Crypto is Flirting with Breaking the Downtrend

Will This Be the Next Step in Bitcoin’s Journey to the Moon?

Bitcoin has been in a downtrend, along with the rest of cryptocurrency since mid-January or so (the exact date differs by coin). Now many coins are gearing up to break out of the 2018 bear market.

In fact, the short-term trend is trending bullish; many charts consist of little more than bull flag after bull flag from $6.6k BTC/USD to $8.1k. In short, the pattern on the charts and price action points to potentially good times ahead).

This doesn’t mean the downtrend has been fully broken and it’s clear skies from here. It means that the short-term trend is bullish and as a consequence, some cryptos are now positioned to potentially break longer-term downtrends and start a new cycle.

We are in a phase that will either be known as a failed rally attempt or as the start of our next bull run. This is very exciting!

That said, we have seen a few other attempts like this since the January correction.

One attempt was at $16k (BTC/USD); one consisted of two attempts at $11.6k; one consisted of two attempts at $9.1k. There were a few pushes in between (see the chart above where I circled examples of rally attempts in the bear market).

In each case, Bitcoin poked its head above a resistance level to some extent (sometimes taking alts with it, sometimes not), but ultimately failed to break out of the bear market and start a new bull run for 2018.

Those periods felt a lot like this, very exciting, very hopeful, very bullish in terms of short-term chart patterns, but ultimately you know the story. We didn’t start a new bull run; we simply entered another leg of the correction.

That doesn’t mean those were times where it wasn’t worth being in Bitcoin or other cryptos. In fact, some of the biggest gains of 2018 came in those times and the days leading up to them; just look at Ether’s recent chart. WOW.) However, it means those were times in which FOMO buying and coming to the party late resulted in potentially losing money on-paper or selling at a loss.

The point here is, unless you plan to trade crypto, you’ll want to be careful about jumping in too deeply and quickly before trends are fully confirmed. We might argue that “confirmed” is a single 4-hour candle above the trend line, but then if that is the case then about half the attempts I circled on the chart above were “confirmed.”

Those who aren’t fully in sync with the patterns of crypto (most people, including myself to some degree are in this category) may flip open their Coinbase or Blockfolio, or read a news headline about $1k gains in 10 minutes, and think “we are back in businesses!”

Or worse, they may hear on social media that “crypto season is back on and it is straight to $20k from here, better get in before you miss the rocket!”

However, there is a lot more to the picture to consider. In fact, that sort of bullish rhetoric can be toxic for newcomers. It was at $19k, $16k, $11k, $9k, etc. and it was in the 2014 equivalents too!

Those words of warning said, we don’t want to get caught up in the bigger picture when our current environment is full of bullish signs.

The current price movement is great sign of what might be in our near future for Bitcoin and cryptocurrency as a whole. Even if we aren’t going back to $20k, do you really want to miss a potential trip to another number above the one we are at now? No! Of course not.

Thus, as a rule of thumb, it makes the most sense to be bullish when the market is, and bearish when it isn’t, averaging, using stops, and considering strategy in between. We don’t have to consider crypto to be always A or always B; we must accept that it is volatile as heck and can shift between A and B more than once in a short period.

In this current phase we are in a bull market from a very zoomed in perspective and are in a bear market from a more zoomed out perspective, and thus are in a potential transition phase.

We aren’t in any sort of fully confirmed uptrend yet. By some measures, we just barely are; by many, we aren’t yet. Of course, the start of any uptrend looks like this.

Thus you might want to approach crypto now if you haven’t already, but you probably ought to approach it with caution. It is as though you are trying to feed chunks of meat to hungry wild bears; they are hungry, so feeding them makes sense, but they might maul you if you try to approach them.

It will feel good for the crypto community to be fully justified in being bullish again; many will jump into that mode well before it is justified. I would love to see my on-paper monies go up and not down; I don’t like playing the pied piper who leads new users to the hungry bears.

And thus I’d like to explain what I’m cautious about rather than harp on $$$ = yay. I feel as though everyone gets that $$$, good, but risk/reward; so let’s skip past the obvious rewards and focus a bit on the risk.

The main risk here stems from the market we have been in and the path we took to get to where we are right now.

