like we're seeing with certain industries in traditional markets.
But...as I mentioned in the title of this article, there could be something else going on here. Perhaps accumulation. We haven't experienced an extremely severe technical breakdown as of yet. We're at the bottom of a traditionally bullish correctional pattern. Volume is still high, indicating trading interest. Volume usually peaks near a top, but we're seeing more of a volume spike as prices head lower. We had our largest volume spike since the June top the first time Bitcoin retested $7.6k recently. This may mean that buyers have stepped in. Crypto has still done better than traditional markets by a long shot, over the last year. The world is understandably distracted by the virus and other geopolitical obstacles, so talk of cryptocurrencies has fallen by the wayside. Major news outlets aren't discussing it much. Bulls await a signal from the media that would save this speculative market and encourage more growth of the asset class in the long term. Until then, it seems crypto is at the mercy of derivatives, high emotions, and risk-off behavior from market participants.
In summary, we have a few scenarios:
1) Stocks continue dropping, yet crypto finds a floor soon and bounces. Media encourages crypto buying due to possible negative interest rates. Trump even mentioned this in his recent speech.
2) Stock continue dropping and crypto follows, with Bitcoin crashing to $4K or lower.
3) Stocks bounce and stabilize, and money starts to flow back into crypto as a result - but I argue that this accomplishes nothing, except that cryptocurrencies will be given another chance to prove their worth. I really think NOW is the time for them to prove that they're useful for something.
4) Stocks bounce and stabilize, but crypto continues to tank, since people have realized that they provide no "safety" from the established financial system.
I personally think either 1 or 2 is most likely. What do you think? Please share your thoughts below!
This is not financial advice. I'm just attempting to analyze the ever-evolving market and speculating on what could happen in the future. I do this for educational and entertainment purposes only.
-Victor Cobra
The reason why this article's title begins with "Is The Jig Up" is simple. The "jig," guise, grand illusion, or whatever you might want to call it, is that cryptocurrencies would see more demand during an economic crisis, and more broadly, that they can revolutionize both communal and personal finance. Now that stocks have topped out and we've seen the largest drop since the great recession, we can clearly see that investors are not flocking to Bitcoin or its ilk to escape the "big, bad banks". This is to be expected. When initial fear sets into a market, people flee to cash to make sure they have enough in case things get worse. Even though I forecasted the failed rally in stocks, and even though I even predicted this drop (well before coronavirus), I should have figured that crypto would perform poorly in this case, at least initially. What we can see now is that cryptocurrencies are perfectly following the stock market. The green box shows where they started performing in tandem. We can see that the two asset classes are often not trading together day-to-day, but it's clear right now that the same force is driving price action for both. This is fear due to the virus.
On the weekly line chart, when you remove biases, it seems actually fairly reasonable to expect crypto to just dump back to those 2018 lows. The fact that this looks reasonable is what is giving me caution here, and why I may reduce my crypto exposure soon.
We can also see that (as I mentioned in my last video), TOTAL wicked right off the previously broken log trendline on the monthly chart, so growth appears to really be slowing down for the market. Interestingly, this is the highest monthly volume EVER for this particular index. This might be extremely bearish or bullish, depending on how it closes.
There's still a little bit of hope. Zoomed out, crypto has not gotten close to December 2018 lows, when compared with stocks. For now, the sector is outperforming. But this may not last if we venture below $7K again.
On the bullish side of things, we don't usually see these descending channels or broadening wedges break DOWN. So if we go by historical price action, we may actually see a big bounce relatively soon. We may need to drop another 5% or so towards the $198 Billion level first. We need to get back above the important $230B level rather quickly and HOLD. Bitcoin is also resting right on the broken downtrend channel.
Is The Cryptocurrency Narrative Ruined?
