Bitcoin | Losing Steam
Diminishing Demand, the case for Four Figures.
Bitcoin has been on shattering one yearly high after the next. Q2 of 2019 has been a raging bull-run. The Grandfather of Cryptocurrency has surged upwards of %259 since our publication claiming that the cryptocurrency market was in for new beginnings on March 31st of 2019. Just two short days before the first $1,000 dollar upwards candle.
“Another market edge theory that we’re not willing to disclose at the moment, has our bullish Bitcoin target at $4,700. More importantly 4pm CST today and this coming week could mark new beginnings for the Cryptocurrency market.” -March 31st, Bitcoin Price action & Heading.
Our bold claim came into fruition, and Bitcoin exceeded all our short-term bullish targets. The surge came fast and conversely dragged altcoins into deep, deep abysses. In this publication, we will attempt to dissect the contributions to this rally, and what the current market cycle-structure tells us.
Demand:
The Spark
On December 16th of 2018, BTCUSD marked its relative bottom for the year. Over the course of the next 8 days, the cryptocurrency experienced a 35% rise, in the typical explosive Bitcoin surge fashion. More importantly, traditional markets were in decline, and on that same December 16th, indices intensified their sell-off into their yearly low, up until Christmas Eve.
The inverse correlation was hard to ignore back then, and over the course of Bitcoin’s 2019 bull-run, we witnessed several periods of inverse directional volatility. With Indices and BTC pivoting in direction at similar time stamps.
This correlation has our team concluding that much demand for $BTCUSD was sparked by fear and doubt of traditional assets. As traditional markets looked shaky, Bitcoin rallied hard, and as traditional assets looked promising the interim demand for Bitcoin slowed down. A decline in demand results in lower trading volume and hence less buying. Which leads to short-selling opportunities on lower than usual volume, as well as the profit-taking of long positions to reduce risk and exposure.
To further our reasoning for demand and hedging against shaky global markets. On May 16th of 2019, our team published on $GOLD and oncoming rally. Since then Gold has surged upwards of10% and is currently consolidating bullishly above the 7year range resistance, with a bullish formation. Hence, the demand for hedging assets hasn’t been this high, not in the past 7 years.
“Blow-Off Top”
And the Inverse Correlation
As our previous publication mentions, Bitcoin and indices have demonstrated inverse directional volatility. As indices declined sharply, $BTC surged and the opposite is true.
Bitcoin’s current chart resembles several “top” parallels. On July 9th, we issued a newsletter to our subscribers urging for caution and highlighting an incoming bull-trap.
The Full newsletter can be read here:
https://mailchi.mp/f5f75053f03c/crypto-update-7-9-19?e=[UNIQID]
This alert came due to several factors including indices at the time, setting up for a move to new all-time highs. That along with the inverse directional volatility, had our team holding long “call options” on Indices, and issuing short short-selling signals on Bitcoin Futures on 7/10/19.
Touted to have zero correlation with the stock market, Bitcoin has shown several periods of inverse correlation to the S&P, not in terms of daily PnL, but in terms of swing trading and volatility.
As of 2019, S&P swing highs, pivots, and swing lows high been correlating to opposing directional volatility from Bitcoin. The following chart demonstrates a macro correlation between three S&P volatile pivot swings and conversely, three bitcoin volatility and pivot swings:
December 14th — 24th: BTC + 31% | S&P -11.32%
December 24th — February 4th: BTC -17% | S&P +16.77%
May 1st — June 2nd: BTC + 67.95% | S&P -6.94%
As a firm that diversifies in all markets, we’ve observed these parallels to make and derive conclusions, into which assets to long, and which to short, as well as to conclude certain pivot points to each of the correlating assets.
Diminishing demand is what the current global market structure is showing as the interim situation for Bitcoin. But that’s not going to last very long.
What’s next for Bitcoin?
We see a large correction in the works one that could potentially push Bitcoin back to the four-figure range.
One structural parallel is the July through September rally of 2017. a 50%-61.8% correction could be in the works.
This finding can be backed by the principle of Fibonacci retracement, as well as the high volume node present on the chart.
Our bearish bitcoin targets start at:
$10,362
$9,406
$8,298
For the above targets to be valid, the chart must close below $10,852
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Author: George Saber
