Bitcoin’s Price Range Has Been Narrowing… What that Means is Anyone’s Guess, but Why it is Happening Seems Clear Enough
Bitcoin is sitting at about the price it was before the mania kicked in last year ($6.6k-ish). There is a lot of buy pressure and a lot of sell pressure. Although the approaching U.S. tax deadline is relevant, the price likely has little to do with recent news and events.
In other words, while it does matter that U.S. tax day is coming up (if you don’t have money for the tax man, you have to sell some of your crypto, same goes for exchanges who owe the income tax; it is likely this will hold back any real rally for the time being) and it does matter that nations and investors are developing positive or negative stances on crypto (like George Soros being interested, that is bullish, LongFin and Verge problems, that is bearish, some news about Japan and Coinbase, bullish, India being standoffish, bearish, etc), but none of that really explains why Bitcoin has spent the week relatively rangebound while altcoins reacted to that.
What explains the current situation is in my opinion just the market responding to the price action that has occurred thus far.
In simple terms, it is likely a natural effect of the last few months of price action coming back like a specter to haunt crypto as it stands in relation to its overall history.
Bitcoin’s very long term trajectory has been bullish. I mean, it went from a penny to $20k in less than a decade, and most of that trajectory was up (outside of a few bubble and bust periods). However, in 2017, Bitcoin bubbled up again starting in November, while the rest of crypto followed shortly after. Then all cryptos went through a correction phase starting in the January 2018 correction.
Now, after reaching the level we started at with Bitcoin back in October – November 2017, buyers and sellers (big money, miners and exchanges with an interest in crypto, and the average-Joe traders / investors still in the market) are having a cash war that is resulting in stagnation at this point and will determine the trajectory from here. On top of all that, U.S. tax deadlines and other news are having an impact (they are impacting the already present trend, not acting as a root cause in my opinion).
In other words, it isn’t some event that explains this market first and foremost, it is the charts, indicators, supply, demand, and the intentions of the investors and traders left in the market that is underlying the current volatility and price action.
It is the fact that the path we took from the top to the current price has resulted in indicators like moving averages creating tighter and tighter overhead resistance levels that are resulting in a push down to historically strong support levels, which is resulting in Bitcoin being confined to an increasingly tight range (which no one wants to be caught on the wrong side of when trading, and thus lots of stop losses and margins are triggering when reversals occur, creating giant red and green candles).
Ultimately, the squeeze is going to result in 1 of three wildly different things 1. big drop toward the next support as long positions are covered (forcing Bitcoin into a new lower range), 2. a big push to try to break out of the overhead resistance as short positions are covered (giving Bitcoin another chance at recovery), or 3. more stagnation and cash wars until something breaks (this would likely result in a gradually incline or decline with small fluctuations in either direction; try not to get FOMO when the fluctuations occur and instead look for clear trends unless you are focused on range trading).
Sure, we are all looking for that bad news or good news to push us one direction or another, and when we move (especially if the move is big) the headlines will reflect that still unbeknownst to us justification, but for the moment I can’t really see an event aside from maybe U.S. tax season truly impacting the market to such a degree that we could just look to that to explain away all our questions.
Instead, I can look at asset bubbles from history (including the many in crypto charts) and say “yep, this seems about right… this happens all the time, and anyone can guess which way this stagnation will play out.”
In a chart that looks like a bubble and bust, in a speculative bubble and bust economy, one has to assume that major events like Futures trading, South Korean exchange raid, Binance “Hack,” and G20 memo are at best catalysts that pushed the price in the direction it was likely heading anyway. There is no single cause that explains everything.
To me it seems that this is similar to sellers preparing for 2014 part 2 (a long downtrend followed by a long recovery), buyers for 2017 part 2 (a quick recovery and a fractal-like pattern), traders trading, holders holding, and miners hoping we can retain some reasonable price points.
