Hello relief rally! Is it time to be a contrarian?

Looks like the relief rally is here and April might turn out to be less dramatic than March — but that might just be my optimism speaking.

Time to be a contrarian?

While bitcoin is technically immune to catching the virus, it clearly hasn’t escaped the continuing economic fallout from this slow-motion covid-19 car crash. Thankfully, the hashrate has started to recover after its second biggest drop in history, which is a great sign. For those finding it difficult to escape the bearish box we’re in, the chart below may provide some perspective. Clearly, bitcoin’s hashrate is in an uptrend and this is fundamentally much more important than any short to mid-term price-action. As long as the fundamentals emerge stronger, most price hiccups can be considered as noise relative to the general trajectory on a long enough time frame. Of course, too much time might mean our bodies might expire before new all time highs but there’s no precedent to spend any time on that.

In layman’s terms, the recovering hashrate speaks to the fact that the bitcoin network is incredibly robust with built-in mechanisms to withstand pretty much anything short of an entire shutdown of the Internet — in which case the network would still be recoverable due to nodes orbiting the stratosphere.

Bitcoin closes on a modest bearish rejection

I couldn’t comment on the monthly candle in the last mailshot, but now that March is behind us, there are some interesting developments that allude to the increasing probability of a reversal, in line with our projections for the next 12–24 months. Indeed, bitcoin has only ever seen a monthly hammer candle once before in its history. Back in August 2015, btc endured a 43% sell-off followed by a month of virtually zero movement and a subsequent major trend reversal to the upside. While events surrounding both these dumps are not the same, and the usual caveat that history doesn’t necessarily repeat itself remains a thing, it’s important to notice that news on the 2015 dump focused primarily on major liquidations on popular exchanges like Bitmex and Bitfinex. This sounds eerily similar to what the market just went through in March. Now that the liquidity crunch is over and a relief rally has provided precious time for investors to reload (further eased by the trillions in monetary stimulus), it’s time to take the contrarian outlook more seriously and begin the hunt for entry points for an eventual turnaround.

There is of course a flip-side to all of this, where bitcoin could continue to slide lower in tandem with stocks and other markets as we head deeper into a 1920-style depression. However, the likelihood of different markets continuing to move together is becoming slimmer as the initial shock subsides. Several news outlets have also been caught adding fuel to the fire by obfuscating events; in one case borrowing footage from Italy to explain-away the situation in New York hospitals. Needless to say, the importance of honest reporting during a crisis cannot be understated and spreading fake news has unfortunately become a staple of traditional media outlets. The road to hell is paved with good intentions but let’s not get lost here..

To cut the long story short, this relief rally does not mean that markets won’t go lower, but rather that stocks and commodities will probably correlate less after the initial liquidity crunch, even if the general trend is downwards.

For example, while it’s highly likely that the S&P will continues to slide in light of the fact that workflow has literally halted, it’s less likely that gold and bitcoin will slide at the same rate given that their inflationary hedge properties should increasingly be reflected in prices as things adjust post-panic. That said, whether you’re a bull or a bear on stocks right now, the S&P will probably revisit the 2000 point region, either to confirm a dead-cat bounce or to set a double-bottom. While this is not financial advice, both scenarios carry very different weight and significance in the broader economy and are highly dependent on the two prospective rally events laid out in our previous newsletter.

Bitcoin on the other hand, has probably already set its yearly low and after a prospective support retest will probably move to higher levels after its massive weekly capitulation candle. As you know, there are a total of zero circuit breakers in the bitcoin market, which is to say that crypto witnessed the full brunt of the merciless sell-off on March 12–13, unlike equities which paused every time markets hit “limit down”. Another reason to begin taking a more bullish view on bitcoin is that everyone is bearish, and if there’s one thing to take away from this bipolar market, it’s to step outside the echo-chamber and become a contrarian, if only to flirt with the idea of a reversal.

Doom and gloom news running on fumes?

Meanwhile, Visa has stated that consumer-spending has “sharply declined”, even online. The same can be said for bitcoin which has also experienced a major contraction in transactions. The reasons for this are all around us so I will avoid boring you to death with it.

On seemingly positive note, China has reported that its manufacturing activity has rebounded following relaxed anti-disease controls. This comes from an official Community party survey so take this information as you will. The PMI manufacturing data from China showed a reading of 52 which is higher than the 44.9 that was projected by various analysts during last month’s apocalypse. Briefly, the Purchasing Manager’s Index is a survey that asks people inside companies who are responsible for purchasing things how they feel about the economy. A reading of 50 indicates that purchasing managers expect a better month, while a reading below 50 means the opposite.

USDT balances on crypto exchanges exceed all-time high

It’s not about how hard you hit

Ultimately, the free-market arena is merciless and often enough tests everything to its limit. Always remember that bitcoin continues to exist in spite of this. I leave you with a video and quote befitting this arena.

Let me tell you something you already know. The world ain’t all sunshine and rainbows. It’s a very mean and nasty place and I don’t care how tough you are it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That’s how winning is done!”
― Sylvester Stallone, Rocky Balboa

If you got this far, then might as well go the extra mile.
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Originally published at https://mailchi.mp.

Journalist-turned crypto-writer & analyst; forging the narrative, stacking sats. Subscribe to the newsletter!