Given the weekend rally, we saw three developments that seem worth mentioning: 1) Bitcoin (BTC) has horizontal resistance at $4,069 2) Bitcoin (BTC) has broken out of a diamond formation. The vertical up move on Sunday is consistent with a diamond breakout. The upside target from the diamond is $4,270. The upside target from a diamond is drawn by measuring the distance of the wide part of the diamond and projecting that up from the point of the breakout. 3) A move to $4,270 should lead to break out of a head and shoulders bottom pattern to $5,266 (Figure 1).
The “why” behind the diamond breakout is worth exploring. The first culprit is a short squeeze created by the 24-hour Bitfinex closure due to maintenance. It is possible that there were more shorts than longs, and shorts covered their positions all at once ahead of the shutdown.
Another possible culprit was a tweet from Vladislav Ginko offering speculation that the Russian government will begin investing a part of its $470 billion in reserves into Bitcoin. Mr. Ginko speculated that the investment amount would be $10 billion.
When we analyzed this information, we came up with two angles:
First, this tweet may not be true. The Russians would never invest in a cryptocurrency that was potentially created by the American intelligence community.
Such thinking requires a bit of imagination, but there is a case that Bitcoin (BTC) may have been created by the American intelligence service.
Bitcoin’s 10th birthday coincides with the start of quantitative easing (QE) as a way to stop the 2008 financial crisis. Bitcoin’s birthday is also one month before the February 2009 annual threat assessment. In that testimony, a repeat of the 2008 financial crisis was a listed as a major threat to the U.S.
In the age of the internet and social media, a figure like Satoshi Nakamoto doesn’t just disappear. So, Satoshi could just as easily be an alias for a person or group from the intelligence community. Bitcoin (BTC) may have been created by an intelligence service as a parallel currency in case of a repeat of the 2008 financial crisis and a dollar crisis.
The second angle is more technical in nature. The Russian tweet about Bitcoin (BTC) could be a swipe at the U.S. dollar. If the Russians put out a positive Bitcoin tweet, that gets a crypto rally going, it could be a way to put downward pressure on the U.S. dollar. $10 billion invested in Bitcoin could ignite a rally in crypto and create a macro environment where the dollar falls vs. Bitcoin and other currencies.
Adding to the dollar top angle, we did notice that the dollar vs. the Russian ruble seemed to top out and decline sharply on Friday and Sunday night, creating a possible double top (Figure 2).
Bottom Line: The weekend rally created a nice technical setup for more upside. The reasoning behind the rally seems sketchy, a squeeze related to an exchange closure in combination with rumors not based in reality. It doesn’t inspire confidence.
That said, sovereign wealth funds putting money to work in Bitcoin (BTC) may be a major positive theme for 2019. Such a wave of buying could start once charts show confirmation that an uptrend has started.
Whether you are bullish or bearish, the Crypto.IQ Trading Desk is working with our analysts to come up with nimble strategies to profit from the next $1,000 move in Bitcoin (BTC). Join me there.