It might be too early to say, but I think substantial damage has been done to the image of cryptocurrencies as an alternative financial system, at least in the short term. Because they're trading so closely with traditional markets at this time, it means that one cannot expect them to be a "hedge" in their current state. It also means that even if stocks bounce soon, crypto might start underperforming because "the jig is up," so to speak. Betting on cryptocurrencies here would be potentially betting that interest rates go negative and our entire fiscal system spirals into chaos, causing alternative assets like cryptocurrencies to skyrocket. This isn't completely unrealistic, however. The current economic crisis can easily start to cause some real pressure on banks, and ultimately this could shift the narrative over to crypto.
People who are into crypto are inherently deranged. I've come to accept this, because I am certainly deranged. My girlfriend would attest to that. The reason we're deranged is because we're betting on an entire restructuring of the financial system, into something that's more cooperative and trustworthy. The problem with this narrative is that things really may need to get very ugly before we get there. We want a huge shakeup. We want people to fear the banks. What needs to happen for people to fear the banks? Many people would need to lose an enormous amount of money, and many lives would need to be ruined. Until that utopian vision that may come afterwards, we could see drastic declines in crypto prices. How could Bitcoin decline to $4K even with the halving? Miners capitulate. The cost to mine becomes too high, and they give up because there's no longer enough demand to support their operations. Then, a supply and demand squeeze happens at the same time, like we're seeing with certain industries in traditional markets.
But...as I mentioned in the title of this article, there could be something else going on here. Perhaps accumulation. We haven't experienced an extremely severe technical breakdown as of yet. We're at the bottom of a traditionally bullish correctional pattern. Volume is still high, indicating trading interest. Volume usually peaks near a top, but we're seeing more of a volume spike as prices head lower. We had our largest volume spike since the June top the first time Bitcoin retested $7.6k recently. This may mean that buyers have stepped in. Crypto has still done better than traditional markets by a long shot, over the last year. The world is understandably distracted by the virus and other geopolitical obstacles, so talk of cryptocurrencies has fallen by the wayside. Major news outlets aren't discussing it much. Bulls await a signal from the media that would save this speculative market and encourage more growth of the asset class in the long term. Until then, it seems crypto is at the mercy of derivatives, high emotions, and risk-off behavior from market participants.
In summary, we have a few scenarios:
1) Stocks continue dropping, yet crypto finds a floor soon and bounces. Media encourages crypto buying due to possible negative interest rates. Trump even mentioned this in his recent speech.
2) Stock continue dropping and crypto follows, with Bitcoin crashing to $4K or lower.
3) Stocks bounce and stabilize, and money starts to flow back into crypto as a result - but I argue that this accomplishes nothing, except that cryptocurrencies will be given another chance to prove their worth. I really think NOW is the time for them to prove that they're useful for something.
4) Stocks bounce and stabilize, but crypto continues to tank, since people have realized that they provide no "safety" from the established financial system.
I personally think either 1 or 2 is most likely. What do you think? Please share your thoughts below!
This is not financial advice. I'm just attempting to analyze the ever-evolving market and speculating on what could happen in the future. I do this for educational and entertainment purposes only.
-Victor Cobra
Comment:
As I suggested was a strong possibility in this post, crypto has headed towards 2018 lows along with stocks. Interestingly, stocks made a new low today without crypto doing the same. All bets are off, but I'll be very curious to see if the correlation begins to wane. On the other hand, there is pretty much unlimited downside potential. It's really up to the market to decide whether or not cryptocurrencies deserve to keep their current valuations.
Comment:
The monthly chart now looks truly awful, if we don't get back above the 50 MA. Points to a further decline to the $50 Billion valuation.
Comment:
The weekly UO hasn't even touched bottom. Not sure if this is a good thing or a bad thing.
Comment:
TOTAL2 is really interesting. Looks a lot like Bitcoin from 2015, as long as it doesn't make a new low from here. It bounced also right off a speculative trendline I drew a while ago (green).
Comment:
Oscillators and MA's look very different now, but this is interesting
