Bitcoin closed below the major $30,000 support level on yesterdays daily candle. The question going forward now: is this a breakdown or a fakeout?
Yesterday’s red close is significant, and is hinting to some wild price movements in the not so distant future. I am talking about the next few days. I have spoken about the importance of $30,000 support before on Market Moment. Last time Bitcoin was analyzed here on Equity Guru, I said a close below $30,000 will trigger a move down to $20,000. This is very possible.
Before I get into the action on the charts, let’s discuss briefly some of the headlines making splashes in the cryptocurrency sector.
Well, we are not hearing much about Elon Musk and crypto’s. His Twitter feed used to have a lot of Bitcoin and Doge posts. Not anymore.
The discussion has shifted to two things: China’s Bitcoin mining crackdown, and Central Bank Digital Currencies. The former is being touted by financial media as the reason for this fall in prices of Bitcoin. It is making mining more profitable, and miners are heading to different parts of the world. For example Texas with its low energy costs being a crypto friendly jurisdiction. Kazakhstan has been the real winner. Chinese miners are just hopping across the border and setting up shop in the natural resource rich country. Kazakhstan is the worlds third largest player in the Bitcoin mining industry now. Usually I put the words ‘Kazakhstan’ and ‘Uranium’ in the same sentence, with state owned Kazatomprom pretty much being the Saudi Aramco in the Uranium world. But it is coming at a price. much of the mining is being powered by coal, which is a big deal given Elon Musk’s comments on environmental friendly crypto mining, and Tesla not accepting Bitcoin because of it.
Central Bank Digital Currencies (CBDC) will become a reality. All money will be tracked and taxed. It really isn’t a pretty picture, but it is coming. Listening to Fedchair Jerome Powell’s testimony to Congress last week, and I heard many questions in regards to a CBDC’s. Certain Congressmen and women were pushing for earlier adoption to get ahead of China. Powell reassured them that the Fed’s whitepaper will be released sometime next month.
Major central banks around the world have been researching CBDC’s. This research has just been accelerating, and in my opinion, most of these digital currencies will be ready to roll out in less than two years. Just recently the Bank of Canada stated that central bank digital currencies are necessary to ensure innovation and competition in a digital economy.
The last piece of major news has to do with the retail traders. Robinhood yesterday said that retail trading is slowing down. Especially in cryptocurrencies. In the past I spoke about watching the Russell 2000, the US Small Cap Index, for analyzing the retail crowd money flows. We have seen situations where retail money flows from small caps to cryptocurrency and the other way around. Crypto’s have been dead lately, but AMC and GME and other meme stocks have been making moves. The retail crowd is back into stocks. Robinhood’s comments on retail trading slowing down is also likely due to economies re-opening and people returning to work. They had time to trade the markets when they were at home, but not anymore.
It is also worth pointing out that the large B word event, a Bitcoin initiative aimed at explaining how institutions can embrace Bitcoin, will be streaming today. Speakers include big names such as Elon Musk, Cathie Wood, and Jack Dorsey.
Technical Tactics
So where does Bitcoin go from here? With the candle close below $30,000 (and note how important this is! We have not closed below 30k in all of 2021 until now!) it technically triggers a breakdown. There is also a wick at $28,720 (the black line I have up) which many bears would say needs to break and see a candle close below to trigger the REAL drop. But I like to focus on structure and yesterday’s close was important.
When a breakdown (or breakout) occurs, we expect the momentum to continue. If the trend is strong, this momentum continues right away. But generally, prices pullback to retest the breakdown zone before continuing lower. This retest provides an opportunity for bears to enter. Currently, this retest IS happening as evident by today’s large green candle.
Alternatively, yesterday’s breakdown can just be a fakeout, or what we call a bear trap in this case. So far this is looking like the case with strong price action. If today’s candle were to close like this or higher, we would even have an engulfing candle printed at an important zone. A strong price action signal. I would watch for today’s close to take out and close above $31,800. If this happens, the breakdown was likely a fakeout, and bulls have defended this support. Prices will likely drift up.
Finally, I will leave you with what I think will impact the prices of Bitcoin. The US Stock Markets. Bitcoin has been moving in tandem with the stock markets. It has not really acted as a safe haven. When Stock Markets fell, we would expect money to run into Bitcoin if it were acting as a safe haven. This hasn’t been the case. Gold also. Instead, we have seen an everything sell off and money running either to bonds for safety or cash. With this positive correlation between Stock Markets and Bitcoin, we will keep our eyes on the US Markets. If they keep recovering and breakout into all time record highs, it is likely Bitcoin stays above $30k, and makes a larger move higher sometime this year. If Stock Markets begin to see further sell off due to Delta variant fears or Inflation, Bitcoin will break $30k and move down to $20k. Something I definitely will be notifying and updating the members of Equity Guru’s Discord Channel in real time.