Man oh man, have these Fib levels been difficult to track lately!
That comes as no shock: the Covid-19/lockdown-based dip has wreaked havoc upon the markets, and I have long predicted that the halving time would bring additional susceptibility to volatility.
For what it’s worth, let’s take a look at how things are now.
A State of Flux (still)
At the moment BTC still finds itself in a frequently changing environment, as it has been ever since breaching the long-term base trendline in early March. As I said back then, the breach was indicative of a complete breakdown of the economic world as we know it.
Of course, since then we’ve seen stupefying monetary policy used to prop up an economy which is desperately flailing about in an effort prevent itself from going under. For now, things for the global economy look good, and markets are making bold recoveries. Clearly optimism is returning, buoyed by news of reopening economies as lockdowns are eased or removed.
Make no mistake, the worst still lies ahead of us. The house of cards shook, it did not fall. Economic growth and production were replaced with QE, money printing, interest rate cuts, bailouts, helicopter money, relaxing restrictions on banks and the buying up of junk debt. None of those are worthy substitutes, none of those are even sustainable! The market is absolutely still hurtling down the tracks – destination: collapse. And it’s not just stocks and derivatives which are under threat; the very currencies themselves are at risk, which means that even bonds are no longer safe investments.
My suggestion is the same as always: stick to things that have a limited supply: Bitcoin, Gold, BTC, Silver, Cryptocurrencies, Property* and Bitcoin. Did I mention Bitcoin?
*Note that property has suffered the same inflationary spiral as before (2008) and is probably now overvalued (in general terms). When people start defaulting on their loans and banks are forced to repossess homes, I expect property prices to fall through the floor as banks sell desperately in order to cover their bad debt.
In such a market we can not expect BTC to stay stable, and indeed it hasn’t. Sentiment comes and goes at the drop of a hat, and this has become very visible in recent trends, as I will now demonstrate:
I’ve been using these diagonal Fibs for the last week or two:
But (as you may be able to see), they are already starting to break down. When an indicator starts to fail, you can try to adjust it with mild tweaks (which I do), but you also need to throw it out as soon as it becomes useless. Holding onto a broken indicator for sentimental or egocentric reasons is pointless and counter-productive.
The disturbing thing about this breakdown is that it happened so fast. Not long ago these WERE the new Fib levels. While it took me a while to publish them (short-term Fib levels are not a priority – especially in times of flux), the Tweets shown below are not old!
And now we are in a similar situation, with an entirely new set of (as yet unreliable ) diagonal Fib levels:
The old levels still hold some sway, but clearly they are starting to fail. As I said earlier, this is an unstable time for BTC and sentiment changes rapidly.
As an analyst, I interpret these transitions from one set of levels to another as shifts in market sentiment. It stands to reason that in bullish times the diagonal Fib levels will have a steep positive angle to them. When the markets are flat and non-committal, the Fib levels won’t be diagonal, they will be the standard horizontal levels (which normally work well for non-crypto asset classes). In bear markets, the Fib levels form a downwards channel. A switch in the angle of the channel/levels therefore represents a change in the sentiment of the market. Better pencil that in in your economics textbooks (it wasn’t in mine).
While my long-term base trendline most definitely broke in March, it was not invalidated. I still believe that it is in play – at least for now – and that BTC is working hard to return to its baseline. A black swan event plunged the price of BTC into an unstable position, and now normality is fighting to restore itself:
Interestingly enough, a more macroeconomic view (than the Fib level charts shown earlier) of BTC shows that the broader recovery trend is both unambiguously singular and still intact.
The chart below shows how BTC has been consistently travelling along yet another set of diagonal Fib levels ever since the dip of early March. As long as BTC continues in this fashion, it will reach it’s long-term base trendline again and may then carry on as before.
Looking long-term again we observe how BTC is already back in the “below the trendline but normal” area. If BTC was a patient in a hospital ICU, then it would be “critical but stable”.
What this means is that BTC is beaten, but not broken. In fact – all major trends appear to remain intact! This is good news for crypto!
There are two important things I would like to highlight:
Firstly: I do not believe that the current BTC buoyancy is linked to that of the major markets. BTC is NOT getting bailouts. Also, in times when share prices are rising fast, one would expect stores of value to fall, or at least stagnate (as Gold is now doing). I believe that the current BTC price rise is the market detecting the oversold status of BTC and buying it back up to a realistic price.
Secondly: When the markets do implode, BTC will again fall along with them. The faster BTC rises, the more likely weak hands are to re-enter the market. I expect those weak hands to liquidate crypto holdings (again) as soon as they need to shore up losses elsewhere. Expect another big dip. Remember: this is a marathon, not a sprint.
Yours in crypto
All charts made by Bit Brain with TradingView
“The secret to success: find out where people are going and get there first”
~ Mark Twain
“Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful”
~ Bit Brain