Editor’s note: I respect your time and intellect. This article was written with no help from AI. Please excuse the occasional typos, ranting and slang.
Right, so here we are once again withBitcoin trading at $86kat the time of writing, way off thephysiological support of 100kand approximately35% off its recent all-time high of $126k. With so much going on in the market, I’ll be going through the key events that are causing this bearish sentiment, along with some key areas of support that I’ll be looking out for in the days ahead.
Why is Bitcoin Falling?
The media can probably spin up 101 reasons why Bitcoin is falling, but based on my analysis, I believe that the 3 biggest reasons are as follows:
1. Fed Uncertainty
- The Fed always plays a part in these things. Unfortunately, during their recent meeting about a month back, Powell came out to say that the December rate cuts are “not a foregone conclusion.” The only thing this statement managed to cut was the bull rally as since then, markets have been on a gradual decline with Bitcoin taking the lead.
- Markets took this statement negatively, interpreting it as a possibility that the December interest rate cuts may not happen.
- This affects the market, as it is often forward-looking to some degree, pricing in expectations of what might happen in the future.
- At present, markets have already priced in a December rate cut; however, with Powell’s recent remarks, a certain degree of profit-taking took place, as some investors saw it as the end of the “party”.
- So this begs the question, why does Bitcoin fall when the sentiment behind equities turns bearish? >>> Next Section
2.Bitcoin as Bet on Tech
- In its simplest form, Bitcoin has always been seen by investors as a bet on Tech. Some call it risk-on/risk-off asset, but in layman terms, Bitcoin has always been ahead of the Nasdaq by a few weeks. Think of it as an accelerated fear or greed index. If investors are feeling greedy, Bitcoin will be “priced greedier”
- From the diagram below, comparing the price movements of both Bitcoin and the QQQ, we can see that in both instances, the volatility in Bitcoin has always been greater than that of the QQQ.
- What’s interesting this time around is that a rough 8% retracement in the QQQ has resulted in an almost 35% sell-off in Bitcoin. Why is this the case? >>> Next Section
3. Paperhands
- Yup that’s right. The Bitcoin rally is different this time round as there has been a SIGNIFICANT influx of investors in recent time who have never owned Bitcoin before. Very much like how new Bitcoin ETFs were a catalyst for Bitcoin on its way up, the same can be said when Bitcoin is on its way down.
- It’s a psychological phenomenon. If you bought a stock for the first time and it went down, chances are your conviction in it wouldn’t be as strong if say a more familiar position such as Google went down.
- I believe that fund managers who have exposed their clients to Bitcoin ETFs in the past year are now under a lot of pressure to sell as their “newly minted” clients are experiencing the volatility of Crypto firsthand. For many of us who are long crypto, this is probably just another day in the books.
Is Bitcoin in Bear Territory?
Bitcoin is now in bearish territory.
I hate to say it but the charts don’t lie. Bitcoin has always been observing a linear support level, bouncing offkey levels of support right until now where it broke below $100k and continues to trade down. It doesn’t look good. Let’s take a look at other indicators.
The 200-day moving average is often a strong indicator of the trajectory of any instrument. Based on the diagram below, we can see that historically, Bitcoin has always observed a consolidation (Green Boxes) whenever its price action touched the 200 Day MA. Prices have always found support at that level before rallying on. This time around we did see a consolidation at the same area however prices seem to have retreated further after doing so. There are no 2 sides to this, this is bearish for Bitcoin.
Perhaps the killing blow, in terms of technicals, would be the formation of what is known as a Death Cross. This term is defined as a moment in time when the 50-day moving average breaks below the 200-day moving average AND when both curves continue to slope downwards after they intersect. If we look closely enough, this has already happened earlier in the month, where both conditions were met.
I hate to say this but I must stay unbiased. The technicals do not look good for Bitcoin. As such, I’m compelled to bypass any weak support levels and be even more critical of my analysis of the charts to better understand where I should be looking to accumulate Bitcoin once again.
When is Bitcoin a Bargain?
The “good” thing is that Bitcoin has not yet hit its low of $75k. I personally believe that $75k will be the next key support level for Bitcoin, given that it was the previous resistance-turn-support for the instrument. I see no reason why Bitcoin would not retrace back to this key area of support given the overwhelming bearish sentiment at present. $75k will not be an absolute, hence observers should give a variance of around 5% when observing opportunities at this level.
The next level of support would no doubt be $50k. I know it may look like I’m just picking these numbers out of the sky but really I’m not. The charts all align when these key numbers are met because of psychological bias. Humans just love whole numbers like 10, 100, 1000. I’m not sure if this theory works for you, but it certainly works for me. Looking at the charts we can see that $50k was yet another resistance level which eventually became a support level for Bitcoin. Such levels are KEYKEYKEY areas of interest that observers should really pay close attention to.
I doubt Bitcoin would retrace back to $50k. It does not seem likely but I’ve been wrong many times before.
What now?
Sit back and take a breather. It’s best to let the dust settle unless your conviction in Bitcoin is absolute. The end of year is typically not bullish for markets in general. An upcoming near-term catalyst would definitely be the next Fed meeting (scheduled December 9-10). Even with the best possible outcome of a dovish fed, I fail to see how that would reverse the current sentiment around Bitcoin.
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