goldbug1

Bitcoin - Sentiment and Cycles of Markets

Long
COINBASE:BTCUSD   Bitcoin / U.S. Dollar
Reality is hitting many that markets simply do not go straight up. As I mentioned in the Show Me The Beef article I wrote a little over two months ago, there was too much hoopla surrounding Bitcoin and the institutional investors jumping in. But were they?

Remember there are institutional investors and there are institutions that take advantage of investors and I specifically mentioned Michael Saylor who was buying Bitcoin hand over fist. Ohhh but it was with other people's money!

The herd that had plenty of opportunity to buy under 10k let alone 20k, finally jumped on the band wagon off Musk Tweets, Furus calling for 250k Bitcoin , and all the positive sentiment surrounding the market in general, but now reality has hit a brick wall.

I think many of the institutional investors were buying at the lows or a break of 10k, not at 50k. It was very evident for those that could see the signs. There was a lot of hype, and the market was not pushing much higher.

See many do not understand market cycles and how sentiment and liquidity play a roll. Very simple, lots of cash, positive sentiment, cash flows into equities until, well there are no more cash buyers. When you run out of buyers markets pull back.

On the other hand, no more cash, negative sentiment, cash flows out of equities until, well there are no more sellers. When you run out of sellers markets find a bottom.

Of course there is that period in between where sentiment is mixed and that my friends is where we get a broad corrective cycle, full of false starts, failed breakouts and what can be a long drawn out horizontal market.

Technically:

Right now I do not like how the weekly candle is closing after two solid weeks of selling. IMO this is a continuation pattern and there is more pain on the horizon. If we close on the low, then take that low out, reasonable to see the mid to lower 20's trade.

Just a month ago one would have been flogged and ridiculed for even suggesting such a thing, but here we are and this probably has many wondering why they were shoving all in at 50k and above. More over they are wondering if they should cut their losses and run.

Though a continuation pattern may be forming it does not necessarily imply Bitcoin has to push lower. We are in an area of support between 30-40k, and it is reasonable that we get a few more inside candles and then make a move higher, but what about the Sentiment and Cycles?

When sentiment is just overly bullish or bearish and the market is NOT continuing higher or lower, it is generally a sign of a top or bottom. Right now we have mixed sentiment, where all the 20k furus are now coming out of the woodwork, and we still have the hopium furus that are calling for 55k next.

If you are following a FURU that is always looking at 4 hour charts or less (and they are not daytrading) all I can say is Run Forest Run. A pattern or MA indicator holds little weight to begin with, let alone on a time frame less than the daily. This provides no perspective into the only thing that counts, market sentiment.

You do NOT need a weather forecaster with doplar radar, satellite imagery and all the indicators to tell you if it is raining outside, just simply open up the curtains.

Sentiment was running too hot, hotter than I thought it would get, and many got caught up in the hype. When sentiment is high, take some risk off the table. We did just that, and it was the contrarian view obviously by the many comments I received during the highs about "its different this time".

Maybe it is, but the key is Sentiment and Cycles. Lets look at Gold as the sentiment surrounding these two is very similar.


Back in July of 2020 sentiment was extremely high in Gold . Everyone was a buyer, premiums went from $20-$35 an ounce to over $200. Since Gold went into a 30 weeks of a corrective cycle. Took some time but we eventually saw a flushing of longs, sentiment at a lull, Bitcoin was going to replace Gold as a store of wealth, yada yada yada.

The tides are now changing and Gold is finding its luster again, yet is sentiment overly bullish with Gold? Not really, but we are seeing some bullish action here which is a sign there is probably some room to run. I like Gold for dip buying here, sentiment is not extended, nice couple of months of bullish action, and it appears we have flushed out the herd.

Bitcoin is likely in the corrective cycle, and this is going to be full of false starts, fake outs both directions and eventually we will print a bottom. When will that be? Who knows, I do not have a crystal ball, we may have printed it, but I do not want to be aggressive buying until sentiment is extremely bearish , just like I was selling when sentiment was overly bullish .

So as of now we are in the mixed sentiment phase of the market, going to LIKELY be false starts, fake outs and at some point we will print a bottom.

What about liquidity?

I am sure much of this market rally is based on the access to easy money. Trillions in stimulus to trillions in easy loans. This has created too much liquidity in the markets and when you have a bunch of demand, and supply is limited, well inflation creeps in. Don't believe me, try and book a hotel in the keys right now, rent a car, buy a truck.

Inflation is created by liquidity period, but that bubble will pop when liquidity runs out. But in the interim sentiment is high and that leads to even smart people getting caught up in the hype. Yes many companies, even fortune 500 ones, do bad deals because sentiment is hot. Look no further than Oil and all the bad deals made by smart people and large corporations, 6-8 years ago, because it could only go higher right?

