The Wolf Den #409 - Teach Your Children Well
Bitcoin Thoughts And Analysis
Things look bad. Bearish sentiment is overwhelming. We are seeing targets of 20K and below all over the place, including from respected voices. This could all be accurate. I even find myself feeling doubt this morning, with emotions about my major portfolio losses starting to creep in.
Remember, the market is experiencing "EXTREME FEAR" while testing support. As bad as things feel right now, even for me, this is usually when we see a bounce. I took a long here at $41,470 or so, but with a tight stop loss and a small position. This is a trade, you should never copy me or anyone else.
WEEKLY CHART
Two days left, looking ugly. The 50 MA is far above now, unlikely to be recaptured as support. The descending blue line is also failing.
We still have higher lows above the red line at $39,600. Jokingly, maybe whales break this level, making everyone panic and then pushing price back up. Basically a wick below and then a reversal. But that's just an idea, nothing I am trading on. Just would be a very "Bitcoin" thing to happen.
Watching 42K now for the weekly close.
DAILY CHART
Everyone here expected that we would likely see 42K at some point. When price is ranging, you tend to visit both the highs and the lows. I drew the above over a month ago.
42K "broke," now what?
We wait for a close to see whether it is broken or if this is a sweep of the lows. I was relentlessly warning at 52K that we were at resistance and that there was no reason to get excited. I tweeted the below right before Bitcoin rose to 52K and swept the highs.
We visited the top of the range, and now we are back at the bottom, filling the wick from the major recent drop.
At the moment, we have a sweep of the lows, a potential bullish SFP, or swing failure pattern. This occurs when you see a wick below a key swing low and a close above (we do not have the close yet). This indicates liquidity being engineered by whales, looking to fill buy orders. They push price down to where stop losses trigger (which are sell orders, allowing them to buy) and where people looking to short on confirmation take positions (also sell orders, allowing them to buy).
We had a bearish SFP at the range highs - you can see what happened.
We need to see a close ABOVE the range lows for this to be in play. A close below would be considered a technical breakdown.
The “golden pocket” is the area in between the 0.65 and 0.618 retracement levels. It is considered the most viable place to long or short an asset and look for a reversal.
Price is currently just below the golden pocket of the move from $28,600 to $69,000. Bitcoin (and many other assets) tend to love to bounce from this area, but we will see.
On the more bearish side, we are seeing a major volume spike in selling over the past 3 days, and today could potentially close with the largest volume of all. Sellers are very strong here.
Daily RSI is once again oversold.
4-HOUR CHART
We have confirmed, oversold bullish divergence with RSI on the 4-hour chart. Historically, this is a great local bottom signal. I know things look dire and these can fail, but that's usually the sentiment before a bounce. Let's see if this plays out, but I took a leveraged long for the first time in ages on this signal. That's my system. You should NOT COPY IT or attempt to do what I do.
Altcoin Charts
Altcoins continue to suffer as Bitcoin tests the range lows. I have been very hesitant to share trades and ideas for well over a month now, much to the dismay of many subscribers. As I have said, sometimes the best move is to sit on your hands and do nothing.
Let's consider the likely scenarios for alts. What do we think will happen if Bitcoin drops through support? Alts will likely do poorly, with bitcoin dominance rising as Bitcoin price drops. That is what we have seen the past few days.
If Bitcoin recovers and rises quickly, it is likely that alts will tread water on their USD pairs and lose value against Bitcoin. A Bitcoin recovery would likely have Bitcoin Dominance rising as well. Remember, bitcoin dominance is sitting very low right now.
If Bitcoin moves sideways, alts could get some relief... but you generally want Bitcoin going sideways after a move up, not after a move down with fear in the market.
Anything can happen, but it seems rationally that odds are against alts outperforming Bitcoin in the near term.
ETH/BTC
Ethereum has come back down to test the top of the bull pennant as support. This is technically a good entry for a trade, albeit with the knowledge that it could easily fail in a shaky market. I believe ETH will continue to outperform BTC long term, and this is an entry that I have been watching for those that are trading ETH on the BTC pair.
