Bitcoin – Big Bubbles and Nothing Burgers

Overview:

Another week goes by and this market is lamer than a Justin Bieber movie.  There just is no action going on.  Often this is discouraging but in reality it implies, well let’s be honest, another likely weekend of a Big Nothing Burger.  Yet this also implies that the market is stabilizing which is a sign that retail traders are struggling and investors loom in the dark.  It also provides insight as to where we are on the “Bubble Chart”.

But First, if there is no move by the close of day today we likely do not see one till next week.  Break out the popcorn, grab a good movie, as it is likely to be a lame weekend in this market.  Unless something happens today it is unlikely we see any major move this weekend.

Tether Fud:

Another 500 million retired and close to another ~500 million sitting in the treasury leaving around 1.5 billion on exchanges.  It appears they are cleaning up the spilled milk, and unlikely to see another MtGdox market meltdown.  I’m sure I will be corrected but the fact is 1 billion or so has either been retired or is sitting in the Treasury, which means it is not in circulation. 

As we mentioned there is more at stake than a collapse of Bitfinex.  There is motivation and incentive to clean out any messy closets.  With VanEck meeting with the SEC to their reasoning for an ETF and several more under secondary review, there can be no causation to allow for any sign of foul play.

Bitcoin Daily:

As the consolidation continues among low volatility, we are likely to get a significant breakout one way or the other.  Unfortunately my crystal ball is in the shop so I am at a disadvantage to those that have working ones.  Regardless of profit seekers we just need to be aware of some underlying conditions.

We mentioned months ago that the structure was typical of an accumulation pattern.  There was no news announcement at that time to give us the tip off, but later we found out that several endowment funds were investing in the space.  If you think this is the end and not the beginning you are kidding yourself.

Now this does not imply we can not move lower, we can.  There is a minor support zone between 6200 and 6325 which we are watching for yet another Fakeout.  Watch for a push through 6350 which could lead to a short trade and subsequent short squeeze.  Why do I say this?

Value Players Looming in the Dark:

Over the past few months I have watched Bitcoin go from 14k to 6k, 9k to 6k, 8k to 6k and 7k to 6k.  The more times the market misses the opportunity to add at a low, the more participants step in  when it gets there.  Like myself I have entered orders in recently at lower prices to catch a market scare.  You think others aren’t looking to do the same?  It is all about psychology and are any of you buyers at 5800?  I’m sure there are many more than just myself.

This type of late market selloff often forms a trap not a continuation.  Bears get overly cocky and the bulls having missed several opportunities finally find their big boy pants and step in.  There is a huge amount of short interest already.  Since the February low, there have been 5 times short interest climbed to 38k and Bitcoin never fell apart.  Hey maybe I am the only one putting in orders here, but I doubt it.  There are likely many hidden orders in the way of Buy Stop Limit orders than the limit orders we see.  Strong players do not show their hands they hide them.  

Gold vs Bitcoin:

Many point to gold and mention Bitcoin is following a similar pattern.  This is undeniable yet I am not sold it continues this path so not so fast. These two instruments trade completely different.

Physical gold does not drive the gold price, the futures market does.  This allows for the market to be pushed one way or the other.  Often there are 100-200 oz’s of paper gold traded for every 1oz of physical.  This allows for a large player to write an infinite amount of contracts which in turn can move the price. 

With Bitcoin it is quite the opposite.  The futures market is cash settled and based on the “physical” price of Bitcoin. (For lack of a better word)  This means trade engineering or what most consider market manipulation has to be done with physical.

Exchanges:

There has been some odd action in the order books as of recent.  Since there is no central exchange, exchanges can pretty much do what they want.  If Goldman calls them up and says, “listen I need to buy 50,000 Bitcoin under 6500” they can use trade engineering to do this.

What do I mean by trade engineering? Quite simply the exchanges can see the hidden orders and at this point, likely have a tab on trading bots.  They can engineer trades to push the market around and right into the hands of their buy orders. 

Hey this happens in mainstream markets; do not think it can not happen here.  Unlike the trading pit where an unlimited amount of sell contracts can absorb an increasing supply of buy orders, or vice versa, in the crypto space it has to be done on the physical exchanges.

