Since my article in the August Trends Journal, crypto assets dropped considerably, before correcting up for a few weeks. They’ve since begun another decline, leaving many to wonder how much downside the market has left.
Some altcoins are already down over 90 percent since their highs earlier this year, and with Bitcoin still holding above the $6,000 region, some hope the majority of the downside may be over.
But, the worst is yet to come.
The only true way to understand why, and not why in general or why at some point, but why “now,” is to understand how to read price charts and comprehend the situation at hand.
Charts are predictive—they’re graphical representations of human buying and selling behavior over time, and they work as predictive tools because charts from today look like charts from three hundred years ago.
They show the repetitive nature of human market behavior, independent of time-specific circumstances of any period, and can be used to assess where prices are most likely to go next. And the charts are saying down.
BEAR MARKET HERE TO STAY?
For some context, it’s important to remember that the magnitude of all bear markets depends directly on the magnitude of the bull markets that preceded them; they are not independent of each other.
The 90’s Dot.com bubble saw the Nasdaq quintuple from 1997 to 2000, before collapsing by over 90 percent. Bitcoin did nearly the former in just the last month before its December 2017 top, and has only dropped 71 percent from its high-to-June 2018 low.
To think that this crypto bear market is anywhere near over, suggests one may be too focused on the specifics of this particular market, for example, relying on the blockchain and distributed ledger technologies (DLT) for example, than on what’s far more important for investors: historical market perspective.
It seems clear to most in the cryptoworld that the $6,000 region in Bitcoin is important. Despite relative altcoin weakness, most investors remain hopeful so long as Bitcoin can maintain its foothold on this area. What they don’t understand, however, is that not only is this not what’s important, but that what is important has already been dismantled, clearing the way for anyone following the HODL mantra to be finally and imminently crushed.
In the Bitcoin chart, you can see each of the 2018 lows, hovering around $6,000. What you should notice, however, is they vary a little too much for typical price “support,” locations people buy at because they anticipate others will buy there.
The bottoms range from $5,750 to $6,430, a large range that gives no rationale for why buyers came in at that wide an area. It’s not normal, but the mainstream narrative does little to analyze further. This is to their detriment.
In the chart of the market capitalization of all crypto assets combined (MCA), the red Bitcoin dashes mark where the MCA trendline and Bitcoin prices have aligned. You’ll notice there’s a clear consistency of a single horizontal trend line on the MCA chart that initially supported the market, before the market then broke down through it (the breakdown is marked by the left-side arrow, with where that breakdown occurred on the Bitcoin chart shown with a left-arrow as well).
This is a classic break-and-retest, which implies the next move will be significantly lower. To corroborate the importance of the MCA line, the breakdown through it occurred as Bitcoin broke through $6,800, a seemingly arbitrary price. But those breaks triggered the severe early August drop that took Ethereum from $400 to the mid-$250’s.
The hard sell-off on Sept. 5 occurred right when the crypto market, including Bitcoin, retested that MCA line from underneath. Essentially, the crypto market stayed afloat by getting bought at a certain market cap of about $240 million for the first half of 2018.
Once the crypto market dropped below that, the bottom essentially fell out of the market. Prices pulled back a bit, but the downside is only just getting under way, as there’s no more strong floor. Put another way, the Armageddon many believe may happen once Bitcoin prices break down through the $6,000 region has actually already started.
At this point, there is no legitimate reason to believe Bitcoin will be able to stay atop the $6,000 region floor, if you couple the MCA trendline break-and-retest with the long-term bearish patterns that have formed across the crypto space on the majority of individual charts, as covered in the August Trends Journal article.
In one sense, to anyone not familiar with chart analysis, that the crypto market fell through a horizontal line seems almost trivial. The number of rationales one can use to justify HODLing are as varied as they are cliched at this point: “institutional money is about to come in,” “lightning/sharding/plasma will make cryptos scalable,” or “the blockchain will change everything.” TJ
TRENDPOST
The price charts are more objective, more accurate, and more real than any mirage that promises to turn the bear market upside down. People have held onto the aforementioned hopes since Bitcoin was at $15,000.
Those fantasies do no more now to support prices than they did then. This doesn’t mean it’s the end of distributed ledger technology, no more than the Dot.com crash meant the end of the in- ternet. But it does likely mean the bitter end of the first large speculative DLT mania.