The Wolf Den #268 - The FUD Storm Commences
Bitcoin Thoughts And Analysis
A quick note on the Bitcoin chart and human behavior. Just a few days ago, price reached 40K, a psychological level but not a significant area on the chart. This was clearly resistance and the community was exuberant. I calmly pointed out, as I have for weeks, that there's a ton of resistance above and that there's no real bullish case until price is above 42K - as a start. Buying volume spiked.
Now price has headed towards the range lows, and the community (and news) is overly depressed, as selling volume increases.
This is the cycle - people get excited at resistance and depressed at support. At the end of the day, Bitcoin is still just ranging in search of direction. That could happen any time, but understand the situation and that nothing major has changed.
WEEKLY CHART
Black Fibonacci levels are from the 3800 lows of March 2020. Red are from the September lows of 9800. Blue are the local drop.
Nothing has changed over the past few weeks, just ranging here. We would like to see this week close above the 50% level (not a fib) because the last 5 candles have held that area. The 50 MA is just below current price as potential support, and the blue local fibs show that price has barely bounced relative to the move from 65K down to 30K. Last week's candle was bearish engulfing, not idea. But as I have said, weekly candles are nearly impossible to trade.
Let's revisit in 6 days.
Interesting observation on the weekly. Price has actually made a series of higher lows and highs since the bottom. The last higher high could be confirmed by a higher low here. That is technically a potential bullish reversal structure, but can also be viewed as a potential bear flag. Either way, you need higher highs and lows to go up.
Worth watching, not worth trading.
DAILY CHART
Price is currently attempting to make another higher low, bouncing off of support for the moment. This may not hold, but it's interesting that there's so much bearishness when nothing has changed to the downside.
Yesterday's candle was a beautiful bullish hammer... then price immediately sold off. Once again a reminder that candles require confirmation the next day, which we could still get. For now, that candle would be invalidated with a close like we are seeing. 12 hours to go back up and see.
That said, we have a lot of volume on this selling, more today already than yesterday with half of the day left. That is not great. The death cross obviously confirmed two days ago, which was a signal many were looking to trade - a bit of a self fulfilling prophecy. Here is a thread on how ineffective they have been as signals in the past.
We once again have POTENTIAL (not at all confirmed) bullish divergence with RSI on the daily chart. Remember, we usually travel from oversold to overbought, but it can take a LONG time. We would need to see a clear elbow up in RSI on the daily, so this will take a while to confirm, if it does head up.
4-HOUR CHART
No surprises here. Price hit that blue supply and was rejected, dropped to the range EQ, broke, retested as resistance, and headed towards the range lows. This is the definition of an asset ranging, which is neither bullish nor bearish. It's sideways chop and the area that most people lose all of their money.
The 4-hour chart does not looks good, obviously. Price is trending down. But that does not mean anything has fundamentally changed. Bitcoin is still in search of direction.
You can see that we have a clear descending blue resistance line, with 3 touches confirming. A break of that would be the first true sign that price may be heading back up to the range highs again.
We have potential bullish divergence on the 4 hour (everything below 6 hour, actually), but it's close. We need to see price head up on this candle, most likely. RSI is oversold. The hourly has already confirmed this divergence, which is the first positive sign, as we like to see them build from lower time frames.
Way too early to tell, but this could be a bottom signal if confirmed.
Altcoin Charts
There are obviously no altcoin charts worth sharing, because Bitcoin has dropped to the range lows and alts have reacted horribly to the move. This is why I continue to preach that sitting on your hands and doing nothing is often the best trade. There is a reason, much to the dismay of many subscribers, that I have chosen not to share altcoin trades and charts in most newsletters and rarely during the last month. If I had, many would have lost a lot more money than they are currently already losing. There will be a time for trading altcoins again, it's just not now. The charts are impossible to read and nothing has recaptured a meaningful resistance as support that I can find.
Remember, risk management is everything, and rule number 1 of trading is preservation of capital.
Patience is a virtue, there will be brighter days ahead.
News Cycle Goes Uber Bear
As tends to be the case, we are seeing an absolute dog pile of negative news and FUD heaping on as Bitcoin approaches the range lows and as price drops. The media loves to kick the asset when it is down, which is what we are seeing. I attached a quick thread of a few stories that jumped out, instead of listing them all and discussing them here. Check the tweet above, but it's somewhat astounding.
PlanB’s Worst-Case Scenario
The creator of the stock-to-flow Bitcoin price forecasting models has come out saying his worst-case scenario for this December is $135k. In the comments of his post, his best-case scenario was $450k. In the worst-case scenario, PlanB has Bitcoin returning to all-time highs around October, with a major run-up at the end of the year, but commented that the real numbers are probably higher. The safest bet may be expecting an average of his scenarios which puts the cycle top around $292k. Robert Kiyosaki just recently came out and said he is waiting for Bitcoin to drop to 24k before buying. Everyone has a prediction right now but, unfortunately, waiting for a magic number won't work for most people. Some people will turn out to be geniuses, but most will be left behind. Kiyosaki could nail the bottom, PlanB could come up with a new model, etc., but what really matters is believing in the asset, dollar-cost averaging, and working towards a comfortable position built on conviction.
China Doubles Down On Banking Ban
"In its latest effort to crack down on crypto trading activities, China's central bank has required domestic banks to cut off the funding channels of crypto over-the-counter (OTC) merchants.
The People’s Bank of China (PBoC) issued a statement on Monday, saying that it has recently summoned a meeting with several domestic banks and mobile payment service providers. They included the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC), the Construction Bank of China (CBC), Postal Savings Bank of China, the Industrial Bank, as well as mobile payments app AliPay.
The PBoC said the speculative activities around crypto trading has severely disrupted the balance of China's financial system, creating the risk of illegal capital outflow across the border and money laundering. It reiterated its 2017 stance that no financial institutions should provide banking and settlement services for crypto-related transactions."
China is legitimately cracking down on crypto and related activities. Now why would they do this? Probably because their Central Bank Digital Currency is being launched...
The Bright Side Of China’s Bitcoin Mining Crackdown
Bitcoin sank Monday on reports that China has intensified its crackdown on cryptocurrency mining.
Although Bitcoin’s price has taken a beating, partly due to the disruption of mining in China, there are a few positive trends stemming from the government’s crackdown. While some miners may cut their losses and shut down old machines for good, new rigs will undoubtedly look for a new home outside of China – thus further decentralizing the network. As hash drops from inside China, miners in the U.S. and around the world are slowly accumulating a larger percentage of the total hash. Accumulating a larger percentage means more total rewards for those miners. Fundamentally, this is good news for almost every major mining company, who's output previously paled in comparison to the output China once boasted.
With Bitcoin’s price being down and less retail interest, these companies should be accumulating more coins than normal with China leaving the picture. This currently isn't being positively reflected in the price of mining stocks, which are disproportionately impacted by Bitcoin’s spot price. What this means is that these companies are accumulating more dry powder than ever before. Eventually, as Bitcoin’s price rises, mining company values will reflect their increased holdings. It is also worth keeping in mind that difficulty will adjust as miners go offline in China, and that the total hash rate will eventually continue to rise as it historically always does. The slowdown of Chinese mining has brought pain to the market, but it has effectively killed a dark narrative that has followed Bitcoin for a long time. It is no longer obvious that China is the dominant force in Bitcoin mining.
MicroStrategy Buys 13K More Bitcoins
We knew it was coming. MicroStrategy has deployed almost their entire 500M stash, buying just over 13K Bitcoins at an average price of $37,617. They now hold 105,085 coins with an average price of 26K.
Michael Saylor is not stopping - are you?
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