Weekend:

The past five weekends the Sunday futures open is pretty much in line with the Friday close.  Think to yourself, if you want to show stability in a market, you can not have the Sunday open clearing out stop losses.  Traders will not want to trade the futures market, or at least hold over the weekend. 

Again the likes of Goldman Sachs and others have a lot of influence over exchanges.  Do not kid yourself.  This is why I mentioned if a move does not happen today, it will likely be a “Nothing Burger Weekend”.  I could be wrong, but there is a definitive pattern going on.

Herd Mentality:

You want to be a buyer at lows, not a seller.  The typical herd psychology is though I bought it at 18k, it is too expensive at 6.  Hmmmm, I never understood this mentality.  If you were a buyer at 18k, then 6k should look like a K-Mart Blue Light Special.  Ohhh my grandmother would grab my arm and we would fly to aisle 6.

Nobody knows if a bottom is in or not, but the longer we go without pushing to new lows, the less likely it happens.  Especially in a market where there are a limited amount of coins.  Investors often fear lower prices, but if you are a long term investor, adding small positions into weakness is not unjustified. 

I am not just flipping this crap out there, I am practicing what I preach.  I previously bought at 6100, and have several other buy orders in currently to buy a dip.  Hey I am all about stepping in front of a selloff when I can accumulate inventory at a reduced price.

Over the next few years I believe Bitcoin is going higher, so why wouldn’t I take the opportunity to add at a lower price?  Money is not made, trying to time the tops and bottoms, money is made buying into weakness, selling into strength and being ridiculously patient.  Are you in the space to make money, or hit the lottery?

Bubble Chart:

When volatility is low after a long decline, it is often a sign of market absorption.  Large funds step in and just absorb the sell orders creating a tight trading range.  I have seen numerous people post the “Bubble” chart, but they are focused on the top, not the accumulation phase that follows.

Has the market not gone through media attention, enthusiasm, greed, and grand delusion?  Have we not seen the new paradigm, the Bull Trap a return to normal?  Have we not been through Fear and Capitulation?  For months we heard 2500-3500 as investors worried in despair.  So where are we now? 

We are likely in the Stealth or early Awareness phase. Yes what the chart does not show is after the return to the mean, we go back to the beginning.  Don’t kid yourself, if larger funds and endowments are just revealing their stepping in, do not think others are not!  

Summary:

The lack of volatility is often indicative that there are buyers slowly accumulating coins from retail traders.  I have seen many trading rooms talk about getting hammered last month. “Here’s your sign.”  These large traders do not announce they are buying, there is no front page article on CCN “large fund intends to buy 50k coins this month”  We find out after the fact.

Do you think VanEck and others that are looking to introduce a Bitcoin ETF are going to buy Bitcoin after the fact?  Yeah I’m sure that’s how it will go down.  News alert “VanEck gets SEC approval looks to buy 100k Bitcoin”. Take that one to the bank.  They are accumulating already, not waiting for approval, heck I would not put it out of the question that they are delaying approval to secure more of the equities they want to have.  It’s not like GS has never used its influence to do something like that right?

Look at the chart above and think to yourself, where are we now? 

7 Responses
  1. jlhequities

    Hey Boss, something I discovered for myself is the inverse relationship BTC has the USD index. 2014 bear, 2017 bull, 2018 bear are all plotted perfectly on the USD index. Could give your analysis on the USD index DXY for weekly TF as I believe this would give a good indication for Gold, BTC, Forex. I myself see weakness ahead for the index. Would like your analysis please.

  2. Kevin Meiner

    Another great article, thank you. What you just pointed out is exactly the reason why I’ve started accumulating. I try talking to friends and co workers and they laugh at crypto. So I buy more. At the beginning of the month a worker called me out of the blue and said that stocks are going to soar and bitcoin is going to crash. So I dumped my entire portfolio of stocks.

    1. Andrew Gonci

      LOL those are the best indicators, It makes chart analysis almost insignificant and much more reliable!!

      I’ll never forget the gas station owner that sold his station after 30 years in late 2007 because his wife was making more money flipping houses. “Here’s your sign”!

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