First off, a quick introduction. I first heard about bitcoin in late 2012, and like most, have kicked myself for not packing the trunk at the time : ) Although, I was fortunate enough to realize the importance of this innovation before the great bubble of late 2013, and scooped up some before that time. Long story short, I became obsessed ever since. Bitcoin was fascinating to me because it combined a bunch of different interests…technology, markets, psychology/game theory, macro-economics, trading, etc. Some of those may overlap, but you get that point.
As time went on, I began to become utterly fascinated by bitcoin price movements and what caused them. I would love to create my own little story/narrative–only to have them shattered later by contradicting price movements, or data. At a certain point I learned on my own hide to realize, if you think there is an exact reason or explanation for every little fluctuation, and wish to trade on such, you are going to have a bad time.
At a certain point I realized what the most important factors were that affected the price of bitcoin, well, at least in the short to medium term…fear, greed, panic, hype, trends, bull markets, bear markets, etc. Now of course, one can not simply throw out all fundamental aspects related to this technology, in fact, they are admittedly hugely important, yet, one can argue there are 16 different things potentially affecting the price of bitcoin at any given time. How does one weigh the net effect of these things?
It would be nice if you could just model the transaction growth of bitcoin, and get some type of fair value. Or any other model for that matter (really, SOV use has proven to be the biggest driving factor of bitcoin’s price). But even so, you can not create a model based off of the premiums on local bitcoin, and use it as an exact science to predict the price of bitcoin. Or google searches for the term “buy bitcoin”. Or x, or y, or z.
So, what to make of all of this? The inescapable conclusion is that technical analysis is a much more useful tool for analyzing and predicting price movements then any type of fundamental analysis, but really, using them both together is the key to success.
As soon as I realized all of this, I started to learn it. It’s no easy feat, you see people throw some lines on a chart, and think “that’s easy” “I can do that”. And then sadly you learn its much like anything else, without the proper time and dedication, you have no shot. Zero. In fact *most people lose. I have only been trading for a few years, and have only just begun to develop an edge. And really, a bigger part of that edge, is managing your money, risk vs reward, etc. Otherwise you are just plain gambling. Sometimes the best trade is no trade, etc.
But anyway, I digress, back to the title of this post, why I’m cautiously bearish on bitcoin. Well, without getting into any charts per say, first I’ll explain a bit of my thinking. Could it be possible that we are on the precipice of “the next great bitcoin bubble” as everyone and their mother seems to have been thinking? Sure. Its possible.
Here is why I do not think that’s the case. If history is any precedent, bitcoin bubbles do not start when *everyone is bullish. In fact its quite the opposite. They usually emerge from the ashes, when everyone is starting to doubt bitcoin, the news media is declaring it is dead, etc. Those are usually the best times to buy.
Here is a chart I published a few weeks ago with some fancy TA, but you don’t have to understand it all to agree with my analysis:
Now, if this chart hurts your eyes, I don’t blame you. I wanted to provide the full picture, but it may be helpful to use the scales on the bottom and side of the chart, to stretch it out and get a better picture of what information is being shown here. Then you can also press play to see where we are at now.
Read the text analysis in the chart, apologies if it is sloppy, but you should get the drift of my thinking. And, as mentioned in the chart, a few bearish catalysts were 1. An ETF rejection 2. BU FUD 3. PBOC FUD
Fast forward to today. The ETF was rejected (as expected). You can argue a lot of the buying we have seen over the last few weeks was all in anticipation of an ETF approval, which suffice it to say, may have been some silly thinking. Here is a tweet thread I did a few weeks ago about it:
It's time to role play, taking off my bitcoin hat and putting on my regulator hat, here is how I look at approving the ETF this time around:
— btc_joe (@btc_joe) February 22, 2017
Now, moving along, BU FUD. If you have noticed, the BU crowd (how many are there really? You can count them on your hand Roger, Gavin, Bruce Fenton, Jian WU) seems to get louder and louder every time the price rises. Bruce even claimed that “rome was burning” as bitcoin was hitting all time highs. Here is a tweet in response to these bs “the sky is falling” memes:
Unseizable SOV combined w/ censorship res. borderless irreversible txs(cheaper WU or transporting gold)will cont. to gain value w/out change
— btc_joe (@btc_joe) March 6, 2017
In no way shape or form is the sky falling unless you married a particular manner/path in which Bitcoin would grow https://t.co/jqij8snbSQ
— btc_joe (@btc_joe) March 6, 2017
These people do not understand what is fueling demand for bitcoin, it is not payments to buy a coffee, it is the huge premiums in India, Venezuela, etc and speculation based on such. Here is a poll I put out that is sort of relevant:
Before last month (etf hype), the main reason your friends/colleagues (new to btc) decided to buy was for:
— btc_joe (@btc_joe) March 6, 2017
Long story short, as the price continued to rise, these people predictably became more insecure. You could see this coming a mile away. And then yesterday to cap it all off, the FUDometer went blinking red with this Bloomberg piece:
…okay. Moving along. ETF rejection: check. BU FUD: check. PBOC: ?
