Bitcoin - A Pivot in Momentum?
Bitcoin - A Pivot in Momentum?
Bitcoin & Altcoin Market Analysis & Weekly Insights #11
Bitcoin, which managed to find support around $42,000-$43,000, has seen a shift in momentum. The lows from September 21st (A wick as low as $39,500) marked the first significant higher low on the daily timeframe. A move above $53,000 in the coming days/weeks would complete this shift in momentum with Bitcoin’s second significant higher high after the highs from September 7th.
The Bitcoin weekly chart shows
Lows of $28,750
Local highs of $53,000 from the week starting September 6th
A significant higher low holding support at $43,000
The higher low at $43,000 is significant as it demonstrates that buyers were willing to purchase Bitcoin at a higher price than the previous lows of $28,750. It is this higher low that leads me to believe we have seen a shift in momentum for Bitcoin, with the chart now set up with a bullish structure - A very different structure from the potentially bearish implications from last week.
Below is the invalidated H&S pattern detailed in last week’s newsletter.
And so… Bitcoin is one again bullish, but to be critical, there is still one more thing that is needed to confirm a technical uptrend for Bitcoin on the weekly and/or daily chart - Another higher high followed by another higher low.
An uptrend is usually considered confirmed by at having at least two higher highs and two higher lows. Currently, for Bitcoin, we have one higher high and one higher low. For those of you who may be seeking an entry, I have seen traders emphasise entries only on the 2nd higher low once an uptrend is confirmed, meaning perhaps an entry on a pullback is the optimal strategy in the event that we break above $53,000. I leave that decision up to you, I cannot advise it and I do not use this methodology for trading personally.
Here is an example of how Bitcoin could create the structure of a confirmed uptrend
More on trend analysis here
Personally I am more aggressive on my entries. I prefer to make purchases after extreme sell off events. In the case of buying uptrend structures, I am more interested in purchasing at the first higher low than the second. In the example above, this would have been an entry at $43,000.
Despite this, I have not taken any trades on recent price action. My last trade entry was at $32,000. This way after the crash in May, and I subsequently closed the trade at $49,000 towards the end of August.
Overall, Bitcoin is looking great in my opinion. An entry for the short term, perhaps, is not ideal, just yet, at the current price levels, as we have not seen a significant pullback since leaving the lows of $40,000 a few weeks back. That said, it is hard to argue against the significance of Bitcoin continuing to hold key support levels and for bulls to subsequently step in and drive prices up higher.
Bitcoin Dominance
Let us take a look at Bitcoin Dominance, with the scenario in mind that Bitcoin is gaining momentum for a significant bullish run.
With a major shift in momentum on the cards, should Bitcoin continue its impressive defence of key support levels, followed by strong rallies, my attention begins to shift towards Altcoins.
If Bitcoin is successful in resuming its uptrend, fulfilling many expectations that Bitcoin is, in fact, only part way through it’s cycle, could this also mean that Altcoins can resume their own uptrends, and continue to increase in value relative to Bitcoin. After all, if Bitcoin is the market mover and is only halfway through the current bull run, this should mean , in turn, that Altcoins are also only halfway through their own bull runs.
Exciting isn’t it, the prospect that altcoins could still have tantalising gains to come, compounded on top of the gains they have already seen, despite the bubbly feeling already built up in the market. But let’s not get carried away…
If we were to see this euphoric, 2017-esque rally, based on the previous cycle, we would likely see a period of Bitcoin outperforming the Altcoin market. Of course, should Bitcoin really create another historic price rally, Altcoin’s would no doubt see their valuations increase relative to the USD, however, relative to Bitcoin, Altcoin valuations would likely see a short-term decrease. This is what I am hypothesising, I am in no rush to take a trade on Altcoin/BTC pairs.
As seen in the chart below, Bitcoin Dominance currently sits just above the local support, around 40%. With local highs approaching 50%, there is room for Bitcoin Dominance to increase in the event that Bitcoin continues to strongly rally to $65,000 and above.
My thesis is that this increase in dominance would be temporary, so long as Bitcoin is bullish. Once Bitcoin is some distance into it’s rally and after Bitcoin Dominance sees a temporary increase, I would expect Altcoins to really steal the show. My thesis is that we would then see a significant breakdown for Bitcoin Dominance, below the local support levels around 40%.
Remember, this is only a thesis, and so should not be taken as any more than speculation at this point.
The reason for this thesis, is that we saw a similar situation in 2017, during the last major Bitcoin bull run. After breaking past the 2013 highs of just under $1200, Bitcoin peaked at $3000, before retracing to $1800. After this retracement, Bitcoin rallied to $20,000.
In the build up to the short-term peak of $3,000 Bitcoin Dominance fell significantly before increasing towards the end of the cycle as Bitcoin approached $20,000. A Bitcoin approached the end of the cycle once again Bitcoin Dominance rapidly declined as Altcoins took centre stage. This is clearly shown in the Bitcoin Dominance chart below, with Bitcoin price overlaid in Orange.
It’s important to note that whilst history does not always repeat, it does often rhyme. There are differences in this cycle compared to previous, and so do not expect things to play out exactly in the same way.
Part of my thesis, regarding Bitcoin dominance increasing, is that we will not see as prolonged of an increase this time around. (but that does not mean that I am not considering it as a possibility - anything can happen) My thesis is that some areas of the Altcoin space have substantially more utility and more awareness and acknowledgement from individuals and institutions, and because of this, perhaps we will not see Bitcoin leave the station, without at least some of these altcoins keeping pace.
That said, this is all very much speculation at this point. What has been discussed in this week’s newsletter, is on the premise that Bitcoin still has a Euphoric rally to come this cycle and is also on the premise of past data for Bitcoin Dominance, combined with my own views on the Altcoin space. However, with that in mind, I believe this is a scenario worth keeping on your radar.
For the sake of supporting this thesis, I’d like to conclude this newsletter with a comparison from 2017 to today in 2021. The comparison is from when prices broke the previous all-time highs of $1184, and rallied to $3,000 before retracing to $1,800.
Notice the local bottom of $1,800 is roughly 50% higher than the previous ATH…
Well, fast-forward to today, and we see a very similar picture.
Currently, we have found support just under 50% above the previous all-time high, and on top of this, Bitcoin Dominance is acting in a very similar manner. Will history once again Rhyme, or is this time different?
I’ll leave you with that food for thought.
IMPORTANT UPDATE TO NEWSLETTER STRUCTURE
For a number of weeks now, I had been considering opening up the newsletter, and making paid subscriptions optional, as a form of patronage for the value I am giving. I don’t believe in content being behind a paywall and I want to reach as many people as possible with my insights and writings. Therefore I have decided to make all paid subscriptions optional.
Those of you on a monthly subscription may wish to discontinue payment as it is not required to access future newsletters, however if you do wish to continue this goes a long way to supporting me and is greatly appreciated. Those of you who are on annual subscriptions will be contacted in the coming days, for you to decide how to proceed.
See all of you next week, and don’t forget to subscribe to the mailing list and share this newsletter with one or two friends.