Today, by popular demand, we consider the recent price action in bitcoin.
We have been warning for some time that bitcoin is in a bear market.
Bear markets are not good environments in which to be long, bitcoin bear markets especially so.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
But bear markets do also end, and if you can nail the low, you can make out like a bandit.
I can see one scenario in which yesterday was the low. I can also see one in which we head lower.
Let me outline them both to you – and you can decide, along with the rest of the market, which is the most probable.
Here’s the bullish scenario for bitcoin
We’ll start with the price action itself. $64,000 was the high for bitcoin; we hit that back in April. Then bitcoin fell over 50% in just a few weeks, hitting a low of $30,000 in mid-May. Since then bitcoin has had a couple of rather anaemic rallies that have petered out around $40,000, and the price has returned to $30,000 again.
First comment: bitcoin is extraordinarily volatile. If you can’t stomach the volatility, then take smaller positions. or take a long-term view – “I think bitcoin will be much higher in 2025 than it is now” – and ignore the short-term volatility. Go to the beach and stop looking at your phone.
Bitcoin is less volatile than it used to be, and it will get less volatile over time as the new technology goes mainstream, but it is still extraordinarily volatile. Either find a way of coping with the volatility, or accept that bitcoin isn’t for you.
So here’s the positive scenario: “from false moves come fast moves in the opposite direction” is a phrase you have heard me utter – or rather read me utter – on these pages many times.
Many traders call these situations a “head fake”, and they tend to occur around obvious points of support or resistance – such as bitcoin at $30,000 now. They often occur at the start of major trends.
For example, a security has been knocking on the door of $100 for yonks. Finally it breaks above. Everyone thinks the security has broken out. It then collapses. It happens all the time at the beginning of bull and bear markets.
$30,000 was an obvious area of support for bitcoin. It tested that level three times over the last month. Yesterday it broke down below to $28,950.
Cue peak hysteria in the nocoiner press (which is most of the press), peak noise from the bears, and peak pain for the bulls. It’s the headline story in the Financial Times, which is top of the publication pile when it comes to getting bitcoin wrong – and bitcoin then rallies $5,000. It’s as textbook a head fake as you will ever see – and from false moves come fast moves in the opposite direction.
I’m not a great fan of Elliott wave theory, which looks for recurring wave patterns in charts, but there are many who swear by it. No matter. If you are an Elliot waver, you will look at bitcoin’s price action over the few months and see as textbook a five-wave down as you will ever see. It’s another bullish indicator.
Finally, I remind you that 30%, 40% and even 50% corrections are normal in bitcoin bull markets. They come with the territory. In 2013 bitcoin went to $200, collapsed to $70 in April, and by November it was nearly 20 times higher.
And here’s the bearish scenario for bitcoin
So that’s the bullish scenario. Now for the bearish scenario.
It’s a pretty simple scenario, really. It’s a bear market. Crypto winters tend to go on for more than a year. There was way too much bullish sentiment at the top in April and that needs one of bitcoin’s 80%+ corrections to purge.
There’s another saying in technical analysis that you will have heard (read) me say – “the more time a level is retested, the less likely it is to hold”. $30,000 looks like it’s about to give way. If $30,000 goes, then $20,000 comes into play, and after that, $12,000. To go back there would be typical bitcoin price action.
Moreover, the last halvening (when the mining rewards and the inflation rate both shrink) was in May 2020. Post-”halvening” bull markets tend to peter out after 12 months. This is the “right” time for it to have ended.
The trend is down. It’s going lower.
So which of those two scenarios looks more likely to you?
As you can see, it’s quite easy to make a technical argument for both. I can just as easily make fundamental arguments. The technical genius of bitcoin, the spread into the mainstream, the scalability of tech are all arguments for higher prices. Government clampdowns, green energy, and the rising US dollar are all arguments for lower prices.
So forget about the waffle. What am I actually doing with my money? Actions speak louder than words and all that.
I have a long-term position in bitcoin. I think it’s going much higher, eventually, and I’m ignoring the short-term volatility. I haven’t added to my position, but nor have I taken away. I was tempted to add at $30,000, but not tempted enough.
If it goes to $20,000 or $12,000, I may add. I’ll deal with that if and when.
I am what they call a HODLER.
See you on the beach.
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
Should your business invest in a VoIP phone service?
Here's what you need to know about VOIP (voice over IP) services before landlines go digital in 2025.
By David Prosser Published
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
Best investing apps
We round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
By Ruth Emery Last updated
The top funds to invest in
Tips Tech-focused funds are continuing to attract private investors and Scottish Mortgage falls back into favour - we look at the top fund, trusts and stocks investors are pumping their money into in the last month
By Vaishali Varu Last updated
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published