As the value of a bitcoin continues to depreciate this week, currently holding above the $20,000 support level after having fallen to nearly $18,000 on June 19th, it is worth reflecting on the cryptocurrency’s performance. Certain questions come to mind: has it lived up to investor and user expectations? Is it destined for endless cycles of volatile buying pressure and selling pressure? Is it worth buying these dips, or is it just a pyramid scheme as many economists have claimed? Is it a true alternative to fiat money as its mysterious inventor, Satoshi Nakamoto, ostensibly hoped it would be? Let’s explore these concerns, and the merits of Bitcoin, as we ask the central question: is Bitcoin worth buying now?
Supposed Benefits of Bitcoin
According to Bitcoin apologists, there are myriad benefits that warrant use of, and investment in, this cryptocurrency. Chief among them is its ‘decentralized’ status: rather than being issued, regulated, and influenced by a central bank and government, as is the case with fiat currencies, Bitcoin is liberated from these authorities by means of a blockchain. The blockchain is essentially a decentralized data storage system that is operated and shared via computer network, perfectly tracking all transactions and ‘mining’ of new bitcoins.
This system enables Bitcoin users and investors to circumvent traditional bureaucratic and unreliable institutions such as banks and the aforementioned authorities by means of distributed ledgers, which can’t be tampered with. Other such benefits that follow from this include scarcity (there are a finite number of bitcoins to be mined, with no option for bitcoin-printing ad infinitum), privacy (the blockchain does not track your identity, credit score, etc.), simplicity (there is no need to fill out piles of paperwork for hefty transactions or pay clusters of fees to third-party institutions), and security (because it is entirely virtual, it cannot be stolen off your person, nor can Bitcoin’s blockchain be hacked or modified retroactively). For more information on supposed benefits, read here.
Criticisms of These Claims
Unfortunately, the past couple years in the financial markets have revealed an unpleasant truth: Bitcoin is apparently not nearly as decentralized as it intends to be. Even with no Bitcoin-specific central bank affecting its quantity or value via monetary policy, the value of a bitcoin is nonetheless vulnerable to the decisions of central banks worldwide.
As central banks around the world pulled out all the stops to stimulate their respective countries’ economies during COVID-induced slowdowns, even engaging in quantitative easing en masse to artificially promote lending and buying, Bitcoin’s value soared accordingly. Likewise, as many central banks have begun interest rate hikes and implementing quantitative tightening to quell near-ubiquitous hyperinflation, Bitcoin’s value has plummeted as investors flee risk assets. Thus, both Bitcoin’s all-time high of nearly $69,000 per coin in the fall of 2021, as well as its current drop down to the $20,000 zone, are relatively synchronized with global central bank efforts, particularly those of the US’ Federal Reserve. This behavior strongly indicates that Bitcoin’s price action is indirectly influenced by monetary policy after all, regardless of an innovative blockchain. After all, central banks exist to help control markets, not currencies alone.
Likewise, many of the other alleged perks of Bitcoin are less enticing than they appear at face-value. Regarding its scarcity, a limited supply of anything is not enough to guarantee it has a store of value, especially if demand for it is volatile. Regarding privacy, this may grant a user some comfort, but it is not too helpful here; surveillance states still exist, and you cannot approach the blockchain about refinancing a mortgage. Regarding simplicity, these features can also be interpreted as bugs: easy, peer-to-peer transactions of this kind are a scammer’s dream, and what you avoid paying in fees you might pay exponentially in unrealized/realized losses. Regarding security, these benefits are not particularly special; many consumers don’t carry physical cash around anymore, and banks’ mutable records can enable them to better protect customers from theft and mishaps, even retroactively.
Why It’s Worth Something
Nonetheless, despite all these legitimate concerns and chaotic volatility, Bitcoin is still valuable. How can we tell? Because its price isn’t at zero. This may seem silly, but it is true. For as long as demand for Bitcoin exists, it will always be worth something. It only ought to be recognized that this value is primarily the result of speculation, not fundamentals.
Though Bitcoin’s value will likely continue to depreciate as interest rates rise, consumer spending slows, and the novelty of cryptocurrency wears off in the face of disappointing losses, this is likely not the end of its story. Even as the utopian mythology and bizarre religious language surrounding the crypto movement (hopefully) fade, Bitcoin has historically proven itself as a viable way to make money, if you accept the inherent risk. After all, Bitcoin’s value is contingent upon the desire of institutions and regular Joes to make a quick buck, an intention pervasive throughout most of human history. To expect the value of a bitcoin to soon hit zero seems akin to expecting most casinos to close up shop soon.
