This is a daily chart of Bitcoin with the Ichimoku Cloud indicator.
The Ichimoku Cloud is one of the best indicators for detecting trend reversals. When a candle breaks above the cloud from below, it is often considered a bullish trend reversal on the timeframe analyzed. Similarly, when a candle breaks below the cloud from above, it is often considered a bearish trend reversal on the timeframe analyzed.
The shaded area that constitutes the cloud acts as support when price enters from above and resistance when price enters from below. Finishing above or below the cloud is considered "piercing" the cloud. The most valid piercings occur on strong volume and with strong oscillator momentum.
As you can see in the chart below, each time Bitcoin tried to pierce the cloud, it failed and long upper wicks formed showing that sellers were in control.
The bearish marubozu that occurred on Friday, August 17th confirmed that the Ichimoku Cloud continues to act as resistance. This forced me to take profit and sell the Bitcoin position that I acquired at the June lows.
Now the situation is precarious because Bitcoin's price is trapped under the Ichimoku Cloud and we are heading into a time of the year when Bitcoin typically underperforms. On average, Bitcoin falls about 5% in September. See the chart below.
Bitcoin is still trading below its log growth curve. So if one believes the log growth curve is valid, then Bitcoin remains very cheap. See below chart of Bitcoin's log growth curve.
I remain generally bullish on Bitcoin over the long term because I do believe that its log growth curve has validity. With this said, during September, I will be keeping a close eye for signs of a bottom forming. How do I know when a bottom is forming? In short, I look for bullish daily candlestick formations that occur while the Stochastic RSI still has momentum down, and after panic and capitulation have completed. This signals to me that buyers are starting to take control again. You can see my thought process in the chart below.
As you can see in the charts, the candlesticks were telling me that strong hands were buying on June 30th (El Salvador announced it was accumulating Bitcoin), and the day before the Fed meeting in July (someone knew something ahead of that meeting).
As you can see below, Bitcoin rallied 20% from trough to peak following its last buy signal.
Now that Bitcoin has broken below the Ichimoku Cloud, how far might it fall?
Well if the June low fails to hold as support, we can look at the Visible Range Volume Profile (VRVP) for an indication of how far Bitcoin could realistically fall until it finds significant support. That level is roughly around $13,000, or 2019 peak levels.
Although I believe that blockchain technology is absolutely the future, the inherent problem for Bitcoin is that it is an intangible virtual asset with no authority that guarantees its value. Therefore, whenever there is fear in the market, it will always sell off dramatically as market participants flee risk. One should therefore never enter a position in Bitcoin or any cryptocurrency without being able to tolerate complete loss.
With that said, here are some "hacks" you can use to extrapolate when the value of Bitcoin may go up.
1. Check the U.S. dollar index (DXY) chart.
In the chart above, I added a correlation indicator to monitor the correlation between Bitcoin and the U.S. dollar index. As you can see, there is a quite negative correlation between Bitcoin and the dollar index on the weekly chart, and it is apparently statistically significant.
In this case, I would want to avoid Bitcoin when the dollar index is showing signs of strength.
You can see in the chart above that when the dollar index started blasting off over the past several days, Bitcoin started tanking. As long as this strong negative correlation exists between the two assets, you can view going long in one asset as effectively shorting the other.
Why does this negative correlation exist mathematically? Well since Bitcoin's value is measured in dollars (BTC/USD) when the dollar strengthens, this has effect of the denominator in the BTC/USD fraction increasing. When the denominator increases in a fraction, the result is a lower number. Thus, Bitcoin's value as measured against the US dollar (BTC/USD) generally drops when the value of the US dollar increases.
With that said, check out this yearly chart of the dollar index...
As the chart above shows, the dollar index appears to actually be breaking out of a yearly bull flag and breaking above the yearly EMA ribbon for the first time ever.
If true, while this may have many other economic consequences, what might this chart say about Bitcoin's value over the years to come?
2. Money Supply
Below is a chart of the U.S. Money Supply (M2SL) within a regression channel. This regression channel shows how much above or below the mean U.S. money supply currently is at.
Looking at the regression channel I would reasonably conclude that the Federal Reserve is trying to bring the money supply back to its mean (the red line in the below chart). The Fed can achieve this in two ways: by actively reducing the money supply until its reaches then mean or by keeping the money supply generally static over a period of time long enough for the mean to reach the current level. Both of these outcomes are generally bad for Bitcoin because no increase in money supply results in a strengthened dollar. As noted above, by strengthening the dollar, the denominator that measures Bitcoin's value is "strengthening", thus resulting in a lower Bitcoin value relative to the dollar. To put it more simply, fewer dollars should be needed to buy a Bitcoin when the dollar strengthens.
The Fed is also increasing interest rates. Interest rate hikes reduce bank-created money because borrowing decreases. (Credit creates the most amount of money in our economy). Therefore, interest rates generally correlate negatively to Bitcoin as well.
With this said, how might the below chart, which shows an explosive rate of change on interest rates, affect Bitcoin's value? This is the quarterly rate of change on the U.S. 2-year treasury yields. (Yes, the rate of change is literally off the chart)
3. This part is a bit dense, but the basic point is that the Federal Reserve also influences the price of Bitcoin via its reverse repurchase agreement operations.
As the chart below shows, the monthly rate of change in the amount of dollars the Fed was pulling out of the economy via reverse repurchase agreements right before Bitcoin crashed in 2021 is so stratospheric that it is pretty much the only thing visible on the chart.
This reflects both the fact that the Fed was vacuuming up extraordinary amounts of cash (trillions) and that the Fed's use of the reverse repurchase agreements in this manner is unprecedented. In essence, the Federal Reserve's use of reverse repurchase agreements was obfuscating the fact that it was tapering its liquidity support for the economy while still adding assets to its balance sheet (WALCL).