No one knows for sure, people are betting on all these possible worlds with increasingly big bets, and it is resulting in temporary stagnation.
This is undecided territory. It could be A, B, or C. Even those who think they know (the biggest players with the strategically implemented game plans) probably don’t know for sure exactly what is coming next. This could mean that whatever comes next is volatile; as all sides will have to react quickly.
There is money to be made regardless of what direction crypto goes, and there is historical precedent for going either direction.
Thus, people should plan accordingly to avoid being caught off guard and avoid going into this next phase overextended and unprepared. We have stagnation, in a bear market, wrapped in a long-term bull market, with a bearish short-term chart, of a speculative asset, whose future is somewhat uncertain on a number of levels. We have the potential for $100k Bitcoins. We have precedent for $1k Bitcoins; we could see anything in between at any time frame depending on what happens from here.
In a market like that, positions need to be taken carefully. Missing out on the upside is not appealing (hence FOMO), but avoiding the downside and living to fight another day is.
Given this, Bitcoin stagnation isn’t the worst thing that can happen. For one, it gives people time to become confident in crypto and build positions. For another, it might give some alts room to move on their own (presenting opportunities to traders who want to take that bet; alts generally preform well when BTC recovers, and generally drop quicker than BTC when BTC drops… although not always, each coin is ultimately its own beast).
We don’t think of crypto as a stagnant thing, but honestly, I’ve been watching the market for long enough to know that there are often periods of stagnation in crypto. Sometimes Bitcoin stagnates, sometimes certain alts do, sometimes the whole market does.
In these periods of stagnation, people accumulate over time. Those who want to get out and unload their stack do so over time. The mania gives way to a mix of hope, frustration, and boredom. Afterward, we may see a gradual increase or decrease in price with a few fluctuations until we reach a future point when big moves are finally made again. I suspect the big move will be up when this is all said and done, but if it is 2014 over again, then that move could be months or years out.
Stagnation might be healthier for crypto in the long run, because it’ll attract more conservative investors who are turned off by the pump-and-dump nature of crypto from November 2017 – today.
That said, if I had to take a bet on crypto, I would not bet on stagnation for long. I’d bet on one or two more big upward or downward swings before we really choose a direction between down or up.
Of course, big swings are not the sort of stagnation that is going to attract the average investor. Thus, we have a bit of a catch-22 in that.
All that said, one should consider that while taking a position now may be potentially rewarding (nothing more rewarding that roughly timing the bottom), it is also risky (as we have no crystal ball to tell us where the bottom is for sure).
Taking a specific position now means you wouldn’t be reacting to a trend; you’d be betting on a specific outcome during an uncertain time. Watch out for FOMO and don’t let a temporary price fluctuation throw a wrench in your overarching plan. If you know you’ll FOMO in high, then consider other strategies like accumulating at recent lows. If you know you are waiting for a clear trend, then set some alerts, glance at the charts every once in a while, and try not to let the imbalance in the crypto force throw you off balance as well.
Ultimately there is no clear move, and even if there was, we aren’t in the business of suggesting how you should react (this is only about helping to offer a rough sketch of where we are at now, and to help you see what options are on the table, so you can make smart choices that fit your tastes and tolerances).
Bottom line: The price might either be good right now, or not at all. It all depends on what happens next. However, since the market is uncertain, one should approach trading with caution. Do your research and make your investment choices! But do it in a way that is fun and safe so you can enjoy the crypto coaster rather than having it weigh on you 24/7. When Bitcoin is out of balance (for example range bound, after months of correction, and volatile within that range like it is now), it is easy to internalize that uncertainty (that sort of manic depression). We don’t tend to make the best choices when we are emotional and off balance, so make sure you are enjoying crypto on your terms and following a strategy that suits you. We are likely to have brighter and clearer times ahead, capital preservation and patience are good qualities, but there is always plenty of room for risk takers. Again, its a matter of personal tastes, tolerances, strategies, and goals.