Far from maturity, the world of cryptocurrency is still fueled largely by market sentiment and news. With the aftershock of the Chinese clampdown dwindling, we are seeing renewed strength coming into Bitcoin (BTC) once again as the past 2 weeks of trading have completely engulfed the weakness which BTC was facing in the past 2 months.
This means that if you bought BTC anytime in the past 2 months your trade should most likely be positive at the moment (high 5, good job!).
Such trading momentum indicates to me that there are still buyers out there and this is indeed true as we are seeing many big players come in to fill the gap. At this point, I must say that the price of BTC at about USD$40k is no longer a matter of what investors think but rather what investors have done.
Here, I share the following:
- what I think about the current situation,
- a recent timeline of what has happened to BTC, and
- should you should be taking up positions now
Bitcoin – what are the charts saying now?
When we use technical analysis (TA) in investing, let’s be reminded that it is never a 100% sure-win ticket. Instead, we use it to guide our decisions and to increase our “win-rate” ratio.
What I like about TA is that the numbers never lie and while I consider myself a novice analyst, careful analysis of the charts has allowed me to exit some of my own Bitcoin position prior to this correction.
1) What alerted me prior to the current correction?
The RSI was a flashing indicator of how investors were unable to accept how fast the price was moving. This is clear when we see price making higher highs (Thick Green line) despite the momentum of the stock making lower lows (Thick Red Line). The divergence here is clearly distinct and what this tells us is that as the price of Bitcoin continued to rally, the underlying trend was getting weaker and weaker.
But let’s get real. We do not need indicators to flash when the price of anything is getting too high too fast.
Though I was not able to lock in any of my Bitcoin profits at $65k, I offloaded about a third of my holdings in the range of $55-$59k.
2) Super strong support at $30k
The thing about technical analysis is that it is always an indication of the past.
With this, we look at previous support levels of Bitcoin. By mere coincidence, the support levels are often in line with the price that investors are willing to pay for it. One thing that withstood all the selling throughout this bear rally was the $30k support level that held firm. It was also at this point where the descending triangle was broken.
The $30k support was strong even back in January where we saw investors buying up from the same point. With this support level forming then and now, I’ve confidently set myself a trade rule to liquidate the remaining half of the Bitcoin I own, if the price were to break below this $30k level again.
3) Will the rally continue from here?
It is difficult for me to say with utmost certainly given how the global markets are not bullish at the moment due to the uncertainly involving economic recovery. However, from what I interpret from the indicators, it does show that the worst could be behind us.
We see the MACD breaking out above the zero line (indicating a reversal) and most importantly, a bullish divergence forming on the RSI where we see price testing $30k and more momentum gaining over time.
I wouldn’t jump for joy just yet as we may need another month or two before we see the 50 Day moving average break above the 200 Day moving average thus signalling a gold cross once again.
That would definitely give the continued rally higher validation.
So what’s a good move for aspiring investors now? Let’s take a look at Bitcoin’s journey thus far, which would give us better context to make a decision.
Bitcoin in 2021 – what has played out thus far?
Bitcoin in Jan – Feb 2021: the surge
Trading Range : between USD $28,000 to USD $58,500
- Largely Bullish Sentiments as BTC was seen as a hedge against inflation. (Safe haven asset alternative to gold)
- Bullish Sentiments as market cap hit USD $1 trillion in february 2021
- At this point, many instituions has begun to take interest in BTC. To highlight some,
– Paypal to offer Bitcoin as a payment option.
– Citibank & JPMorgan making bullish Bitcoin predictions
– Leaked Citi report by bank’s senior analyst – BTC price target of $318,000 by December 2021.
– Tesla made their entry, investing USD $1.5 billion.
– Mastercard announced that it will allow customers to use cryptocurrencies on its network within the year.
– North America’s first Bitcoin ETF, the Purpose Bitcoin ETF (BTCC), began trading.
– Square, Microstrategy would go on to further add to their exiating Bitcoin holdings. - Towards the last week of February, massive swings in BTC voliatility would surface.
Bitcoin in Mar – Apr 2021: The NFT Craze
Trading Range : between USD $45,000 to USD $64,900
- Rally continues as new highs are achieved monthly to the peak of approximately USD $65,000.
- NFT Boom for Digital Art registered on the blockchain.
- More institutional involvement, worthy of note the following,
– Tesla to allow customers to buy its cars with BTC
– Morgan Stanley to offer its customers access to Bitcoin. First bank in America to do so.
– Coinbase IPO – Adding further “hype” to the rally. - Towards the end of April, BTC would experience a sharp bearish reversal after President Biden proposed to double capital gains tax on the wealthy. At about this time, talk of a new “tax” on cryptocurrency gains were also floating around causing investors to lose interest in the coin.
Bitcoin in May – Jun 2021: The Crash
Trading Range: between USD $30,000 to USD $60,000
- If you had bought Bitcoin at its highest in May and sold it at its lowest in the same month, you would have lost half your investment.
- The initial bear rally from about $60k to $50+ was caused largly by the reversal in stance from Tesla where they “abandoned” their plans to allow customers to use Bitcoin to buy cars.
“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a good idea… but this cannot come at great cost to the environment.”
Elon Musk – 14th May 2021
- China’s Involvement Part 1 – While many see China as the single catalyst for this current bear rally, we should see observe events with more perspective as China has changed their shance on cryotocurrencies many times in the past. This time, they issued a ban on “all financial institutions and payment companies from providing services related to cryptocurrency transactions“.
- El Salvador’s involvement – To make Bitcoin legal tender in the country.
- Elon Musk clarified Tesla’s stance on Bitcoin in June.
- China’s Involvement Part 2 – Mining in Sichuan province and other areas were shutdown by the goverment. Combined, they were some of the biggest miners in the world as China accounts for more than half of the world’s Bitcoin mining. By the end of June 2021, more than 90% of China’s mining would have ceased.
- Binance Ban – Binance platform banned from operating in the UK due to money laundering concerns.
Death Cross Form on 19th June 2021. (50 day SMA break below the 200 day SMA) – A win for the bears.
The events of May and June 2021 were possibly one of the worst for Bitcoin in recent time. With bad news hitting the market everyday it was indeed ”nail-biting” for myself to watch the descending triangle form with support holding strong at $30k. A breakout was inevitable given the divergence between momentum and price.
Authors Insight
Should I enter now and how can I trade Bitcoin better?
Fast forward to the point of writing, with support holding strong at $30k, I’d say that this can be a good time to take a position, if you had set a rule to consider some form of action should Bitcoin re-test this support level.
As mentioned, there is no guarantee of profits but with the situation stabilizing, I myself have re-entered my previously sold position.
If we try to link the current price with the latest news, I believe that the actions from China and UK have already been priced in. If another country were to ban cryptocurrencies, it is unlikely that the impact would be as big as that of China’s. In my opinion, the big guns have already been fired, it’s probably going to be just small firefights from here on.
If you’re looking to take up a position, you can join Chris and Aik Keong at a live webinar to learn more about the fundamentals of cryptocurrencies and how you can get in safely.
