Bitcoin has been around this $20,000 level – or close to it – for quite some time. It’s funny how things work. Trading goes sideways for a few weeks and all traders get impatient.
But folks: be careful what you wish for. There is reason to believe that Bitcoin’s current flirtation with $20,000 could be seen as the “good old days” soon.
What can we say about previous cycles?
When looking at past cycles, it is notable that Bitcoin rarely goes back beyond the previous bull market peak. In this case, the previous bull market peaked around Christmas 2017 when Bitcoin exploded to the upside, trading at $19,345. It is therefore noticeable that we have now dipped below that level – albeit only by a small amount. When looking at the graph, you can see that this represents an outlier historically. I don’t pay much attention to support and resistance – I believe that in the current environment, ominous macro weather is all that matters. Bitcoin, alongside the stock market, only moves on inflation readings and the words of Jerome Powell. However, it would be remiss to ignore psychological whims entirely. They play a factor in all market moves and often in crypto they can be more pronounced than most. This is why I fear Bitcoin is one bad news event away from a catastrophic day and a sharp red candlestick. The world’s largest cryptocurrency has been crabbing at these levels for nearly four months now. The longer you do this, the more important this level becomes. Also, the fact that this crabbing is taking place around the psychologically important $20,000 number adds a bit of symbolism and poignancy. Finally, given the fact that the previous bull peak has been erased, it really does bring all the factors into play.
Macro still calls the shots
Of course, macro is still the leader. And with the state of the world so precarious right now – rising interest rates, rising cost of living, a war in Europe, an energy crisis – bad news is everywhere you look. It’s not hard to imagine a bad news event coming soon. If this event materializes, that’s when I fear for Bitcoin. I wouldn’t be surprised to see the orange coin plummet to a level that many didn’t imagine — at least, not when the talk of “supercycles” was in vogue during the pandemic outbreak. It is important to note that the economy is a different beast now than anything Bitcoin has ever experienced. People forget that Bitcoin wasn’t launched until 2009. That means it never existed before in a high interest rate environment, nor in a world where the stock market wasn’t printing exorbitant gains (the S&P 500 at 6X its lowest point in the GFC reached its all-time high less than a year ago). So, in this context, what’s the point of blindly preaching that Bitcoin has dropped similar amounts before, only to roar back? Today, we are in the midst of a broader bear market, for the first time in cryptocurrency history. The S&P 500 is down nearly 25% this year. Titles are in the trash. Even the king of safe havens, gold, was left behind. Bitcoin is also a completely different asset from previous cycles. There is strong liquidity in the markets and institutional adoption. In short, it is a mainstream financial asset. It is even legal tender in some countries. No one in financial circles has not heard of Bitcoin at this point. So again, what can previous cycles tell us?
When does the red candle come?
Let me be clear. I have no idea when that’s going to happen, so it’s not very good. If I did, I wouldn’t be typing on a laptop, I’d be lying on a beach somewhere drinking a coconut I picked up with my bare hands. I’m just articulating a hunch that I would be very scared of Bitcoin at this point. He’s been stepping on that mark for some time now — and that mark is significant, both in terms of the $20,000 round value and in comparison to previous cycles. Volatility is never far from Bitcoin. So for traders who regret the sideways action – you might look back with envy soon. It wouldn’t surprise me in the least to see a negative news event and a violent fuse below $15,000. Then again – I’m just a kid on the Internet, what do I know?
