2022-01-22

BTC Targets Galore

Note: You can open all these charts in a new tab to see a large version.

Short-term: I see the drop this weekend as catchup losses. If BTC holds above $32k, with wiggle room to $30k, I do not see that as predictive for the stock market. If instead BTC plunges right through, it could signal stocks are in for a rough open Sunday night.  

I was wrong about BTC breaking down for much of 2021, at least from about May to November. I expected crypto would meltdown with ARKK & Co. because they shared the same speculative excess. I was looking for a downturn in the summer and took some losses on bearish trades. Instead, BTC would go all the way back to a new all-time high.

Back in October I posted this chart:

A double-top is a valid expression of the bubble chart above, it is formed by extreme speculative excess such that the "new normal" point is at a new high.

OK, so where is it going? This was my WAG from a week ago:

The $28,800 level (give or take) is the most important for now. If it falls, the long-term support line is at $12,000 and rises to $20,000 by year-end. Holding that line means the long-term bullish uptrend is intact.
The trouble is there are only two touches on that line, and really only one, in March 2020. See the green uptrend line? (That one was yellow in some prior charts because I moved it for short-term charting purposes.) That line was touched in the 2019 selloff and held before the March 2020 panic. Something similar could occur with the long-term bullish uptrend line. If not, then we have to look for lower chart support. The three lines I see are around $20,000, $10,000 to $15,000 and $3000.
The volume profile confirms these areas. The bars on this chart show the volume associated with the price level on the right, that is how many people bought at these levels. I chose weekly on this chart to show the stochastics. It is more oversold now that it was in March 2020. Below is the 5-year showing that dips to this level did not mark bottoms.
Here is the monthly that I prefer with the stochastic indicator. I think it will eventually achieve an "oversold" reading like in early 2019.
These charts clearly show that the hard support level for BTC will be around $10,000. Most people who bought before 2020 acquired below $10,000. Most of the people who bought in 2020 were dip-buyers who got in below $10,000. There is an "air pocket" as the run-up in late 2020 was on lower volume. Then there is high volume in the $25,000 to $65,000 range. This tells us that $20,000 is the first major support area. If it is lost, everyone who bought after November 2020 is underwater. The hardest support will be around the $10,000 level. Below that, diehard HODLers will be tested.

The dollar volume in the past year was higher than during the 2017 run-up. The volume now is about one-fourth of where it was when BTC was around $9,000, but the price is currently four-times then. The amount of dollars traded was similar. There are a lot of buyers that will be underwater when $28,800 is lost, that's why it is such an important level.

The volume profile, chart and stochastics and my general bearishness on the financial markets tells me BTC will go through $28,800. The momentum will carry it to a test around $20,000. A bottom similar to early 2019 will probably be found in the teens. The long-term bullish uptrend line could hold. The worst case scenario that doesn't end with a zero is a loss of $10,000, in which case a test of the $3,000 low from 2018 becomes likely. 

Note that if BTC falls from $10k to $3k, it is a 70-percent loss. Bear markets are devastating and people buying the crypto dips on rallies will become new sellers if it drops through the next support level. 

Bulls will say "the Fed." BTC does have monetary/commodity properties that separates it from stocks. Similar to zero-yield gold, BTC could do well under inflation. The risk for BTC and stocks alike is that most speculators expect the Federal Reserve will act. Through BTC's entire existence, there has also never been a period of high commodities inflation and high interest rates. There may be a point where speculators are wiped out and inflation-hedgers dominate the market. However, how long until the Fed acts? BTC fell in 2014 and 2018, both were periods of Fed tightening (taper and QT). History says BTC will keep falling until the Fed steps in. I have discussed how crude oil should also drop. If I'm right about crude dropping, I'm near certain BTC will drop with it. The worst case for BTC would be rising crude and inflation, and BTC still declines. That gold rises and BTC falls, shifting inflation hedging back into precious metals. At this point, "digital gold" is an unproven narrative. Not a baseless narrative, but unproven.

All bubbles are a self-reinforcing price narrative. The expansion continues because the price rises, the asset in question is "the greatest" because the price rises the most. A falling BTC price, particularly through key support levels, causes narrative destruction. It is a tautology, but that's how a bubble works. BTC's greatest enemy from these level is lower prices.

Finally, there are bullish scenarios. There are an endless supply of them. They may be proven true in the end. I wouldn't bet against them today. Having said that, my counter is Amazon (AMZN) stock, which fell 95 percent in the dotcom bust despite every bullish narrative proving true beyond their wildest imaginations. If BTC is a speculative bubble, then it should reach a shockingly low price in a major bear market. A 95 percent loss from the $60,000 area takes it to $3,000. Do not underestimate the power of herd psychology. 

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