That said, we have seen a descending line on the Bitcoin chart failing as support, and we can watch price continue to drop will still "holding" the descending blue line. The safer entry is still above .0859 on confirmation of that breakout.
Regardless, by any rules of technical analysis, this bull pennant is still valid here.
ETH/USD
Ethereum is currently touching oversold on daily RSI (has not closed oversold yet) for the first time since March, 2020. This does NOT mean it cannot go lower. For me it means that we will start watching for oversold bullish divergence.
The Bearish Case For 2022
Arthur Hayes is the ex-CEO of Bitmex, the creator of the perpetual swap and considered one of the greatest minds in crypto. We will put aside his indiscretions and arguable lack of morals and consider his case.
To be clear, I like to present every side of the story. I do not endorse this message or believe this will necessarily happen, but I also want to be measured and share it with you so that you can consider it yourself, or at least have a plan if things go south. We could be at the bottom right now and articles like this could be "bear porn" for people turning negative at the last minute.
I am warning you, this is a very bearish case for crypto for 2022, but not beyond. As investors, this can be unsettling, but we all expect major corrections on a long time horizon and should view any major dip as a buying opportunity. Nothing changes if you are an investor, even if you believe in the worst case scenario presented. You buy the dip.
As traders, especially in smaller altcoins, this is more concerning.
I have been somewhat dismissive of the Fed as a major mover for the crypto market, but a few VERY smart people I follow and have spoken with believe that it could have a major effect on the market this year. I believe In having strong opinions, loosely held. I am always willing to consider new information to help inform my decisions making and thesis.
The classic truism "don't fight the Fed" works in both directions. You don't short when they are printing money and buoying the market... and you have to be cautious when they tighten and stop providing a floor. For the price of consumer goods to come down, the price of stocks and assets likely does as well, in the short term. While I believe that Bitcoin is an idiosyncratic asset (uncorrelated), we all know that when there is a global risk off event (like March 2020) that everything goes to 1 (correlated) and drops together. After that, you see what rises the most.
Here is his highlighted portion of the article, which describes his "worst case scenario" before things get better. Again, I am not rushing to trade based on this information, just another opinion for you to consider.
"If I believe that Bitcoin could trade below $30,000 and Ether below $2,000 in a three-to-six month time horizon, I will dump all of my shitcoins. That is because Bitcoin and Ether are the highest quality coins, and they will decline less than all their yet-to-be-proven competitors. Any specific applications that use the Bitcoin or Ether blockchain will also experience gravity at greater than 9.8m/s. These shitcoins could go down 75% to 90% in a true crypto risk-off environment."
This would be similar to the crypto winter of 2018-2019.
Even if this happened, zoom out and look at where we are now... bigger and better across the board.
Keep in mind - there is ALWAYS a bearish scenario and ALWAYS a chance of a market crash. Do not panic, just have a plan for anything.
Whale Keeps Buying
The third-largest bitcoin whale has returned to buy another 551 BTC for an average of $45,219.
The 3rd largest Bitcoin whale has continued to gobble up Bitcoin like plankton. On January 4th, the whale’s address added another 372 Bitcoin for $17,122,242.1 at the time. He bought 456 Bitcoin the day before.
One whale is not enough to make a convincing case, but it's nice to know that someone with billions of dollars wants Bitcoin at these prices.
$800M Liquidated
More than $800m was liquidated from the crypto market on Thursday. While this is a large number, as a percentage of total market cap it is not as large as many previous liquidations have been. Further, Open Interest was not dramatically reduced, meaning there is still quite a bit of leverage in the system.
I have included a link to cryptometer above, a tool for tracking liquidations. Since it is rolling on a 24 hour basis, it now shows roughly $280M in total liquidations, not the $800M number above. This is a decent tool to keep bookmarked.
I Was Interviewed By A Bored Ape
Legend Marc Fernandez interviewed me recently - as a Bored Ape. We talked everything Bitcoin, Web3, altcoins and 2022. This was a really fun conversation - it's always fun to be on the other site of the mic.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.