We are going down! Certainly! maybe.. wait.. Its still bullish?
What an absolute blood bath! The Crypto Fear and Greed Index has dropped to some of the lowest levels EVER seen! Surely this means the end of Crypto?!
Skip to Bitcoin Technical Analysis if you are familiar with the macro-economic picture.
Bad macro-economic news, stock market crashing, cost of living rises, rates rising, run on UST (LUNA) - the world looks terrible at the moment so how on earth can my TL;DR be this: Crypto remains less bullish than a week ago, but still bullish in the larger timeframes.
First off, lets contextualize what has happened in the last few months. The cost to borrow money (measured in interest rates) has risen over the last quarter(s). In the pandemic, it cost nothing for institutions to borrow so all that free cash flooded into anything and everything - INCLUDING speculative asset classes like our baby boi Bitcoin. Since the beginning of 2022, central banks all over the world began raising rates which increased to cost of borrow so heck it, if I was an institution and I was up a few 100% on my borrowed cash I'd sell a portion of it to pay off that debt that's starting to cost me as well!
Below is the amount of interest paid out on a 10 year US Bond - this is a benchmark of how much it costs to borrow. It's gone from next to nothing to borrow, to an absolute high - no-one expected that!
Secondly when this profit taking happens, in its simplest form it is assets being sold. Most of those assets (because its the biggest currency in the world) are sold for dollars, increasing the demand for dollars and strengthening the dollar relative to other assets that aren't as demanded as much, for instance Bitcoin. This has a deflationary affect on dollar denominated assets (e.g BTC/USD) causing the dollar to be worth 'more' and increasing the amount of asset you can buy for your dollars.
Below is the dollar index. It has strengthened by 15/16% since March 2021. While not entirely a perfect way of looking at things if Bitcoin had sat still in value since then, because the dollar has strengthened, you would be able to buy 15% more Bitcoin (and so Bitcoin would be worth 15% less). Seeing as BTC is 60% off its all-time-highs, we can say that roughly 1/4th of that devaluing is because the dollars has strengthened alone.
Bam - that is the entire macro-economic context behind why the market is going down. No crazy theories, no ultra complex economic charts with blah blah RSI this and MRSAIKW Indicator says that! Crucially we can see from these two other aspects that they have gone parabolic like ALT coins. How much further will they go - will they take a rest seeing as they are at pivotal resistance areas? This is where we turn to Bitcoin and look for that larger timeframe bullishness I mentioned above.
Bitcoin Technical Analysis
Numbers marked here correlated to the Bitcoin Chart:
1: Bitcoin trended bullish (price oscillating upwards, making dramatically higher highs and higher lows), terminating that trend at 65k in January 2021. When a market trends then pauses, this is called a range (price oscilating between two rough price areas). If a bullish trend precedes a range, there is a slight statistical probability that the range is broken to the upside - so this frames our initial understanding of Bitcoins future probability of exiting this range upwards and continue on its final leg of this bull cycle. The range boundaries were then set when we oscillated off the 30k area and back towards all-time-highs.
All of this is fact, not opinion. No interpretation or gurus screaming to FOMO in. Cold. Hard. Unemotional Fact.
2: Bitcoin made a slight higher high (a failed high whatever you want to call it). This demonstrated that despite devaluing more than 50%, buyers were more active than back in January 2021 and seller demanded higher prices before selling. This shows underlying strength. In an ideal world we would have continued the previous bull trend higher but that does not undermined the addition to probability that the fact that we made a slightly higher range high AND have a bull trend preceding this range gives us - probability favors bullish price action in the longer timeframes.
3: The grey box marked between 33-37k would have been the dream place for bullish price action to reactive. A range preceded by a bullish trend, with a higher range boundary made (following and second range boundary marked as 1. on the chart) AND a higher range low (than the previous 30k low) would have meant not only did sellers fail to take over until price broke above the previous all-time-high, but those very same sellers failed to stay in control to get close to the previous range low.
Instead, the break of 33-37k and retest of the 30k area slightly undermines that bullish outlook so caution is needed but the grand picture remains the same. We have a bullish trend preceding a range with strong evidence of bulls being in control and making a slightly higher high = probability favors bullishness and so the 30k area is less likely to be broken down than for price to reactive bullish.
