History Repeating: is Bitcoin in a Macro Expanded Flat Correction?
Every end is a new beginning — this is the edict of open interest in crypto. In this analysis, we’ll take a closer look at speculation regarding a looming executive order from the US government as well as lessons we can learn from the behaviour of previous emerging tech markets, namely the S&P 500.
Let’s dig in.
US White House to Issue Executive Order on Crypto in February
The US Biden administration is set to release an executive order on cryptocurrencies in February, according to a Bloomberg report released this weekend.
The executive order is expected to be a government-wide strategy which assesses the risks and opportunities of the digital assets.
Check out the full article here!
The purpose of this newsletter is to provide context to cryptocurrency markets. This analysis takes time to write-up and it’s released every Monday and Wednesday. I am not perfect and this is not a science — nor is this newsletter a signals service. While I cannot promise perfection I do my best to be honest and transparent. I am also working on keeping my wording simple and to the point. Please bear with me.
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BTC in expanded flat correction?
Bitcoin is down 22% since last week, exchanging hands at $33,600 with an increasingly grim-looking market structure.
Bitcoin/Dollar is pushing lows not seen since July 2021 as an aggressive sell-off grips market participants. The relative strength index reached a low (20) not seen since the March 2020 black swan event, indicating extreme oversold conditions within what appears to be a macro trading range.
But there’s light at the end of the tunnel. Decades ago, the emerging tech market witnessed a similar market structure unfold. This could provide clues as to which trajectory bitcoin and the crypto industry at large might follow in the months ahead.
This is a snapshot of the S&P 500 during in the dot.com era. Prices formed a macro trading range, then took out either side before finally bottoming and never looking back. Bitcoin has done this exact move, minus the deviation below the range lows so far.
This behaviour preceded mainstream adoption before.
Bitcoin and crypto are still considered risk-on assets which form part of an ‘emerging tech’ play. Those of us who have been around for a while know that the industry is unlikely to disappear, but is rather within the latent stages of early adoption.
Drawing parallels from the S&P 500, Bitcoin could bottom out at around $30,000 — $25,000 in a worst-case-scenario situation. Such prices would be a macro deviation or a final capitulation moment which ultimately dictates the end of the macro ABC correction. This is called an ‘expanded flat’, technically.
The other day I jokingly said that a news headline about Michael Saylor’s average entry price ($29,800) will mark the end of the bear market. By definition, prices would deviate below for such articles to make the rounds. At that point, someone at Bloomberg or CNBC could write a gleeful article about MicroStrategy being underwater, potentially causing enough panic selling for whales to fill their buy orders without slippage.
Currently, top traders — some of whom shorted above $50,000, appear to be waiting for a final liquidation cascade to mark the bottom. In previous analyses, I suggested that until the OI/marketcap ratio nukes then one side still has to unwind.
More and more, it looks like funds that are net long on leverage will provide a bitcoin buying opportunity that may never materialise again.
Do not go gentle into that good night,
Old age should burn and rave at close of day;
Rage, rage against the dying of the light.
Dylan Thomas — 1914–1953
Catch you later.
p.s. This is my opinion. It is not financial advice.
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