Bitcoin Breakout Or Fake Out

bitcoin economy Jul 20, 2022
 

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Today, July 19th, Bitcoin broke out and set a new 20-day high. A 20-day high is a strong signal of an uptrend. It's probably too early to call a reversal, but if this uptrend continues to set higher highs and higher lows, this will indeed be a bearish-to-bullish reversal.

In this video I want to talk about why analysts have a strong prejudice that the crypto bear market will continue for the next 6 months. Specifically, I want to argue that we should not have this prejudice. Rather, we should just listen to the market. In this video, I will propose five technical reasons why the bear market may come to a swift end, and why the second half of 2022 could be a strong crypto bull market.

But first, I wanted to talk about why there's such a strong prejudice that there will be a crypto bear market for the next 6 months. The first reason is that, in the past, we have seen lengthy crypto bear markets. For example, In 2018-2019 we were in a bear market for 18 months. Since history rhymes, we must have a bear market for the next six months.

But this is the same reasoning that we had in 2021 for a strong continuation of a bull market. In April and May of 2021, everyone assumed that it was too early for the bull market to end. We can't be beginning a bear market in May of 2021, it's too early. Everyone was expecting Bitcoin to go to $100,000. But, the market had other ideas. In May of 2021, the bear market started.

A second reason why we must have a bear market for the next six months is the macroeconomic conditions. With the Fed tightening, we cannot possibly have a bull market in the second half of 2022. The Federal reserve will continue to raise interest rates. Inflation will continue to reach new highs. Since crypto is a risk-on asset, we can expect strong headwinds for the next 6 months. In short, they argue that we can expect a crypto bear market for the next six months.

But, both of these assumptions could be wrong. First, if you're thinking that the bear market just started in January, I could make a strong case why the bear market started in May of 2021. I could make a strong argument that November was a bear market relief rally.

Next, the macroeconomic conditions may not be all that bad. Yes, there are many analysts predicting a long, harsh recession. But, there are just as many analysts predicting a soft landing. We may not have a recession at all. We could indeed have a soft landing. Inflation is high, but consumer spending remains strong. In the first quarter, we saw a shrinking GDP, but job growth has been very strong. Again, recession is far from inevitable, and may not even be likely.

So the assumption that we're going to be in a bear market for the next 6 months is wrong for two reasons. One, we've already been in a bear market for a very long time. And two, Don't think that macroeconomic conditions are going to keep Bitcoin and crypto down. We could have a bull market in the last two quarters of 2022, led in part by a successful Ethereum merge.

So what are my five technical reasons why the bear market may come to a swift end? And why the second half of 2022 could be a strong crypto bull market?

First, the 200-day moving average has always been an indicator of the Bitcoin bear market. For the past 100 days, Bitcoin has been below the 200-day moving average. The 200-week moving average has always been an indicator of the Bitcoin bottom. For the last four weeks, Bitcoin has been below the 200-week moving average.

Second, the Bitcoin market price dropping below the realized price has historically been an indicator of a Bitcoin bottom. In 2018-19, the Bitcoin market price has been under the realized price for 134 days. The Bitcoin market price has been under the realized price for the last 35 days.

Third, the MVRV Ratio is a good indicator of the bottom. The MVRV ratio is a measure of the aggregate unrealized profit or loss within the Bitcoin network. This is the ratio between market value or price and the realized value or price. When the ratio is below one, then the realized price is below the market price. And we typically see 0.85 during the bottoms of bear markets or a 15% loss. So far, over the last 35 days or so we've only averaged 5 or 6% below or 0.95 or 0.94. So we haven't seen minus 15% that we saw in 2019 and 2016. But we have seen Bitcoin sell under the realized price for the last 35 days.

Fourth, we've already seen a massive capitulation in the Bitcoin and crypto markets. When Bitcoin dropped below $18,000 and when Ethereum dropped below $900, we saw a lot of forced selling and liquidations. This was a huge flush, flushing out liquidity, and a lot of people went bankrupt. 3AC, Celsius, Voyager and Vauld went bankrupt. 

In the last two and a half months, we have seen two major events: first the Terra Luna collapse, which resulted in a 28 billion dollar realized loss for Bitcoin holders, and second, during a nine day sell-off (from June 10th to June 19th), we saw another collapse, which resulted in another 35 billion dollar of realized loss for Bitcoin holders. These two events caused the realized losses in Bitcoin alone to be at the highest levels we've ever seen in the history of Bitcoin.

Finally, unrealized Bitcoin losses in US dollar terms have never been higher. Currently there is about 175 billion dollars worth of unrealized losses in Bitcoin.

So when we combine the realized losses and the unrealized losses, this makes it very likely that we've already seen a flush in the system. We have already seen massive forced selling. We have already seen major capitulation. In other words, the bottom could be in. And this recent breakout could turn into a reversal to a bull market.

In closing, question your assumptions. The assumption that the crypto bear market will continue for another six months should be vigorously questioned and disputed. Everyone seems so convinced that the market will go sideways for many weeks and will potentially crash another 50 percent. But, an experienced investor learns to be a contrarian; an experienced investor learns to break from the herd. An experienced investor will have the confidence to buy when others are despondently selling. 

To grow your stack, follow this crypto coach.

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