Technically, Bitcoin (BTC) today, on its tenth anniversary, may be very reminiscent of S&P 500 (SPX) near its bottom almost 10-years ago.
Looking at Bitcoin (BTC) today vs. SPX, what stands out is the distance between levels near the bottom and long-term moving averages. Currently, BTC sits near $4,000. The 200-day moving average in Bitcoin (BTC) is 50 percent away from the current price (Figure 1).
If you look at the 200-day moving average as the average price over the last year, you might conclude that Bitcoin is due for a bounce back to its long-term mean.
If you look at a chart of the S&P 500 (SPX) from 2009, you can see a similar setup. Post financial crisis, SPX (S&P 500) was 71 percent below its 200-week moving average. S&P was so stretched out to the downside that positive stimulus from the Fed led SPX doubled over the course of the next year (Figure 2).
Continuing to look at the Bitcoin (BTC) daily chart, we see that Bitcoin (BTC) is still $1,000 below the 76 percent retracement of the 2017 bull market. One way to interpret this is to call the move from $5,000 to $3,200 an “overshoot.” $5,000 in Bitcoin (BTC) should have held as support. The likely reason for this overshoot was tax loss selling and an attempt by institutions to hedge falling stock market with CME Bitcoin futures.
Bottom Line: There are always reasons to be bearish Bitcoin (BTC). If Bitcoin (BTC) can’t hold together at current levels with this technical set up, then any future decline in Bitcoin (BTC) could be dramatic and possibly untradeable. Also, every time the crypto Twitterverse gets bullish, that creates a sell signal in people’s mind.
That said, people on Twitter are not running billion dollar portfolios that need to include digital assets. Portfolio managers may need assets like Bitcoin to avoid underperforming peers if stocks and bonds continue lower. If the moving average theory proves to be true, traders should be thinking about buying dips, not fading Twitter punks.
As you might be able to tell, the debate in the Crypto.IQ trading room is heating up. While the talk is hot, Crypto.IQ traders are — as usual — staying cool. They are waiting for the right set up to make money regardless of whether Bitcoin goes up or down. Join me there.