Bitcoin  –  The Big Raid – History Repeats

Overview:

The selloff the past week or so, is not what this market should have been doing.   For months we have been mentioning large institutions were likely accumulating and there were many signs of evidence.  Last month we learned several endowment funds invested in the previous quarter.  However clearly the market was not acting right and the prolong consolidation since September seemed somewhat suspicious.  Fortunately, one of the trading legends provided some insight in a book written over 80 years ago.

Richard Wyckoff, wrote a manifesto on how large operators engineer trades, and force weak hands out of the market.  In his book The Richard D. Wyckoff Method of Trading and Investing in Stocks – A Course of instruction in Stock Market Science and Technique he laid out exactly how large operators do this.

Source Wyckoff (1937):

“Those who understand it buy only when prices are low with the idea of selling when they are high; and they operate only in the stocks or commodities which they can move best so they may secure the highest possible rate of turnover of inventories.

 The preparation of an important move in the market takes a considerable time.  A large operator or investor acting singly cannot often, in a single day’s session, buy 25,000 to 100,000 shares of stock without putting the price up too much.  Instead, he takes days, weeks or months in which to accumulate his line in one or many stocks.

 He prefers to do this while the market is weak, dull, inactive and depressed.  To the extent that they are able, he, and the other interests with whom he works, bring about the very conditions which are most favorable for accumulation of stocks at low prices.

 When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.”

 Key points:

“They operate in stocks or commodities which they can move best”.   What easier market is there to manipulate or engineer trades than the crypto space?  It is unregulated; there are no rules or oversight governing bodies.  This is the perfect market for engineering trades.

“He prefers to do this when the market is weak, dull, inactive and depressed.”  After months of watching paint dry, in a boring market Bitcoin surely meets the requirement of weak, dull, inactive and depressed.  Note how many analysts were becoming undecided in direction?  Were getting ready or already threw in the towel?

When he wishes to accumulate a line, he raids the market for that stock”.  Is this what is happening, and are they any clues?

BTCUSD:

This is the perfect example of what Wycoff described in his book.  Two long months of a range bound market, which was dull, inactive and depressed.  High volume spikes could be indicative of a raid or dump, as well as a sign of a top or bottom.  Now I want to be painfully clear, this is just one of many signs of what we look for.  We consider this additional evidence, not a smoking gun.

Often volume spikes are a sign of a final flush out, or market top.  The reason is, many finally throw in the towel, or buy into the FOMO.  Now this is not always true, and trying to buy the volume spike, has had us buying early, getting stopped out, then the market rallies.  So let’s not put too much weight into it, but final flushes are generally accompanied by a volume spike.

Is there any more evidence?

BTCUSD Long:

During the selloff normally leveraged longs would either go down (from being liquidated) or remain stagnant.  This is not the case here.  Longs interest has increased into the selloff. This is very odd as it is likely many leveraged longs were stopped out of positions, especially those over leveraged.   

Again this is not a smoking gun but provides additional evidence someone or a group of traders is accumulating into the selloff.

Emotions:

Many of you may feel discouraged, beaten up, and even hopeless.  This is completely understandable and not out of the ordinary.  As you gain more experience, and go through more market downturns, these emotions will be more controlled.

We actually joke about these events daily eating breakfast with my buddy Wild Bill.  We joke, tease each other, and compare portfolios.  Neither of us or Marc are phased by these moves.  This is just normal market reaction.  We do not get discouraged, or upset about a stock, crypto, or commodity going down after its bought.

I know I mention this all the time, but long term is long term. 

The losing mentality is easy to have during these periods of time.  The feeling of hopelessness, depressed, why did I buy, this is never going to end, getting discouraged and throwing I’m ready to throw in the towel. This is not how big players think.  This is exactly how they want you to think.

As Richard Wyckoff said, money flows from the weak to the strong, and you have to determine whether you are strong enough to stomach market selloffs.  Not just in the market, but in life as well.  Markets are nothing more than an extension of life.  We all go through hard times in life, where we think, how am I ever going to get out of this, this is never going to end, I just want it to be over.  How you handle these times is indicative of your character.

You want to be successful in trading or in life, you must learn to handle your emotions during adverse times.  It’s easy to be positive when your winning and things are going your way, but that does not provide insight to your character.  What does is how you think and act when your not winning and things are not going your way.  

