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Bitcoin. Why it's all over.

Bitcoin block chain

The Bitcoin mania has engulfed the investment world over the past three to four years, but it wasn't until recently that it began capturing the minds of the general public. And that alone, is a pretty good indication that it was all a giant bubble waiting to pop.

I had been following Bitcoin for a number of years now and I am the first to admit that I never had the courage to buy it when I first began following it back when it was US $300 per BTC. My caution has still remained, even after a very good trader friend of mine urged me to jump on the Bitcoin freight train with him when it was still just trading under US $2000. Even at that time I thought he had balls of steel going long the cryptocurrency.

And so I sat on the sidelines watching BTC explode to a high of almost US $20,000 per BTC. But now, I feel justified seeing it move down back below the US $10,000 per BTC mark. I had likened the Cryptocurrency craze to the bubble in uranium stocks back in mid 2000. And as with all bubbles, they never end up pretty for those investors who were late to the party.

So why do I think the Cryptocurrency bubble is over? It's quite simple, really...

 The first clue is that BTC has been making a series of 'lower tops' and 'lower bottoms' and this doesn't happen when you are in a bull market (see chart below).

BTC lower tops and bottoms

click to enlarge

You can see from the weekly swing charts (above) that when BTC was raging higher, these swings were doing the exact opposite - ie higher tops and higher bottoms all the way. When this pattern stopped occuring, that was your first sign that the bull had been broken.

The second indicator is that like all financial asset bubbles, the magnitude and the duration of the bubble always continues for longer than what most people can imagine. We saw that again with Bitcoin. I had flagged to my Time Factor Report subscribers that I thought BTC was headed for US $4,000 per BTC and I still stand by that view. When bubbles pop, you are pretty likely to get a price pull back anywhere between 85-90% from the highs. Cryptocurrencies will be no different, particularly all of the 'newly created' currencies that were being launched into the hype. I am a believer that it will be only the 'stronger' Cyrptocurrencies that will survive. Again, I relate it back to the uranium stock bubble. Only the strongest ones are still around. All of the 'start ups' have since withered and died.

With all of that said, it took me quite a long, long time to muster the courage to actually take a Cryptocurrency trade and it wasn't until just over a week ago that I took a SELL position in Ethereum (the world's second largest cyrptocurrency market). The rationale for my trade was pretty simple, look to SELL when there is a bear market trend, and look to enter positions near key Fibonacci price resistance. In this case, ETH made a very significant top on the major 50.0% Fib point, and that was a cue to go SHORT the market.

I entered my position at $869 /ETH and exited the position about a week later at $569 / ETH, for a 23% profit in under a week (see chart below). On a risk:reward basis, the trade offered me a 6.5x profit compared to the risk I was taking. I will take those odds any day of the week!

ETH Short Trade Mar 2018

click to enlarge

With my first trade closed at a very healthy profit, I am now on the look out for my next trade. With the swing charts showing lower tops and lower bottoms still, there are no prizes for guessing in which direction that trade is likely to be.

Until next time... 

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Monday, 25 May 2020


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