How to Trade Safely
The notion of trading Bitcoin safely is a bit of an oxymoron, considering that Bitcoin is arguably one of the most unsafe assets available to own. However, with careful risk management, this is not an issue. Here is my personal approach to trading Bitcoin: 1) Keep your position size small enough that no actual damage can be done to your account, i.e., only purchase what you would feel completely comfortable losing. 2) Opt for holding a position for months or a few years as opposed to day trading, short-term swing trading, or investing. With both day and short-term swing trading, you risk missing out on the longer-term climbs, whereas investing should be reserved for trustworthy securities that have fundamentals which are promising decades down the road. 3) Have fun; at its best, trading Bitcoin has more in common with playing a game than making meaningful financial decisions.
Key Takeaways
Bitcoin finally popped on consumer demand after we discussed a potential surge last week in this article. This seems like a crypto-led rally since tech stocks are not causing a spike in the market overall. COT doesn't even suggest a big money shift into the crypto industry, so this move must be a retail rally.
The problem we face as the smaller investor always comes down to FOMO or hesitation. When we see the price of an asset spike, we either come to one or two conclusions: we hop in or we stay on the side lines. Both decisions can lead to good or bad consequences, so it is never an easy choice. However, that is when the smart investor will starts evaluating the possibilities.
If you are still not holding any BTC but want to get in, then you could consider what's going on in other markets. For example, the dollar (DXY) is down today after losing just over 2% from the highs last week suggesting that the USD is hurting from inflationary pressures.
Mixed earnings is also causing some uncertainty in the equities market, and investors are unsure of where to put their money. Crypto has been in a downtrend for months that were initially sparked by regulatory concerns late last year. The crypto market tends to go in and out of these cycles making them the perfect choice for profitability one month and an account-blower the next.
Additionally, we know the momentous moves bitcoin and other altcoins can make. So, a pop like this might be an indication that this is where investors are putting their money. This means that the gains on BTC so far could be just the beginning.
Mixed jobs data in the US has caused major uncertainty in the stock market which could be beneficial to BTC (Bitcoin) overall. BTC/USD is up nearly 8% on the day at the time of writing this, while the SPX500 is down a little over 1%.
Although NFP showed us an additional 467K jobs this month, we still saw a rise in the unemployment rate. This caused some uncertainty in the equities markets as well as a spike in crypto. This uncertainty has driven investors away from riskier bets on Wall Street due to high levels of volatility.
A mixed earnings season has also caused investors to worry as major tech stocks miss but still see incredible upside in after-hours trading. Amazon got downgraded and missed earnings, but the stock saw over a 10% spike in price during post market.
The recent tech rally could be helping bitcoin's price as well since the majority of them use or plan to use crypto in their business model over time. There is a chance that this rally could fade due to the fact that there was an unjust surge in tech stocks coupled with mounting USD demand. However, when crypto catches momentum, it rides that wave for a while and for a long time. So, this spike could be the beginning of a larger rally to come.
Breaking the $40K mark was a significant step for the crypto, although it is still uncertain how much farther the coin will rise. I think the momentum going into today's session is a good sign that we could see a couple more like this at least. One key indicator to look for is if BTC can close in the $40,000s to prove that it has broken resistance.
Bitcoin has been vastly oversold due to the fact of regulation concerns from the US government wanting to make a more controlled market just like stocks. For over 2 months, the crypto has fallen nearly 42% from the highs in November, but it looks like it has found a bottom in the $39Ks.
Although Bitcoin received very little interest in COT data last week, I think it's about to gain a lot of attention soon. With the crazy inflation status for the USD, crypto might become something investors would like to put their money in to. Gold, recently, has been underperforming and moves slow even though it has a bullish bias against the USD, and bitcoin looks like the better play in the coming months. The image below is CPI on the USD.
Until the Fed makes a move, the dollar will continue to look weak. And people are tired of waiting on gold, so why not get in on something that can be more lucrative? It is a risky bet for sure, but now is a time where buying something to hedge inflation will be a key play going forward.
Concerns regarding the USD are pretty clear, but there is also an issue being presented in the bitcoin market that needs to be addressed. A technical concern I want to point out is the potential death cross pattern happening with bitcoin where the 50 DMA and 200 DMA intersect and the 50 crosses below the 200. This indicates a bearish move on a technical level, but if we see a swing up from the lows, the two moving averages might cross again signaling a bullish move.