The writing was on the wall for Bitcoin and other risk assets that were beneficiaries of the extreme levels of liquidity that characterized monetary easing.
There are many other charts and economic indicators that one can analyze to try to predict where the price of Bitcoin may go. With that said, one thing is absolutely certain: Although blockchain technology will proliferate in the future, Bitcoin and blockchain technology have only existed for a tiny blip in the history of the financial markets. This blip was during the era of limitless quantitative easing. In face of persistent inflation, that era has definitively ended.
Kommentar
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Meant to say Friday, August 19th for the date of the bearish marubozu
Kommentar
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It's a month later, and some may be wondering if it's time to buy Bitcoin. The answer is simple: No, not yet. Bitcoin has been straddling a Fibonacci level for months, but all indicators suggest it will likely fall again before going higher. I will post when I believe the absolute bottom has been reached.
Kommentar
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Based on my calculations using data from buybitcoinworldwide.com/stats/, Bitcoin is likely to undergo a rapid Fibonacci retracement (which will be perceived by non-chartists as a "crash") in or right around late October 2022.
My calculations indicate that 35 days from today Bitcoin's price will be in free fall.
As always, anything can happen, not financial advice, this is simply an evidence-based prediction using historical data which is not a guarantee of the future.
Kommentar
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Four months later and Bitcoin's price still remains trapped in a downtrend.
So long as the money supply is decreasing, the yield curve is inverted, and the central bank continues to tighten, we should expect the liquidity issues in the cryptocurrency space to persist.
If you plan to hold Bitcoin or Ethereum throughout this period, store the private keys on your own secure hardware wallet and not on an exchange. Be wary of holding stablecoins as they are most likely to de-peg during an acute liquidity crisis.
Very nice analysis, it is not usual to see one with such a huge amount of information and so clear explained.
sashakusak
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Incredible write up! Thank you for the detailed analysis. Super educational 👍🏼
SpyMasterTrades
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@sashakusak, Thank you so much! Glad you learned something from it. I learn something new every day on Trading View myself. The key is to never stop learning.
JOSELHITAF
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Excellent analysis!!! Bravo!!
SpyMasterTrades
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@josehf22, Thanks bud!
nguyenh23
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09Mar20 bitcoin got support at the 300 Weekly MA which is currently at 17222 area. Best to accumulate at that level. Should hit soon.
SpyMasterTrades
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@nguyenh23, Thanks for the comment. It's definitely possible that we break below the June low slightly and get supported there, depending on the level of fear that we see in the market. It's also possible we bottom above the June low. The key is just to wait until panic and capitulation sellers have exited because these types of market participants usually need to exit before we get a significant bottom.
louistran_016
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Revisting this post, so bitcoin did not crash October 2022 / the black swan event of FTX fallout (very similar to Bernie Madoff) results in an extremely unimpressive Nov candle, roughly the same range with Aug and way smaller than May - June panic / inflation peak confirmed / DXY in a weekly monthly downtrend / the bond market calling bullshit on Fed hawkish comments... Do you change your short - medium term outlook on bitcoin? How can we tell if it is in another weekly bear flag, or phase B of Wyckoff accumulation? Thanks!
edit: i find it funny when BTC volatility and daily range now is smaller than the stock market, and sometimes smaller than US2Y
SpyMasterTrades
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@louistran_016, Thank you for your question. My sentiment remains quite bearish until at least Q2 2023, after which point halving cycle tailwinds go into full force. There's little chance that all the liquidity issues are over now in the cryptocurrency space. The central bank has not even finished tightening (or in other words, the central bank has not yet stopped making money costlier and scarcer). It's only after the tightening ends that, on a lagging basis, liquidity issues completely flush out. Until then, where is all the cash going to come from to drive Bitcoin to $100,000? It's pretty much a technical impossibility. So I remain convinced that more downside movement is in store for cryptocurrency. While I am bullish on BTC and ETH for the long term, I remain quite bearish for the intermediate term. I fully expect Binance and Tether to experience a lot more turmoil before we start a major new bull cycle for cryptocurrency. There is simply nothing that structurally prevents centralized exchanges and stablecoins from experiencing a bank run type of event. Thus, they will experience one, and I tend to believe it will likely be in 2023 as the effects of central banks' tightening become fully realized. The worst of this storm is yet to come. The worst always comes when unemployment goes up, which hasn't happened yet. To this day, I still see people on Twitter posting that they are going to take a second mortgage on their house and go all in on Bitcoin or Ether while it's cheap. That's not characteristic of the capitulation and despair phase that marks cycle bottoms. I recommend being patient, as more downside is likely to come.
Perhaps I am wrong, as anything can technically happen. But generally, liquidity crises do not go away quickly. More often they cause contagion, and a flurry of insolvencies, bankruptcies, liquidations, clawbacks, etc. Since history tends to repeat itself, I would give this a read to learn how the liquidity crisis unfolded in 2006-2008: en.wikipedia.org/wiki/2007–2008_financial_crisis
The VIX is sitting at 20 with no term structure backwardation. I remain totally unconvinced the worse is over and a new major bull run is about to begin. My targets are locked and ready for when the real bloodbath begins.
louistran_016
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@spy_master, all fair point sir, Nasdaq structure points to a drop of 18 - 22% next year is absolutely possible. As that event unfolds it will likely drag bitcoin to 13,800 and 10,000 respectively. Would be interesting to see when: - Bitcoin invalidates its infamous exponential growth curve - Inflation dropped and being stable at 3 - 4% range ... what will we decide collectively as a society? May i ask what will happen after Q2 2023 in bond yield and dollar strength in your opinion (comparing to the current conditions), to facilitate an accumulation phase?