The Bitcoin Breakout We’ve All Been Waiting For

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The Bitcoin Breakout We’ve All Been Waiting For

Bitcoin Breaks Out And Sends A Bullish Sign

Bitcoin broke above the $8,000 level giving a firm signal of bullish activity. This is the breakout we’ve all be waiting for, all of Bitcoin bulls that is. The price of BTC has been in consolidation for nearly a month after posting a near-record rally in the preceding months. The consolidation attempted to break above $8,000 a couple of times but was rejected each time, until now. Over the last 48 hours the world’s leading cryptocurrency drift up to $8,000 where it caught a wave of momentum and shot 10% higher in a mere 24 hour period.

The breakout is a clear sign of bullish activity and slowly dwindling supply of bearish traders. Remember, there are no really good ways to short physical BTC which means you have to own BTC in order to sell it. The price action over the last 12 months suggests the massive wave of selling that began with China’s crackdown on BTC is over. What I see in the charts is that there are a dwindling number of holders of BTC who want to sell and those that do are realizing they can do so at a higher price.

The $8,000 level marks the top set last July. This top was the last major top before BTC prices broke down to hit the lows around $5,000. Now that this level is broken the market is back into solidly bullish territory and at levels were larger moves can be expected. The next major target is near $12,000, once that is broken that next is $16,000 and then $20,000. There is a chance of some resistance at the $9,700-$9,900 level but I think it will be short-lived. Traders at this level, once the market reaches it in bullish-fashion, will be easily converted to HODL’rs and help support the next wave higher.

Litecoin Is Throwing A Bullish Signal

There isn’t much to say about Litecoin other than it is throwing a bullish signal. The weekly charts clearly show an asset moving above a key resistance point with supporting technical indications. The first and most obvious is the candles. The candles are moving up from support at the 150-day moving average and forming a Rising Methods continuation.

I call it a Rising Methods instead of Rising Three Methods because there were six candles between the two long green ones. The key points are that the long green candles are present and bullish in and of themselves, the second green candle opens high and then closes higher than the first, and the intermediate candles confirm support at the moving average.

Along with that the indicators are also bullish. MACD is firmly bullish, steady and ticking higher with the latest candles. The stochastic is bullish, showing strength by moving above the upper signal line, and has some room to move higher. Taken together the indicators show positive upward momentum in a market that is strong and has room to run. My next target for LTC is $183.50, and then $252.00, and then $400. Once LTC gets to $400, likewise when BTC moves up to the $20,000 range, but once that resistance is broken I think both will easily double with such quickness it shocks the broader mainstream investment market.

The Bitcoin Correction You’ve Been Waiting For Has Arrived

Summary

  • Bitcoin finally broke down after attacks on multiple fronts in the past week.
  • JP Morgan CEO Jamie Dimon’s rant revealed how dangerous Bitcoin was becoming to the markets.
  • Bitcoin needed this correction to prove it could weather official pushback.

It is an understatement to say that the cryptrocurrency market has been on fire. Bitcoin (Bitcoin Investment Trust (OTC: GBTC )) made a high near $5000 earlier in the month and since then has seen a number of regulatory and public statements by prominent financiers talk the market down.

For the past few weeks it has been one action after another. The U.S. began by targeting the exchanges and the ICO – Initial Coin Offering – market earlier in the summer. The market shrugged off that news after Bitcoin first touched $3500 and blasted back to $5000.

But the death blow to the current rally came from China. First it issued a ban on all ICO’s, a stronger stance than that taken by the SEC. Then, China’s Ministry of Industry and Commerce announced a ban on third-party crypto-exchanges earlier in the week and Friday morning BTC China announced it was halting all trading as of September 30th.

This prompted a huge liquidation which saw the price of Bitcoin drop 35% in China (local trading only) in a matter of minutes.

To add to the bad news, J.P. Morgan Chase (NYSE: JPM ) CEO, Jamie Dimon, famously came out on a guidance call and called Bitcoin a fraud and announced any of his traders would be fired if they owned any of it.

The market heard that and reacted with a 7-10% drop, which pushed Bitcoin below $4000.

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With Bitcoin now 30% off its high thanks to regulatory push-back, the question is when will the selling end?

Dimon’s Rough Ride

Bitcoin is a sore spot for Jamie Dimon. This is the second time he’s publicly bashed it to move the price. It was this statement, however, that really caught my attention.

“You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart,” Dimon said. “It won’t end well.”

Anything that the market is willing to use as a medium of exchange can be considered a currency. Dimon knows full well that Bitcoin isn’t simply issued out of thin air. Certainly not now with the hashing difficulty so high it takes more than $1000 of electricity to ‘mine’ the next block.

But, what’s really troubling is how much this statement by Dimon misrepresents the current global financial system. J.P. Morgan is still in business because the Federal Reserve, in 2008, issued trillions out of thin air to bail out not only him but all the other big banks.

We live in an age of insane central bank largesse distorting the pricing system for everything, most importantly investment risk, and Dimon considers Bitcoin a fraud?