Concluding, I think this this a potentially big opportunity for bitcoin investors especially as we will catch COT behavior later today and where the money is flowing. Interest rates are the biggest concern, but I do think this month and next will be big for bitcoin as the Fed does not intend to raise rates in February at all.
Big changes are expected to happen in the crypto world. Starting with legislation, cryptocurrency will put their foot in the door to try to regulate transactions and trading in the same way they do in the stock market. Read about our other crypto investment ideas here in the A1 Trading analysis tab on our website.
What's New
Cryptocurrencies are now expected to see a lot more regulation from lawmakers in the coming year as the crypto market becomes widely recognized. The US government understands the potential growth and immersion into this market, and whether they agree with it or not, it will become more mainstream, and they are trying to decide how to step in and deal with it.
The IRS And New Legislature
According to the IRS website on cryptocurrencies, holding crypto and using it to pay for transactions can now be considered a tax liability. And it is up to the individual to keep track of their investments and report them when they pay taxes.
The current bill, "Build Back Better", states that you will not be able to buy a cryptocurrency after selling it for a loss immediately after you close. And reporting these trades are not limited to just the digital coins but are also for NFTs. Lawmakers haven't decided a set date to start the implementation, but investors may start pricing in what the market may look like with this news that is to take place.
Our outlook
It's hard to say what I think the market will look like in 2022 and the years ahead, especially since we are still not sure if all these new regulations will be passed. But I do know that these kinds of talks will be more prevalent in the New Year. This may lead to volatility as a result should the majority of these laws are implemented. Bitcoin is down today after this news. Whenever there are discussions of regulation, the market doesn't do well. So, I think it's important to watch what could come out of these new bills because we still have no clear path of what tighter policy surrounding this market has in store.
Trade Setups
BTCUSD
Bitcoin fell 2.55% on the latest 4H candle as it hit support and a rising trend line. A close under this trend line would signify another bearish move, but it could be a decent long setup if price holds above. The 14-Day RSI reads 40 which still is considered undervalued to the average price behavior. Above price are the 200 and 50 SMAs that could serve as resistance.
This is some analysis on the next 4H period. The previous candle closed on the trend line which isn't telling us much as regards to direction or future price action. If you draw a fib level on the current trend from the lows, price could end up touching and bouncing off the 50% level, but it seems that a double bottom found support at the 61.8% level.
ADAUSD
Cardano hit its 50 DMA on the 1D chart before turning back to the downside. Support lies below at the bottom of this long term wedge, and the next level of support lies around the $0.98000s range.
ETHUSD
Ethereum couldn't hold above the rising trend line on the 1D chart, and price tumbled nearly 6% on the day. It looks like the ETH may not find clean support until the 200 DMA. Unless price action suggests a bullish reversal pattern, the pair may continue to tumble to this support level.
12/21/2021
The past month or so has dampened a lot of the bullish sentiment that surrounded the market in the months before. This year has brought not only a new light to crypto, but also the businesses around it. Here are some big things happening in the crypto world that may be the golden ticket of 2022.
Blockchains
NFTs (non-fungible tokens) were introduced to the mainstream which people flocked to just to get their hands on a digital piece of art. What seemed to be a ridiculous idea at first eventually gained lots of traction, and eventually they were selling these tokens for up to hundreds of thousands of dollars.
Many employees in Silicon Valley have left their jobs and started to move to this space. An example of the type of business was described here. But essentially, the company sells website addresses that hold and sell the blockchain. Lots of attention in that kind of space can sound a little concerning for those who lived through the tech bubble of 2001, but bubble or not, more demand will likely start really pouring into this industry of NFTs and blockchain as billions of dollars are moving into this area.
Blockchain Stock To Watch
DKNG- Draft Kings is not only an online betting company, but they also sell NFTs. Tapering discussions have hurt the growth stock's performance this year, but the beaten-down company has growth potential in the online gambling industry and in NFTs as well. In the last twelve months, DKNG has generated over $1.14 billion in revenue with revenue growth of 60% from last quarter.
Trade Setups
Cryptos To Watch (Other Than Bitcoin)
ETH
Ethereum broke out of a wedge on the 4H chart and made another higher high. If price continues to follow this trend, we may see the pair move to $4118 for another test. Candles on the 1D chart suggest hammer rejection patterns with a potential push to the upside.
ADA
Cardano stabilized on support on a newly formed trend line on the 1D chart. Resistance is just above around 1.425018, and above that is the coin's 50 day moving average. Price has been pushed down to the lows of $1.18, so RSI is showing that ADA is oversold.