Moving Forward:

So what do we do from here?  We simply adjust, analyze and evaluate.  We also put the market on hold and stopped buying until we see some stabilization.  In simple words the entire crypto market is in the penalty box.

One reason I do not sell my long term holdings during corrections, is because they are long term.  I still remember the 1987 market crash, the 2001 dotcom bubble, the 2008 financial crisis and even the 2015 Brexit crash. We are higher than any of those times today.   If you believe that Bitcoin is going higher in the long term, this is simply just noise.

If you are unsure about the future of Bitcoin and the space as a whole, than maybe this is not the market for you.  Again wealth is not built over night, it is built over decades.  To think you are going to be a Bitcoin Millionaire next year is naïve to say the least.  Just like gold and silver, you simply accumulate over time.

Summary:

We do not know whether the current price action is due to market engineering.  However the evidence is there that supports this theory.  It is almost a play by play out of Wycoff’s book.  However we do know that larger endowment funds, like Harvard, Yale, Princeton, MIT and Dartmouth have invested in the space.  In addition we know that Goldman Sach’s, Fidelity and VanEck are all creating instruments for cryptos.

So is this the time you throw in the towel?  I’m not, but this is a decision you have to make as an investor.  Some can simply not take the pain or emotional strain of the markets.  If you want to learn to be a trader and investor, it starts with emotional control and understanding nothing goes straight up. 

Regardless of those that claim to be fortune tellers trading and investing is not an easy discipline to master.  It takes time, patience, the ability to learn, and most of all True Grit!   

20 Responses
  1. Kevin Meiner

    Great article. All I can say is that if you want to make it you have to separate all emotions from your money. Use logic behind your investment decisions. Large players moving into the space and there will be a NASDAQ crypto exchange next year. I believe prices are being manipulated for all crypto except XRP. They just can’t seem to phase that one. Good thing I diversify ?

    1. Andrew Gonci

      Thanks Kevin, yes with all the instruments coming out in the next year or so in my opinion this is not a place to panic, but to wait for stability and step in. But that is just me 😉

  2. kaskassa

    Thank you for this great article and the insight.
    One big question is how low they want or able to push the price? , is there any clue, what is their possibilities ? for instance can they reset the BTC market to USD 100 or 1000 what is your estimate ? and what factor limit them.

    1. Andrew Gonci

      The technical level is 4800, since that has been pushed through, we have to use alternate methods to find the next level is around 3900, and it is quite possible we get there. I would say if the large investors bought at 6k they are definitely stepping in at 4k. But we never know for sure.

      Thanks

  3. GKepes

    kaskassa, That is the point of goldbug here that nobody knows and those who claim to have that info are liars. The market makers he speaks about have all the resources to bring price wherever they want but there are other whales in the ocean working against their interest. Bitcoin mining firms are also among major holders of btc and their industrial scale mining operations cannot be sustained for overly lengthy periods on prices under their profit margin. They have large costs: electricity, running venues, staffing them etc. I suspect that these two forces – institutions wanna buy in and miners wanna have their profit back – will define the bottom. Depends on many factors however. The biggest miners with most liquid capital and the least expenses (usually in China [cc. 3000 usd/btc] or other low cost [electricity, wages, etc.] places) could be interested in forcing other miners out by bankrupting them with a sustained low price that rolls net losses to the point of no return. In that case also expect a Black Friday sale of 2nd hand ASIC (guess who will buy them for peanuts). Another thing to consider is related to the uniqueness of crypto community which makes this market different from others: dedication to the tech. There are very few if none out there holding Apple stock because they are die hard enthusiasts of iPhones. However, blockchain and crypto fans are serious about their fascination. Many of them are small to medium holders with well paying jobs (they are geeks and nerds) not in the need of the value of their holdings, it is a significantly big crowd at the end. They just hold through the worst. This is more visible in LTC than BTC (too much attention and too much noise): pull up an LTC chart and notice the remarkably low volume on the ugliest sell-offs (e.g. from 54 usd to 97 cents! in 2015). Nobody can answer your question about the price but if you try to factor all these things including the costs of producing cryptocurrencies you might get a glimpse on how realistic 100/1000/2000 usd price is and for how long they might hold.

