A Bitcoin bloodbath. In fact a cryptocurrency bloodbath. Massive sell offs, and this morning I was greeted with -25% to -34% plunges as I turned on my computer monitors. All of those percentage losses were attached to cryptocurrencies.
It really was a pan sell off in overnight trading. Stocks were down (the indices that is), Oil was down, Crypto’s were down, heck even the US Dollar was down. Only Gold is holding up…something our technicals were indicating would happen. More on Gold and Silver in tomorrow’s Market Moment.
But today is about Bitcoin.
The cryptocurrency was down 30% at one time today and hit lows of $30,000. Price levels not seen since late January 2021. Bringing Bitcoin’s decline to 40% in the past week. We have now given up all the gains following Tesla’s announcement that they bought Bitcoin. And seeing a 50% drop from the all time highs of $64,829.
Negative sentiment began with Elon Musk’s announcement that Bitcoin will not be accepted due to environmental issues. The FUD just accelerated with China cracking down harder informing financial institutions to not service crypto transactions. The latter could be linked to China’s Digital Yuan, but it is something regular readers of Market Moment were expecting. Governments will one day make us use their central digital coin.
Crypto related stocks are also feeling the heat. Coinbase (COIN) is down for users as crypto’s plunge. Several frustrated crypto traders are venting their anger on social media. They can’t sell…or buy the dip. The stock was down 10% at one point today.
Tesla (TSLA) is also a way to play Bitcoin since the company holds some on its balance sheet. Mind you a lot of the retail/meme crowd attempted to short and even cancel their Tesla car orders to show their displeasure.
The stock has gapped down and broken below a major support zone. If Tesla closes like this by the end of the day, it is worrying. I should also mention that Dr. Michael Burry from the Big Short fame, unveiled a half a Billion dollar short position against Tesla.
Some of the more astute Market followers are probably thinking about ARKK and Cathie Wood. Coinbase and Tesla are large positions. If the Nasdaq keeps dumping, she could be in trouble.
Just two days ago, at the beginning of this trading week, I wrote a Market Moment titled, “Is the Bitcoin Bull Run Coming to an End?“. Another great example of how the technicals can predict future events, headlines and sentiment. My market structure does not lie. It is just how all assets move. The topping pattern on Bitcoin DID trigger at the end of Monday with the breakdown we were looking for.
Here is the chart I posted in that article, and you can read about how I came up with the target to the downside by analyzing the weekly chart in that Market Moment piece.
Once again we got the confirmed breakdown which was our trigger and then this happened today:
This drop happened within two days. To be honest, I thought this move lower would take longer. We would gradually see sell offs and pullbacks on the way to our target. But instead we got a massive drop.
The technicals don’t lie. Not only do many traders use technical analysis, but a lot of algo’s do as well. Without sounding too new age-y, these patterns and waves I look for occur everywhere. In nature we have fractals. The Golden ratio, or Phi 1.618, is seen in everything in nature. Even when human beings are born, we grow to meet the Golden Ratio. In this sense, the Golden Ratio is God. Look into it if you are so inclined. It changes how you see things.
Traders use this ratio to predict moves and waves by using the Fibonacci tool. The 61.8 is the most important Fib level to use on a pullback. My readers know to simplify my charts, I don’t use fibonacci. But that is the principle behind my set ups.
So what next for Bitcoin and crypto’s?
We are seeing some bids, but I would be careful. Buying in a large sell off like this is like catching a falling knife. I would like to see signs of basing on any time frame. Some sort of range to indicate the selling is tapering off. As I am writing this, Elon Musk just tweeted this:
Perhaps it gets people to buy but we shall see.
In terms of market structure, Bitcoin MUST climb and close back above our $45000-$47500 zone. What was once support (price floor) now become resistance (price ceiling). We must break above this resistance to change our bearish stance.
Some might argue why not buy now? Sure, if you are playing this for the long term, it is great to pick some up. However, as a trader, I approach this as a business of probabilities. As long as Bitcoin remains below this resistance zone, there is a probability we make new lows. If Bitcoin takes out the resistance, sure I may have missed out on some of the pips, but the probability it moves higher has increased. As a trader, we are not aiming to catch the very tops or bottoms. We just ride the wave.
Speaking about lows, If Bitcoin does close below $30,000 then $20,000 is the next support zone.
In summary, let’s see how much FUD this China news carries. It seems like Elon Musk and Tesla have not sold their Bitcoin, so that won’t be the excuse for this sell off. I also encourage you all to follow the Stock Market charts. There is a positive correlation. When stocks go up, crypto’s go up. When stocks move down, crypto’s move down. This is what I have been seeing for quite awhile. So it was not surprise that Equity markets were down today. At time of writing, the equity markets are showing signs of bottoming and relief on the intraday charts. If they hold and breakout higher, expect Bitcoin to do the same.