  1. The overall chart of crypto since its inception is insanely bullish and volatile.
  2. 2016 – 2017 was a bull market (so was the first part of 2018 for alts and Ether).
  3. We’ve been in a bear market since early 2018.
  4. We ended up in the $6ks more than once in 2017 – 2018. There is strong support there; it makes sense that we fell to that level and then attempted to rally again.
  5. However, the path from the $19ks to the $6ks was filled with little more than opportunities to trade and get trapped. The bulls rallied many times, but each rally failed, and when sell-offs came they tended to be harsh.
  6. In the $6ks rallies were weak, and even within that range rallies tended to result in quick sell-offs. However, the stagnation at the lows hinted at what was likely the case (people were accumulating coins at the low while others panic sold).
  7. It looked as though things could go either way in the $6ks despite the accumulation and some other signs of an incoming rally. There were some legitimate reasons for concern there. However, a giant short squeeze happened, and then a record number of shorts (which were at an all-time high) were forced to cover their positions. A wave of buying took us straight up the elevator to $8k. It then retraced before making its way back up past $8k again.

The foundation on which this rally rests is a little shaky, and all price action in the near rear view is full of failed rallies and quick and brutal sell-offs (almost as gnarly as the big jump from $6.9k to $8k).

We could go higher from here, but we could also sit at any price we reach and start to see those who accumulated in the $6ks simply sell off gradually and then eventually step aside while the bears maul the plebs again.

Since you are likely a pleb, this likely isn’t as attractive to you; this is how people got trapped at $19k, $16k, $11k, $9k, etc.

Those words of warning aren’t the only things going on. The rally may last, or quick price action may act as a springboard for a bigger rally, or we might see sell-offs like early 2018 happen again in this phase. It means that the foundation of the rally is a single giant green candle (not, for example, weeks of organic price action). Thus, the foundation is arguably a little shaky. If we fall all the way to where the green candle started, we could, for example, see an even bigger red candle at that point with all the short positions cleared out and the market yet again shaken. There is ugly downside potential.

One other thing to consider is this; we need to do more than just stick a giant green candle through resistance lines to start a new bullish path. We need to maintain days if not weeks of waves without giving too much back.

Right now we have a few solid days of a bullish action with BTC (and even a little more with alts), and we have not been giving much back. We can afford and expect some retracing in here as price action tends to come in waves, not straight lines.

However, what we can’t afford (but might see) is for the rally to falter. We might be met with giant red candles, have the bears take back over, and then wind up with a bunch of people who didn’t set stop losses sitting on bags from whatever range we falter at. Those bags will be bought from the bears who themselves bought them in the $6ks while others were panic selling; it’s not a pretty picture if you get stuck on the wrong side of this.

In 2014 we had many rally attempts in the long bear market the 2013 bubble produced. The result was some opportunities to take profits for the experienced and nimble, but lots of chances for people to sit on bags for years as they watched the price of crypto crumble. This is really where the term HODL comes from).

A short-lived rally due to a number of shorts having to cover, may spur on some FOMO buying, but then it can fizzle out. It isn’t the start of a new cycle. It is a wave in the current cycle that runs the risk of trapping those who come to the party late.

Waves are fun to ride if you are good at surfing. However, those who are just learning to surf might end up as shark food.

As a person who runs a crypto site read by people of all skill levels, I feel honesty is essential. I don’t want to be a shill who fills newcomers with this sense of overconfidence and promises them $100k Bitcoins tomorrow. Those who make big promises may not be malicious. Perhaps they believe this in the moment. I won’t tell a newbie that HODL means “don’t sell, because it is all profits from here.” That is not a realistic picture. That is the con that people tell their downline in Multi-Level Marketing schemes or what cult members tell those they trying to indoctrinate.

This isn’t a cult. It is a volatile, fun, and potentially profitable to invest in and trade sets of digital assets exchanged in a loosely regulated 24/7 global market full of pump and dumps, mania, and depression. It can go to “not fun” and “not profitable” quickly if you make mistakes.

The reality is that we could be on the first part of the path to the moon. This could be it. However, rallies like this are common in both bear and bull markets in crypto. The giant candle wasn’t common, but the rest is.

Here in the $8ks, shorts are now squeezed. Thus, it is now up to bulls and new buyers to come in and bid Bitcoin back to $20k over the course of weeks and months.

That is a tall order. It is expecting a lot given how recent and harsh the correction was.

That means we still have every chance in the world to fall back down to new lows on the one hand, and a lot of hints that we could be reaching new highs on the other hand.

If you can utilize stops and manage your capital well in these times, you can make a killing here and be set up for a potential uptrend. However, those jumping into crypto headlong need to be cautious. Giant price movements like this are FOMO inducing, but if you aren’t ready to see the equal opposite, you are likely coming into this ill-prepared.

“And so Dr. Beckett finds himself leaping from life to life, striving to put right what once went wrong and hoping each time that his next leap will be the leap home.”

– Quantum Leap Narrator

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...

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