Finally and nuanced - combining this analysis with the two points noted about the rising rates and strengthening dollar - EVEN WHEN both of these macro-economic forces absolutely smashed Bitcoin, buy side pressure has STILL remained strong enough to hold the 37-47k support area for months and is now holding the 30k area. When Bitcoin broke above its 65k all-time-high in November/October what macro-economic news was driving it then? Nothing really. What macro-economic news is driving this selling? Everything. So why was the previous all-time-high so easy to break up, but this range low seems so hard to get to let alone break down?
Final Thoughts on if 30k breaks: Probability still favors bullish price action. There is NO bear market even if 30k is broken down. If Bitcoin was following it's typical crash patterns (it is not), or even just entering into a standard technical bear market there WILL be a technical rebound where bears take profits, pushing price up towards a previous support turned resistance (e.g 37k-47k or my favorite 50k-57k). As terrible as all this doom and gloom feels, the simple fact is that markets just simply do not go straight-line to the downside unless they are a bubble and Bitcoin is NOT in a bubble (with bubbles there is no value at the higher prices of the bubble. Value is defined by time and volume spent at a specific price areas. If we bounce around the highs for a few months (or atleast a long time relative to the length of the bullish trend before reaching the all-time-high) that is categorically NOT a bubble. Bitcoin has set HUGE value between 30k-65k).
So if 30k is broken down, while that does undermine the bullish long term picture relatively significantly, we can very easily just sit and wait for more information when the technical rebounce comes. At this point we will be able to gauge what price action probability favors and then we can begin to say we are in a bear market but until then - say it with me: Bitcoin is bullish long term. By following the technical facts until evidence proves you wrong you avoid all the emotional bias that causes 90% of traders to loose 90% of their money.
P.
Skip to Bitcoin Technical Analysis if you are familiar with the macro-economic picture.
Bad macro-economic news, stock market crashing, cost of living rises, rates rising, run on UST (LUNA) - the world looks terrible at the moment so how on earth can my TL;DR be this: Crypto remains less bullish than a week ago, but still bullish in the larger timeframes.
First off, lets contextualize what has happened in the last few months. The cost to borrow money (measured in interest rates) has risen over the last quarter(s). In the pandemic, it cost nothing for institutions to borrow so all that free cash flooded into anything and everything - INCLUDING speculative asset classes like our baby boi Bitcoin. Since the beginning of 2022, central banks all over the world began raising rates which increased to cost of borrow so heck it, if I was an institution and I was up a few 100% on my borrowed cash I'd sell a portion of it to pay off that debt that's starting to cost me as well!
Below is the amount of interest paid out on a 10 year US Bond - this is a benchmark of how much it costs to borrow. It's gone from next to nothing to borrow, to an absolute high - no-one expected that!
Secondly when this profit taking happens, in its simplest form it is assets being sold. Most of those assets (because its the biggest currency in the world) are sold for dollars, increasing the demand for dollars and strengthening the dollar relative to other assets that aren't as demanded as much, for instance Bitcoin. This has a deflationary affect on dollar denominated assets (e.g BTC/USD) causing the dollar to be worth 'more' and increasing the amount of asset you can buy for your dollars.
Below is the dollar index. It has strengthened by 15/16% since March 2021. While not entirely a perfect way of looking at things if Bitcoin had sat still in value since then, because the dollar has strengthened, you would be able to buy 15% more Bitcoin (and so Bitcoin would be worth 15% less). Seeing as BTC is 60% off its all-time-highs, we can say that roughly 1/4th of that devaluing is because the dollars has strengthened alone.
Bam - that is the entire macro-economic context behind why the market is going down. No crazy theories, no ultra complex economic charts with blah blah RSI this and MRSAIKW Indicator says that! Crucially we can see from these two other aspects that they have gone parabolic like ALT coins. How much further will they go - will they take a rest seeing as they are at pivotal resistance areas? This is where we turn to Bitcoin and look for that larger timeframe bullishness I mentioned above.
Bitcoin Technical Analysis
Numbers marked here correlated to the Bitcoin Chart:
1: Bitcoin trended bullish (price oscillating upwards, making dramatically higher highs and higher lows), terminating that trend at 65k in January 2021. When a market trends then pauses, this is called a range (price oscilating between two rough price areas). If a bullish trend precedes a range, there is a slight statistical probability that the range is broken to the upside - so this frames our initial understanding of Bitcoins future probability of exiting this range upwards and continue on its final leg of this bull cycle. The range boundaries were then set when we oscillated off the 30k area and back towards all-time-highs.
