I am not too popular with the Bitcoin crowd after warning Bitcoin bulls that the crypto, and other cryptocurrencies, move as a RISK ON asset. For more on this, check out this article where I provide a real life case study of gold vs bitcoin pertaining to the Japanese Yen. Guess which asset Japanese money is running into in order to protect purchasing power?
I own bitcoin and other crypto’s. I still hodl them. In that article all I set out to do was to encourage some critical thinking. I trade the markets I see, not the markets I want to see.
Looking at the technicals, I am thinking Bitcoin will break below $30,000 which is going to be HUGE. When we take a look at the monthly chart in a few, you will see why.
What you need to take away is that Bitcoin acts and trades as a risk on asset, meaning it will follow the stock market. And the markets are still looking weak. I have warned readers on the technicals weeks ago. You can see the rundowns here and here.
Of most concern to me is the chart of the US Small Cap Index, the Russell 2000. This index tends to lead the major indices, and actually broke down way before the major indices did. It looks like we still have some room to the downside. Sure, we can pullback, but I remain bearish as long as the price remains below 1950.
The broader S&P 500 is just getting started. The weekly resistance is 4200. We would need a weekly close above this level to nullify the downtrend. If so, expect more downside on bitcoin and other crypto’s.
The news regarding Michael Saylor and Microstrategy is also making major headlines. A lot of the retail crowd is talking about it. It isn’t looking too good.
Saylor is leveraged. Microstrategy borrowed billions to buy over 128,000 bitcoins with an average price of $30,700. Their software business is not enough to service the debt so the company is relying on the appreciating price of bitcoin.
Here’s the danger:
If bitcoin falls below $21,000, MicroStrategy will be met with a margin call from one of its loans. That would force the company to either put up more collateral to the loan or sell some of its bitcoin holdings, according to comments from MicroStrategy CFO Phone Le on the company’s most recent earnings call.
Luckily we are still some ways away from that price level. But after Bitcoin broke below a major support, more lows are probable. It really depends on how much further stock markets are going to fall. Bitcoin will follow.
Let’s start with the weekly chart. We confirmed a breakdown below the 36,000 support zone, and we are heading towards another major support zone around $30,000.
These levels look much better on the daily chart which I will take a look at below. The take away from this weekly chart are the price levels below if bitcoin breaks below $30,000.
The first level comes in at $20,000. It is the highest bitcoin printed back in 2017. However, as a technical analyst, I look for areas which have acted as multiple support and resistance. To me, the better level describing this on bitcoin comes in lower. I have a major support level down at just under $12,000.
Yes, I realize this is probably going to be causing some tears for some hodlers. However I say again, I still hold bitcoin and other cryptos because they are non-fiat assets. I do believe we are going to be seeing some volatility in all fiats. It is already starting with the Japanese Yen and other Asian currencies. It really is a bet against the central banks and the debt. In this case, I believe cryptos, alongside precious metals, are worth holding.
When it comes to inflation, I cannot say much on bitcoin. This is bitcoin’s first test under inflationary years. Gold and silver have price action and history going back thousands of years.
We can see clear levels coming down to the daily chart of bitcoin. I notified all our discord members when bitcoin was testing support at the $35,000 zone. We confirmed the daily close on Sunday. The breakdown was confirmed, and the sell off continued on Monday.
Now we have tested the major support at the $30,000 zone. A major psychological number. A few things can happen there. Either we pierce and close below it which means bitcoin continues its hard sell off.
Or we hit it and begin to stall. If we see large green candles and or wicks, we have some signs that buyers are stepping in to defend. I would love to see a range develop. A few days of price just bouncing above $30,000. The more days the better. It would tell us that the selling pressure is exhausting, and a bottom may be in.
Any pop higher from $30,000 might be seen as a dead cat bounce, so I wouldn’t just go long on the first signs of buying. In technical terms, we would need to climb above the previous lower high to nullify the downtrend. Looking at the daily chart currently, this means we would need to get back above $40,000. However, I think the resistance at $35,000 will suffice.
It is going to be a few volatile weeks for bitcoin and the markets. Be careful out there, and be patient when waiting for technical setups.
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