After weeks of warning traders that bitcoin was going to dump hard because of a major technical break, the largest crypto has hit our first short target.
$20,000 is a major zone people have been watching as it was the previous highs back in 2017. A picture is worth a thousand words, so the weekly chart of bitcoin will give you a better understanding:
One positive takeaway for bitcoin bulls is that the weekly candle did not close below $20,000. We are actually seeing evidence of buyers stepping in at this major zone. The weekly candle shows a large wick which indicates buyers holding the line and forcing a close above $20,000 nullifying another weekly breakdown. The current weekly candle is in its infant stage, but the lows so far are also bouncing from this support zone.
So what next? Last week, I outlined the technicals and told readers I expect bitcoin to hit $12,000. Bitcoin is moving as a risk on asset, meaning it is moving with stocks. If stock markets rally, then bitcoin and other cryptos will join in on this rally. However, markets still have a long way to go before I can say a reversal is in.
Many crypto (and stock market) traders are using the term dead cat bounce here. If bitcoin cannot rally substantially here at $20,000 then this rally may be short lived.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC that unless the price of bitcoin closes above $23,000 on a daily time frame basis, “the odds are this is a dead cat bounce.”
There are tons of fundamental news affecting the crypto markets. This is just a rumor, but I am hearing some crypto fund(s) may have blown up. We spoke about Michael Saylor and MicroStrategy last week. Price of bitcoin is below $21,000 and MicroStrategy is feeling the pressure. They will need more collateral for the billions they borrowed to go long bitcoin. If they cannot, the firm could very well liquidate some of their bitcoin.
Remember when crypto bulls said the benefits of holding cryptos is because they are not tied to traditional financial markets?
But here are other major crypto fundamental news:
- The collapse of algorithmic stablecoin terraUSD and associated token luna.
- Celsius, a company with 1.7 million customers and nearly $12 billion of crypto assets under management, paused withdrawal of funds for customers, sparking concerns that it is insolvent.
- Coinbase, a crypto wallet and exchange, said last week it will cut 18% of full-time jobs.
- A lending firm called BlockFi said last week it will lay off a fifth of its staff.
- Macroeconomic factors including high inflation and upcoming rate hikes from the U.S. Federal Reserve are also weighing on the market.
Excess leverage is being hit. As soon as these players liquidate their positions for substantial losses, the higher the chance bitcoin can bottom.
There is always risk, but many are betting on the bottom now at $20,000. Once again, it depends on what the stock markets do. I see the real possibility of markets bouncing. Just a bounce, before they resume the downtrend.
Some say this is the end of crypto because there is no value. This is just my opinion, but I think the value of crypto’s is that they are non-fiat. Unfortunately, central banks messing up fiat is a real possibility given what is happening. Take Japan for example. But in Japan, money is running into gold for safety, and not bitcoin. This really got me re-thinking the move into crypto as a fiat hedge. Readers know I love my gold and silver, but I hold some crypto’s just in case.
The crypto position is more speculation as this will be bitcoin’s first bout with inflation and potentially, a financial crisis. We have many years of gold and silver price action history during inflationary times. We don’t with bitcoin and cryptocurrency. I suggest you remember this before taking out a home equity loan and dumping it into bitcoin.
On the bitcoin weekly chart, we could potentially see a rise back to the $28,000 zone if momentum on this rally is strong. If we can get a weekly close back above the $32,000 zone, then I would say the downtrend is over. But as long as bitcoin remains below that zone, another leg lower is possible.
Going down lower to the daily timeframe, you can see bitcoin ranged at this zone over the weekend. There is a lower high I am watching at $22,603. If bitcoin can close above this, that would be the true sign that this rally has legs. From there, we would see a shot up higher to that $28,000 zone. If we cannot comfortably get above the $22,603 lower high and price struggles, this rally will be short lived.
I want to end with the weekly chart of Ethereum. Boy does this weekly chart look bad. As you can see, unlike bitcoin, Ethereum actually confirmed a weekly breakdown. We closed below the $1350 zone. But there seems to be support at the important psychological zone of $1000.
If we see a close below $1000, Ethereum will tumble down to below $400. For us to start turning bullish, a close back above $1350 is the first step. We must reclaim support which was lost.
Crypto winter is the term being used, and unfortunately, this winter could get a whole lot colder. As always, keep a close eye on US stock markets for risk on sentiment.