The truth is that Bitcoin was created because a few people saw this system as fraudulent. I think Dimon is complaining that the market is beginning to choose this new system versus the old one.

Moreover, part of what is driving the explosion of the ICO market and, yes, even the price of cryptocurrencies themselves, is existing tax and regulatory rules which punish people from moving profits from the crypto-space back into the ‘dollar-space,’ for lack of a better term.

The IRS declaring Bitcoin property for tax purposes back in 2020 created a real barrier to capital flowing back and forth between the two spaces. The implication of having to pay capital gains tax on every small purchase made with Bitcoin meant the profits needed to be diversified in other ways.

The draft bill introduced to the House last week, which would exempt transactions below $600, may alleviate some of that in the future. But, for now, the market is frozen.

And this is why it is so easy for these regulatory changes to create liquidity problems. First, they threaten to tax your profits. Then, outlaw diversifying through new company startup, ICO’s, and finally declare unregulated exchanges illegal.

The Breakdown

It was always known that the governments would crack down on the cryptocurrency markets. It would be done publicly in the name of consumer protection. But, in view, it is always done to protect existing interests. And regardless of that opinion, that is always the net result.

Governments around the world are broke. Their debt is unsustainable. As I’ve pointed out in multiple articles (like this one) Europe is functionally insolvent and the ECB rightly fears ending its QE program for fear of a lack of bids if it goes to sell.

China is dealing with the bursting of a credit bubble the size of which dwarfs anything we’ve ever seen. Capital flight from instability there is what gave Bitcoin its first surge of investment funds back in 2020-4.

From where I sit capital flight from Europe and the U.S. is what is fueling it now. A falling dollar (PowerShares DB US Dollar Bullish (NYSE: UUP )) and a politically-unstable EU are the proximate causes.

As we approach the next financial crisis Bitcoin will resume its rise. But, for now, these interventions are working as Bitcoin has dropped more than $1500 from its peak and China’s market went close to bid-less on Friday morning.

They remind me of end of the gold (SPDR Gold Shares Fund (NYSE: GLD )) and silver (iShares Silver ETF (NYSE: SLV )) bull market in August of 2020. As those markets went parabolic and the financial system threatened to break once and for all, the COMEX kept raising margin requirements on futures contracts to shrink liquidity and force selling at the slightest weakness.

It’s the same thing here. Bitcoin was becoming too hot and too much attention was being paid to it. The money is irrelevant. It was the legitimacy that needed to be punctured.

That’s what these moves are about. And, to this point they have been effective.

For now, Bitcoin has support at $3000. It was the breakout point from the last correction. This is where bulls will make their first stand in the next few days. After that the August low near $2615 comes into play.

This market needed a correction. Bitcoin needs to prove itself in the face of government control and regulation. If you are invested in the space I would look to $3000 as the first chance to toe-dip back in and wait to see what happens after that.

It will take a daily reversal-style close on high volume to mark a new bottom here. But, with China’s crackdown there will be turmoil through month-end. The big question is whether sentiment turns bearish. We won’t know that until after a bottom and the first bounce.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I own some cryptocurrencies, but not Bitcoin, a few guitars, some gold and silver and a lot of goats. DIVERSIFICATION is key.

The Breakout We’ve All Been Waiting For

September 9, 2020

The S&P500 and Nasdaq Composite moved above the narrow price ranges that plagued the month of August. It seems the bulls obtained the upper hand at the end of last week. Now, both are trading above their 50 day moving averages, further strengthening the bulls. The VIX (volatility) Index broke its first support level and is now below 16. Although more volatility is likely, as long as the VIX remains below 16/17 area, it should continue to be positive for equities.

The 10-Year Yield continued to move higher today, a positive sign for the market. Furthermore, yield moving up is usually a good indication of an economic recovery. The most popular section of the yield curve is the spread between the 2Yr and 10Yr, followed by institutional investors. Said spread, inverted throughout the last few weeks, returned to normal today. This means that the 2Yr yield is again below the 10Yr yield, which should ease investors’ anxieties about an incoming recession. Remember, an inverted yield curve is associated with a future recessionary period.

So far, this has certainly been a volatile year. Regardless of Brexit, trade uncertainty, and unpredictable tweets, the US stock market (mainly S&P500 and Nasdaq Composite) remains in a strong long-term uptrend. In our opinion, the weakness we’ve seen so far, is merely a consolidation, which should serve as a bullish continuation higher and resumption of the uptrend at a certain point.

Saul A. Padilla

Registered Investment Adviser and founder of Greenwich Creek Capital Management LLC, bringing over 30 years of experience in managing discretionary and non-discretionary investment portfolios for wealthy families and institutions. His main focus is to protect invested capital by re-balancing the allocation of cash, equities, fixed income and alternative investments, while closely monitoring macro-economic indicators and market trends to determine the transition phase between the completion of a Bull Market and the beginning of a Bear Market. He started his career in early 1987 mainly managing family financial investments.

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