The big rally to 19k had nothing to do with the powers that be, nothing to do with whether bitcoin was a great idea, or a stupid one, and everything to do with a tidal wave of dumb money pouring into the space.
Given that, the only way bitcoin moves to 50k (its a 10-bagger! don’t miss out!) is if an even larger wave of dumb money pours into the space.
Definitely, dumb money can get sucked in by the manipulation shenanigans – which can (and is) used to start initial rallies – but that technique only works in the absence of selling pressure. In other words, it only works if all the current longs decide to HODL.
Right now, we have a huge amount of dumb money that bought all the way up in 2017. They were promised bitcoin $100,000, but what they are seeing is ever-smaller rallies and a declining price. The guys who bought at $3000 and told to HODL (presumably, until $100k) are now wondering if, maybe, they should take their twobagger and go home; many are regretting not selling at 19k, and we know just by looking at the chart, a large number of them have lost the “HODL faith”.
“Sure I was told to expect downturns, but this 6-month thing is ridiculous. I’m out!”
So all those new (2017-vintage) buyers represent selling pressure, and until the selling pressure from them abates, the tether-inspired rallies will just be opportunities for more dumb money to bail out. And of course bitcoin miners are always sellers – they have to pay their electric bills, and the only way they can do that is by selling mined bitcoin.
So who can stop the downtrend? Fiat-whales, and dumb money. That’s it. Bitcoin whales can’t. Miners can’t. Sure, both groups desperately want prices to rise, but they are already long. Only uncommitted fiat can move price higher. (Tether isn’t large enough by itself to do this).
So how do we know when the selling pressure from dumb money (and probably tax-owing whales) is exhausted? Well, we could try riding our motorcycles, heaving a dart at the old dartboard blindfolded and trusting that “the powers that be have decreed $6000 is the ultimate low”, or we can look at the current chart and see if we can get any clues.
While I dearly enjoy riding my motorcycle (no joke, actually), I think I’ll choose the chart approach.
In the 2013 bitcoin crash, the selling pressure had (more or less) been wrung out once bitcoin made its first higher high. I’ve marked that helpfully below. Of course, that higher-high didn’t hold, but the higher high did signal that the bulk of dumb money had been flushed out from the 2013 10-bagger spike high.
And that’s when it was time to start buying the dip – or the breakout. Buying breakout is safer, because you have a fixed price signal to trade off of and a well-defined stop too. Buying the dip, you have to guess “how low the dip will go” and just hope for the best.
Anyhow. Do we see a similar “higher high” signal in 2018?
We do not. All we see are lower highs, and lower lows.