Bitcoin in Risk Zone, Bear Market, Looking for a Bottom (Technical Analysis)

Bitcoin (BTC-USD) is easy to buy, but is it easy to sell? It’s imploding because of supply. It exploded to a huge price of $69,000 simply because publicity increased demand far beyond supply, as most small-time speculators treated it as a “buy and keep the investment for the long term.

Apart from excessive demand driving the price higher in an illiquid market, Bitcoin had no value except as a wire service like Western Union (WU). Such services have a very low valuation compared to Bitcoin. It was a mania speculation, and now that the bubble has burst, the price is falling as fast as it went up.

It is now recognized as a highly speculative risk on the asset. The bear market and upcoming recession create a risk for the environment. Risky assets fall. Purely speculative investments become worthless. Bankruptcy of firms involved in Bitcoin shakes the market. If all the investors want their money back, it creates a run on the Bitcoin “banks”. We are used to being protected from a run on any bank in the United States because the government steps in and stops the run on the bank and covers all deposits. Bitcoin does not have that protection.

I can still see a famous TV talking head, Jim, screaming at the camera that he couldn’t liquidate his Bitcoin position and get his money back. This is a professional caught in a pinch. The poor, small investors have no such recourse to get their money back. Now we know that some pension funds are going to take a Bitcoin hit, as well as some professional speculators and investors.

Will Bitcoin Ever See $69,000 Again? Only if publicity can create more demand than supply in the years to come. It seems unlikely with crypto firms going bankrupt. Yes, there is a limited number of Bitcoins. Yes, if you are smart enough to create a narrative that will make all buyers “buy and hold” and suck in more new buyers because the price is skyrocketing, then there is no limit to how high the price will go before the profit withdrawal starts . Yes, if the Reddit network of traders decided to corner the Bitcoin market, the price could rise quickly. This is the old game of penny stocks and tulip bulbs. Bitcoin is just a new form of such old time speculation in the market. Its biggest advantage in the scheme is limited supply.

As you can see the time to be in Bitcoin was when everyone was buy and hold and everyone wanted to get a piece of the action when the price rose to $69,000. Could it happen again? Everything is possible. Can it happen now? Not with bankruptcy news, investors screaming like the TV talking heads are losing money and regulators stepping in after the horse is out of the barn.

Where is the bottom and can you make money during big bounces in a bear market? The good news is yes, you can make big bucks during a bear market. Just look at the current bounce in the stock market (SPY). The bad news is that Bitcoin is still diving, looking for support and the next bear market.

Here’s our monthly chart showing the winners taking the prize to the top, and now the losers are left holding the bag. The winners were the smart traders on Wall St. who drove it up. The losers are the poor, small investors who used their retirement funds because they thought it would cost $400,000. When Elon said you could no longer buy a Tesla with Bitcoin, you knew it was game over. When the talking head on TV screamed that he couldn’t get his money, you knew bankruptcy was coming.

Note the bounces in the Bitcoin bear market. We believe that Bitcoin is targeting a support test of $14,000. If traders corner the market or Tesla accepts Bitcoin to buy a car, or some other positive narrative, Bitcoin will have a bear market bounce. We don’t think that will happen right now.

Here is the monthly chart showing the rise and fall of Bitcoin and note the supply signals. Aside from Chaikin Money Flow, they haven’t improved yet.