Construction is booming, we are building more restaurants, more hotels, more homes, more industrial warehouses, because the demand is there NOW. Why? Because sentiment is high, and the perspective that it is "different this time". But it is simply not.

Now economic cycles can take years to play out, but eventually the market will cycle and there will be deals abound for those who did not get caught up in the hype. The same goes for cryptos, I don't want to buy when my hair stylist is telling me she bought DOGE and EOS and is doubling down on ADA.

I want to buy when markets are hated, when I hear the "I got burned buying that back in 2021" never again". I do not want to build a restaurant when everyone else is building a restaurant, I want to buy one when they are going under left and right. That is when you get the best deals, lowering your risk and maximizing your return.

Again smart people get caught up, go into business using their life savings or a portion of it, at the wrong time!! Happens over and over and over again and it will happen once again once the market cycles.

Right now we are in a period of hopium, hope the market recovers to 60k, hope that DOGE gets back to 75 cents, hope that buying the high was not a mistake so they are doubling down here. This implies we are likely in for a period of fake-outs and take-outs, and IMO the best move here is patience.

BTCUSD Daily:


Simply do not like where the consolidation is happening today. Maybe that changes, but 36-42k is a key area and we are consolidating at the lower end of this area. Not really enough structure to be decisive here, but it is surely leaning towards at least a retest of the low.

As I mentioned prior to our followers last Tuesday. I want to see a break of 42k and a higher low, or a push into the 20's before I make a move. Been sitting on cash for months now so I do not mind waiting a little longer. Still have most of the Bitcoin I accumulated since 2017, but since we look at risk, not reward, our sells have put us in the position for free and some.

This is why it is important not only to have a plan but stick to it.

Before I get comments due to misunderstandings of my posts overall.
IF you are long term with a 5-10 year time horizon and using a DCA , I have no problem with that. I still buy a little Bitcoin every day on Paypal, slowly building up that account. So please spare me the HODL comments, I have been long since 2017 and still am long Bitcoin .

There is nothing worse in life than getting the deal of the century and not having the cash to pull the trigger. When do those deals come? Well when sentiment is low, so build up some cash when sentiment is high as regardless of all the FURUS and there ridiculous calls, markets simply cycle!

I may have been a little early in my trims, but better early than late!

Comments

You sir, are a gentleman and a scholar.
+19 Reply
Something I would like to add that I don't see mentioned very often is that prior cycles stable coin paired crypto was far and few in between. We had btc eth and ltc paired with usd. And slowly over 2018 we started seeing more coins paired with usdt or usdc. Back in those cycles the crypto crowd new how to play the game by using alt profits to pile back into BTC when the alt had ran out of steam. Then back and forth the whole run until there was nothing left. Now that we have usdc or usdt to go back to theres no need to go from crypto to crypto.

Beyond the above comment, add current status of the U.S. on top, well we have a real challenge. When or if the markets correct, I'm leaning something will eventually give at some point, crypto will be the first to let go. I've already made that choice a few weeks back to remove myself from crypto. Had a great 14 months and couldn't expect more. When the Total 2 chart looks like a blow off top and the BTC chart just looks like a deflating tire its a no brainer. You are correct patience will be needed from this point on.
+6 Reply
I have been reading your ideas since I was the ideal sucker in early 2018. I thank you for your thoughts, wisdom, and the clarity with which you present it!
+6 Reply
Great analysis, and I agree with all aside from the dismissal of lower timeframe analysis. The whole chart is information. Reading the larger timeframes is vital, but there is information in the lowest timeframes that supports a larger timeframe read, and can help us determine possible reversal points and hence, in this instance, a range for lowest lows, where reward to risk may flip positive.
+4 Reply
If only all of that energy that has been spent by FURUS on their useless charts could be used in the mining machines we would be done with BTC by EOD. I think stock market will determine or give us a clue where it wanted to go in next couple pf weeks, especially when SP500 trying to brake ATH.
+4 Reply
Case and point always keep your bitcoin and never sell it, thats not how I feel with alts but I agree with you and am doing the same as you are doing HODLing bitcoin. Love your posts although they are more about sentiment than prediction, it brings sanity to the realm of investing in crypto. Thanks again for not taking 2 months to post your ideas lol
+3 Reply
vanpo tmitchman
@tmitchman, did you read the part where he said he sold months ago and is waiting for lower prices to buy back in?
+1 Reply
@vanpo, of course didn't you ? I guess you missed the last part, he's still long some since 2017. I still haven't touched my original from 2014 either and it stays there for the long term
Reply
Great comment. People forget the old saying from the exchange floors - taking profit does not make you loser. I too often see in the crypto that people sit on abnormal gains, 10x, 20x, that were generated in months time, and don’t unload to capitalize not even just the principal plus some modest yield to make some risk management. And when the course changes, there is bad temper and lots of irrational moves.
+3 Reply
Thank You Sir!🙏🏻
+2 Reply