    1. Andrew Gonci

      Good points, this is most likely a shake out of weak hands, those that are playing the game without the means to just let the market go through a downturn. Same in the stock market. If you are properly positioned this should be an opportunity to add for the long term, not now, but once we see some structure that provides a basis for a bottom.

    1. Andrew Gonci

      Hey Ales, until the market settles we are just standing aside. We need to see some support and we are not seeing any evidence of a bottom here. Need to see a base and bottoming structure form here, so we are just letting the market run its course. Thanks Brother!

  4. JW911T

    Nice piece. When you scour the web for opinion a ‘consensus’ seems to be that the fundamentals have not changed and that this could be either programmatic, short sales, panic or like you mention above, manipulation or most likely a combination of all of these factors. As long as the fundamentals have not changed and the development of the ecosystem and the market continues, this therefore is an excellent buying opportunity. Using this argument, one should really keep buying (laddered) on the way down. And just hope we are not wrong 🙂

  5. Andrew Gonci

    Hey Matt,

    Because this market is not regulated, they can actually control prices buying at the bottom of the range, creating support, then selling at the top of the range, creating a long drawn out range bound market. Once the accumulate enough coins, they open limit orders at lower prices say 5500 5100 4600 4100 3800 and “raid” the market with sell orders and bad news. The raid creates the sellers they need to buy at lower prices.

    The book by Wycoff explains it pretty step by step how large operators do it in his book. The odd thing was this is almost play by play. Thanks

  6. JW911T

    So what would spell ‘the end of crypto’? If you think about all the good news surrounding this market over the past year or so I believe this market will thrive over the longer term. But for the sake of the argument, what could derail this train? I think that the only thing that can seriously put a dent in this thing is government sponsored Crypto which over time could erode confidence in non-Government created coins. However, it seems unlikely that Central Banks will totally ban the creation of new coins so one can assume there will be a market outside ‘public crypto’, just as there is a market for non-government Bonds. It seems logical that a lot of the current 1500 or so coins will disappear and some form of market consolidation will take place. How much contraction there will be nobody knows, but having coins without any major ecosystem, measurable intrinsic value or application seems unsustainable. It’s very dynamic and interesting what is going on in this space.

    1. Andrew Gonci

      Keep in mind we never know what will drive the next bull market. One thing that is lost in all the FUD is the fact that large Financial companies are investing heavily in the space. IF cryptos did not have a near term future at least, they would not be investing money to create platforms and instruments for large funds etc.

      Remember most fund managers are handicuffed and can only buy regulated instruments. This will be the likely driver of the next bull market.

      As for the 1300 other coins, most will go to zero in my opinion and having a major eco-system like you said is critical for success. BAT seems to be making headway in creating an eco system. Only time will tell if it evolves.

  7. mark R

    I like receiving thoughtful information so Thanks for introducing the Wyckoff information. Did you think a year ago you would be bringing this up? I too have read about the positive tangible things of the large institutions and like you hope they can bring stability and price increases to the Crypto world. Unfortunately none of these have come to fruition as they take a stab at creating a market. Since crypto is still searching for what it is and how it can be used around the world it is still speculative. I am not sure Wyckoff was talking about speculative markets. Crypto may be long term but the bottom may also keep coming. Crypto is not like the internet boom it is like the computer boom. So the time frame is much longer. Computers were talking to each other in the 60’s and little by little (serial ports, parallel ports, modems etc.) eventually evolved into the internet. Crypto is the computer and the internet for it has not been discovered. All the positives just like the negatives can also be just noise, The facts, the sentiment, the emotions, the charts, the politics, all begin and end in the BUY/SELL button. Followers will drive themselves into exhaustion. My goal was longterm and so the ride continues. Keep up the good work.

    1. Andrew Gonci

      “I am not sure Wyckoff was talking about speculative markets” – Keep in mind every market is speculative and even more so in his day. There was no instant news etc. If you are long term, as I am, I do not mind buying a little and did at 3550. Of course the way the market looks, I am going to hold off until things look better, but if we dip into the 2k’s I will likely look to add. Of course I believe in the space long term, and can afford to wait through the fruition and transition. It will come together, and once ETF’s and other instruments provide more open markets, stability will set in, just takes time.

      Thank you for the kind words Mark! Appreciate that!

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