DKNG
DraftKings's stock made a higher high on the 4H chart suggesting a continuation to resistance around the falling trend line on the 4H timeframe paired with further resistance at $33.40s. RSI is currently at 40 after coming up from a low of 16 at the beginning of December, so price may test that level of resistance before starting to look overbought in the short term.
12/14/2021
The month of November was very poor for bitcoin and the other altcoins as bitcoin's market cap fell by over 30%. Now that we are in the middle of December, indicators suggest that it could be time for yet another crypto rally cycle.
Our outlook
It appears that every month switches sentiment in this market as August was bullish, September was bearish, then back to bullishness in October, and further downside in November. So far in December, price hasn't really moved much in either direction, but there could be a few catalysts that take price back up to the highs again. CPI increased 6.8% which caused a big concern to the stock market and the USD as inflation fears begin to rise again. Further, bitcoin has hit a major support level that could help turn things around for the market. And to mention, 90% of BTC's supply has now been mined, meaning the store of value is nearing peak demand.
Trade Setups
BTCUSD
Taking a look on the 1D chart, price has come all the way down (>30% from the highs in November) and is now touching its 200 DMA. There are several other candles that have tested this level but could never close underneath. This is a good sign for the crypto as the coin has the potential to bounce back from these lows.
11/9/2021
Two weeks ago, COT data showed a flattening in long contracts bought by institutions which then spiked last Friday when big money bought the most amount of long contracts in over a year. Meanwhile, short position contracts declines slightly last Friday.
Our outlook
What I feared last week was big money moving out of these long positions and looking to short the coin after it hit all-time highs. But that fear subsided after seeing this latest report from COT. Now it looks like bitcoin won't be entering into a longer-term downtrend for at least this week, although it could still pullback to support before climbing again.
Trade Setups
BTCUSD
Price hit ATH and looks like it might be ready to pull back, although there is still lots of time for the candle to change behavior until the close. Support can be found at the rising trend line that did end up supporting price enough for it to not collapse, and $64285 could serve as additional support as well.
11/5/2021
Despite Bitcoin and the altcoin's market surge, institutional behavior has been building up heavy short positions in the market. The past couple weeks, we have seen very little buy activity from big money while the short contracts are piling up. Bitcoin is down 0.73% on the day at the time of writing this.
The amount of short contracts is now higher than last December which is a big warning sign for investors.
Our outlook
I think if you are not an investor in crypto and you are only looking to trade, this could be a good short opportunity. It seems more likely that price will not reach the highs again until it falls considerably in value. If the general shift from these big players is lesser longs and giant shorts, we might have to accept the fact that bitcoin will fall into another downtrend.
Trade Setups
BTCUSD
Price has now crossed under the rising trend line suggesting weakness and a potential drop to support around $58,200s. There is additional support on the 50 DMA, the $53,000s, $50,000 and $48,000s for those who are looking to buy the dips.
A string of articles have come out recently that will make you consider crypto and the potential around the emerging industry. Here are a few article headlines that I will summarize and explain why this is really important to the market as a whole.
Tesla May Restart Crypto Transactions Again
Several months ago, Tesla decided to stop bitcoin transactions because of environmental reasons. However, the EV and space exploration founder is a firm believer in the future of crypto and has said that he would continue transactions should the amount of energy from mining start to make less of an environmental impact and become cleaner and more efficient.
Citi Starts Coverage of Coinbase With $415 Price Target, Says ‘Buy Crypto’s General Store’
More implied volatility could be leaning toward the bullish side of crypto as Citi gives Coinbase a price target of $415. They describe Coinbase as the hub for crypto investing that they call crypto's "general store". Although the company's price is very correlated with the performance of crypto, it also provides a service for those investors looking to invest in more than a coin. The sentiment Citi has around Coinbase, therefore, is staunchly correlated to the sentiment they have on crypto as a market. A $415 PT is also a statement towards further gains from bitcoin and other major altcoins.
Bakkt's stock surges on Mastercard, Fiserv deal to broaden use of crypto in payments
BKKT, previously known as VIH, completed its merger this quarter and is now making a deal with Mastercard to work out a simple way to make crypto transactions. Not only is money and technology flowing into this industry, but major institutions and investors are gearing for mass adoption. Bakkt is one of the potential major competitors against Coinbase as it expects to have about 30 million users on their platform in the coming years. More competition, money, technology, adoption and attention is going into this space which can only mean one thing: the market will just keep getting bigger.
Whether it's stocks or individual coins to invest in, I think it's imperative to look more into this space if you are a speculative investor trying to find that once-in-a-while opportunity that could potentially stack your portfolio.