All of this is fact, not opinion. No interpretation or gurus screaming to FOMO in. Cold. Hard. Unemotional Fact.
2: Bitcoin made a slight higher high (a failed high whatever you want to call it). This demonstrated that despite devaluing more than 50%, buyers were more active than back in January 2021 and seller demanded higher prices before selling. This shows underlying strength. In an ideal world we would have continued the previous bull trend higher but that does not undermined the addition to probability that the fact that we made a slightly higher range high AND have a bull trend preceding this range gives us - probability favors bullish price action in the longer timeframes.
3: The grey box marked between 33-37k would have been the dream place for bullish price action to reactive. A range preceded by a bullish trend, with a higher range boundary made (following and second range boundary marked as 1. on the chart) AND a higher range low (than the previous 30k low) would have meant not only did sellers fail to take over until price broke above the previous all-time-high, but those very same sellers failed to stay in control to get close to the previous range low.
Instead, the break of 33-37k and retest of the 30k area slightly undermines that bullish outlook so caution is needed but the grand picture remains the same. We have a bullish trend preceding a range with strong evidence of bulls being in control and making a slightly higher high = probability favors bullishness and so the 30k area is less likely to be broken down than for price to reactive bullish.
Finally and nuanced - combining this analysis with the two points noted about the rising rates and strengthening dollar - EVEN WHEN both of these macro-economic forces absolutely smashed Bitcoin, buy side pressure has STILL remained strong enough to hold the 37-47k support area for months and is now holding the 30k area. When Bitcoin broke above its 65k all-time-high in November/October what macro-economic news was driving it then? Nothing really. What macro-economic news is driving this selling? Everything. So why was the previous all-time-high so easy to break up, but this range low seems so hard to get to let alone break down?
Final Thoughts on if 30k breaks: Probability still favors bullish price action. There is NO bear market even if 30k is broken down. If Bitcoin was following it's typical crash patterns (it is not), or even just entering into a standard technical bear market there WILL be a technical rebound where bears take profits, pushing price up towards a previous support turned resistance (e.g 37k-47k or my favorite 50k-57k). As terrible as all this doom and gloom feels, the simple fact is that markets just simply do not go straight-line to the downside unless they are a bubble and Bitcoin is NOT in a bubble (with bubbles there is no value at the higher prices of the bubble. Value is defined by time and volume spent at a specific price areas. If we bounce around the highs for a few months (or atleast a long time relative to the length of the bullish trend before reaching the all-time-high) that is categorically NOT a bubble. Bitcoin has set HUGE value between 30k-65k).
So if 30k is broken down, while that does undermine the bullish long term picture relatively significantly, we can very easily just sit and wait for more information when the technical rebounce comes. At this point we will be able to gauge what price action probability favors and then we can begin to say we are in a bear market but until then - say it with me: Bitcoin is bullish long term. By following the technical facts until evidence proves you wrong you avoid all the emotional bias that causes 90% of traders to loose 90% of their money.
P.
Comment:
One final point and relating to the meat of this article -
All it will take is for the dollar to weaken, bond pressure to slow and the stock market to find a local bottom and Bitcoin will regain a significant amount of time. The stars are very close to being aligned for that BUT we must be patient, plan and prepare.
All it will take is for the dollar to weaken, bond pressure to slow and the stock market to find a local bottom and Bitcoin will regain a significant amount of time. The stars are very close to being aligned for that BUT we must be patient, plan and prepare.
We need to wait for more information. The drop was accompanied by minimal spot volume (this move was primarily driven by derivatives) which undermines to weight of the break of 30k. Yes it does make our overall bullish picture less rose but not completely void. If we close above 30k on the weekly (or even 37k) AND we close above there on the monthly, this SIGNIFICANTLY undermines the importance of this move in the long term.
Effectively at that point, we need to see it as a liquidation event to shake out all weak hands. The market always goes to the price of maximum pain in the end - too many people were convinced the bullrun would continue so were inappropriate with thier risk. While the belief might eventually turn out to be true, those high risk speculators are now no longer in the game which is exactly what we need.
So:
Weekly - Close above 30k = Good / 37k+ Amazing
Monthly - Close above 30k = Pretty dam good / 37k+ Bullish scenario heavily intact