As most of you know, last month the PBOC suspended bitcoin withdrawals for their major bitcoin exchanges. While, I actually believe in the *long run, this will turn out to be a very good thing for bitcoin, in the short-term…it is not. Lots of uncertainty in bitcoin’s biggest market.
Now, was a HUGE portion of the volume faked in China? Yes obviously so. Does that mean China was/is unimportant to bitcoin? I think thats definitely a stretch, and totally unproven. Here is a tweet I recently put out about this:
A fact I think the bulls are underappreciating:china has been,to an extent,removed from the market. Was ok w/ETF hype,coming weeks?¯_(ツ)_/¯
— btc_joe (@btc_joe) March 12, 2017
Back to the TA. To account for what happened last week, we have finally have shown a weak candle on the weekly, and a bearish divergence on RSI. Stoch is about to cross over. MACD, while still looking healthy is at least heading down now on the histogram. These are just things to note, I would never trade on things like this alone, it is all taken in conjuction with the chart I published, this analysis, and risk vs reward. If bitcoin closes a daily candle above say $1260 on bitstamp, he not a good sign as a bear. Or especially if we break $1300, but i’ll believe that when I see it. Compare that to the downside (see initial chart).
Albeit, the price impressively retraced almost all of the ETF drop. The question is why? Here is a possible interpretation. On disapproval, the market panicked in classic bitcoin fashion, and dropped about $300 before you could blink your eye.
Then, as any technical analyst will tell you, a big move will usually be followed by a 50-61.5 retracement, which is what we saw, the price quickly rallied back to between those fibs, and consolidated. Then comes…”the obvious short” where everyone says, okay, it was rejected, had the move and counter move, it’s time to go down, right? No, not right, it’s never easy in bitcoin, or any market for that matter. The first rule of bitcoin is: the market will inflict the most pain on the most participants possible. Here is an illustration of what I just described:
Lastly, my main chart was a daily chart, I covered aspects of the weekly, we also have a bearish signal on the 4h chart, as I mentioned on twitter the other day, the 50, 100 MA has proved to predict some strong moves:
…the 50 just crossed down over the 100.
So that’s basically the bulk of my thinking on this.
Now, of course, as most of us know, bitcoin is the greatest technology since the internet. And the world is starting to realize this. A year or two ago, when the MSM started alluding to how bitcoin was going up as a hedge against global economic uncertainty (Grexit, Brexit, Yuan Devaluation, etc), thats when it really clicked for me.
Bitcoin is now unstoppable in the long run at this point (barring some insanity/tragedy of the commons cough cough Roger, Jian). People have already started to realize that bitcoin is digital gold. This is HUGE. It has become, and will continue to become, a self-fulfilling prophecy. The gold market is valued in the trillions, and bitcoin is tiny in comparison. Just imagine what the price of bitcoin will be if we actually started to capture some of that market.
And so with that said, if in the coming weeks, if we get some black swan events (and there are plenty to name but I won’t), of course you may be able to throw this whole analysis out, and we may in fact be in the midst of the next great bitcoin bubble.
But until then, I tend to think we are somewhere closer to the equivalent of April 2013. As opposed to January 2014. In other words, bearish over the next few months, UBER bullish for the second half /end of the year. That’s my take on things, gluck.