The Wolf Den #420 - Being Contrarian
Bitcoin Thoughts And Analysis
First, I just witnessed a massive pump on Bitstamp that was seemingly a single huge order. It sent price to $38,000 and right back down to where it's trading on every other exchange. This could be someone buying a huge amount, an accident (fat finger order with an extra 0) or a TradingView chart glitch. I am going to dig in and find out more, but this changes the charts quite a bit. Here is it on the 4 hour chart.
As crazy at that looks, check out the 1 minute chart.
Massive volume, if real.
Now back to our regularly scheduled program.
Relief.
I would anticipate being near "a bottom," but would not be ready to call "the bottom." I would never call "the bottom" and could be woefully wrong.
Funding was negative but just flipped positive once again. Sustained negative funding would be a better signal of "the bottom." This means shorts are paying heavily for the right to be short, making a short squeeze more likely. Not the case now, but potentially close on any bounce as shorters will pile in.
Most traders at the moment are watching the stock market for signals to trade Bitcoin. As is the case in any risk off event, all assets tend to become temporarily correlated on a move down. Bitcoin suffers even worse, because it is viewed as a "riskier" asset and is highly liquid. Bitcoin is historically uncorrelated, so it's only in these moments that watching both becomes potentially valuable.
Traders continue to be fearful, although we hit 10 a few days ago.
Anecdotally, every time I post anything remotely positive on twitter I get attacked with comments about being a bulltard, that I am a scammer trying to convince people to lose their money, that I have made people homeless and that I am nuts for even thinking that Bitcoin could bounce. Usually decent signals that a bottom is near.
WEEKLY CHART
The weekly chart tapped a major area of demand from the summer correction. Nice reaction from there so far, although no surprise if we dig deeper in - when we broke 42K, 28K came into play in the lower range, as I said right after the December drop.
Losing 28K = bad
Last week had a nice potential reversal candle. It was not to be, and is a good lesson on why we wait for confirmation and why weekly candles can be hard to trade. We had a similar potential reversal candle 5 weeks before and price also continued down.
There's literally no support on the chart below the summer lows until the 2017 all time high around 20K, because it only took a month to rise from 20K to 42K the first time. There were only grey candles in that time.
TD Sequential, which I do not use but sometimes glance at, printed a 9 last week on the weekly, in a potential 13 candle sequence. A red 9 is theoretically a reversal signal.
DAILY CHART
Bollinger Bands on the daily are trading below the lower band for the fourth day in a row, the last two candles entirely below the band.
Not something you see too often, so should see some mean reversion into the bands towards the centerline resistance.
Daily RSI hit 20, the lowest since March 2020 and much lower than the May 2021 crash.
RSI continues to be oversold on this small bounce. This will eventually return to overbought, but that can take months without price rising dramatically.
Now have potential bullish divergence forming with RSI, depending on the daily close and if RSI elbow up after that. We have this on every meaningful time frame below the daily.
4-HOUR CHART
I drew this idea yesterday and shared it on twitter, and received endless hate. The very idea that Bitcoin could go up right now is seemingly offensive and triggering people. That's usually a decent bottom signal. Seems very likely we will at least get the price lower low - now we need to see RSI elbow up if it happens.
You can see the tweet below.
Conclusion:
I am NOT trying to call a bottom, that is a fool's errand.
I am saying that a likely relief bounce is underway or near, likely targeting key supports that were broken - $39,600 and $42,000. What seemed like nightmare prices a few days ago are now a dream target.
This could be woefully wrong and price could continue to dump, especially if the world continues to risk off.
Nothing is safe in a global meltdown, temporarily.
Altcoin Charts
BITCOIN DOMINANCE
I shared a thread on Bitcoin Dominance two weeks ago and the same thoughts here. As was somewhat predictable, Dominance bounced from the same area of strong support again, destroying alts relative to Bitcoin, which is also dropping. This is a "worst case scenario" at the moment for altcoins, but there is always relief. Here was the thread, so you can see my general thoughts.
Legacy Markets
SPX (S&P 500 INDEX)
Stocks have been aggressively selling off to begin the new year. Things seemed to reach a fever pitch on Friday in nearly every market, with everything selling off aggressively into the close.
As you can see above, the daily 200MA failed as support to end the day, something that has not happened since the Covid crash in 2020 on the left of the chart. The last few times price traded below, it quickly reacted and managed to bounce back. This is an area that a lot of algos and bots are programmed to react, so it will be interesting to see what happens here. Continued downside will likely flip this area to resistance, signaling more pain to come.
Markets are already hitting historic levels of oversold, indicating that a bounce soon is likely, even if they are going to head down more.
This is going to be a big week for the stock market.
RSI Reaches Two Year Low
Indicator that predicted a reversal that led to ATH run is now sharing another reversal sign
It doesn’t get much uglier than this. The last time Bitcoin’s RSI was this low was during the beginning of Covid in March, 2020 when the world was on the brink of collapse. RSI is essentially a momentum and price indicator, which tells us when an asset is overbought or oversold. If an asset is below 30 RSI, it is considered oversold. If it is above 70 it is considered overbought. Just recently, Bitcoin’s RSI dropped below 20, an incredibly low level. As I say with any metric that has gone to one extreme, it will always revert back to the mean and eventually the other side - we just have to be patient.
$600M Ethereum Liquidated
This Tweet picked up a lot of attention a couple of nights ago as we all sat and watched this massive whale almost get liquidated before our eyes. In the end, "7 siblings" woke up at the last moment, so only the first 65M vault was liquidated. The rest was sold off in a dutch auction, with some ETH selling as low as $2250. He still lost everything in an a more orderly liquidation.
It was quite a sight to behold, knowing that $600M was seconds away from being market sold into an already weak market.
This is not a pretty situation to be in, but it is a reality for anyone that has borrowed money with their crypto as collateral and is sitting underwater. The next time you consider taking out a loan against your cryptocurrency, remember this downturn. It's not as simple as it may seem.
You can read the entire saga by clicking on the twitter account above - he is the cofounder of MakerDAO.
El Salvador Buys The Dip
President Bukele has locked in his best Bitcoin price to date, adding another 410 Bitcoins to the reserve from this $15M purchase. Now the country holds 1,800 Bitcoins, worth roughly $59M at the time of writing. Now more than ever, I expect neighboring countries with any amount of interest to watch how President Bukele responds to the dip and so far he has taken it like a champion. When you think about it, it’s quite incredible how sticky Bitcoin is. Once someone buys some and becomes a Bitcoiner, they almost never go back - at every level.
Want to see just how much Bukele has become a part of the community? Check out his new profile picture.
This Week's Market Preview
I found a great article reviewing what happened last week and what could come this week in markets. I suggest it if you haven't been closely following the news you start here to catch up! This covers earnings from major companies, Fed news and more. A good quick summary.
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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.