$6,000 was an important level to a lot of people. That is why it held for so long. Miners, crypto hedge funds, ICO’s. They all were relying on the price to hold and stabilize at that level and when it broke, it was simply a matter of “well… I need to get out, so I need to get out as fast as possible”.
If you need to get out, you have no say, you just sell. I found myself in this position earlier this year when it came to my trading tax bill, I needed to get out some investments, so I had to sell, there was nothing I could do.
Now imagine that on a larger scale…
A fund usually has a 12 month holding period. The majority of those funds which started between October and February are now basically screwed. A lot of those funds held Bitcoin, a number of high cap altcoins, and invested heavily in ICO’s because remember, that was the thing to do at the time. Those ICO’s haven’t produced any gains, a lot of them haven’t even released their tokens yet.
With the current sentiment of panic and depression, imagine a fund forced to liquidate 50m in Bitcoin..
Then imagine all of the funds in that same position..
Add ICO’s who need to liquidate Ethereum and Bitcoin to fund the development of their project, otherwise they will collapse..
Add large mining pools in the USA and Europe who are beginning to run into losses..
Short term, this is an atomic bomb, and we just witnessed it detonate..
Those opportunists that joined purely to profit.. and especially those that joined on borrowed money.. are getting flushed out in a gigantic tsunami. Sadly, they are taking out a number of long term investors and traders that bet big and over extended themselves, along with a number of new projects that only had good intentions.
This is the cycle. This is how it plays out, it plays out, because it has to.
As traders that are acutely aware of the long term cycles we have to think about the future. I believe there are two main groups of participants in this market generally speaking. Small time investors and traders, and institutions + large scale miners.
I believe that due to slightly different expectations, experiences and pain thresholds the emotional market cycle is slightly out of sync between these two groups. I believe a lot of “weak hand” and small scale investors already capitulated on the drop down to 6k, and now those that are remaining have entered the anger stage… while the large fish, mining pools, ICO’s and institutional investors, have been capitulating for the past 7 days, and they will fall into the anger cycle soon after. While the small time investors and traders will enter depression.
One important thing to note that I have seen, studied and analysed is that the majority of the price movement, occurs during capitulation, and anger. Not during the depression stage. The depression stage is categorised by the depression of those that have already lost. Not those that are currently losing. Therefore giving the power to anyone that had the foresight to act proactively or the emotional fortitude to act confidently while the majority are emotionally broken.
What Is Happening Right Now?
The case for the Bulls
1. The Weekly RSI is at the exact same level as it was in late 2014 at the end of the bear market.
2. Price has bounced off the 200MA
3. Stochastic and RSI on the monthly chart are at the same level as they were at the bottom of the last bear market (or slightly lower)
4. Everyone is crying for 1k Bitcoin (though the cries have gotten quieter over the last two weeks).
5. Total retrace % = 83% and in 2014 the total retrace was 85%
The case for the bears
1. This bear market is unlike past bear markets and will be longer and more brutal
2. Consider the entire history of Bitcoin as one big bull market rather than two bull markets and two bear markets.
3. This alone justifies the case for a larger re-trace and more prolonged retrace because the bottom was not around $1,000 but at $0
What Are You Going To Do Next?
If there is one lesson you have probably learned in 2018 is that it is important to only risk what you are willing to lose, and to only invest in a way that makes you feel comfortable. The mental strain and stress from investing outside your area of confidence and comfort eventually ends in destruction and pain.
Personally I am a big long term believer in the future of Bitcoin, because I’ve seen this before. That doesn’t mean the same cycle will repeat, this could be the time Bitcoin goes to 0…
For me Bitcoin at 3k and Bitcoin at 1.6k are clear long term buys, that doesn’t mean Bitcoin can’t go to 0.
It just means it’s a R/R that I am going to trade.
When the market is hurting when everyone is crying, that is when I will invest. Investing is not trading. When markets get volatile and inflated, that’s when I trade. When markets are bleeding and there is blood on the streets, that’s when I invest.
The biggest mistake I made this year was confusing my investing principles and creating a “core portfolio” of altcoins AFTER my initial EARLY purchases.
My initial early purchases were investments and they were great investments. My next round of purchases, were speculations, which I confused for investments. It was this collection of altcoins that accounted for the majority of my 2018 losses even though I cut them relatively early compared to where we are now. That is a mistake that I have learned from myself. For example, never again will I buy NEO (or any asset) at $3 and then again at $30 and call the second purchase an “investment”. The first purchase is an investment. The second, is a speculation, and needs to be treated as such.
So where are we and what can we do going forwards.
Right now there are two large and competing risks:
1. The risk of further downside
2. The risk of not capitalising on an opportunity
It is these competing risks that need to be balanced in order to get *your personal plan*. A plan that you can feel comfortable with and stick to. I know mine, but you need to find yours.
Loading up between here and $3,000 but still using a stop loss. This would need to be a larger loss than usual with a wider stop. If you only set low buys and they full all the way down.. great you get a tight stop. But you risk Bitcoin not hitting your low buys. Hence a larger than 2% total account risk would be in play for this method otherwise you risk missing out and fomoing into Bitcoin higher.
The biggest problem with this method is that you still need to decide on your re-entry which would be extremely difficult. Because on the way up, Bitcoin spent a lot of time between 2k and 3k which means there is a lot of potential support zones. Sure, you could wait for it to really blow down to the 2k level.
But again, if it never get’s there, what do you do? I have a bad feeling this could be a zone to whipsaw traders into losing a lot more than 10% of their accounts.
The High Reward Investment
Option two is thinking long term based on a confidence in Bitcoin between 2k to 3k and a commitment to re-invest if you are wrong. Buying all the way from this area to $2,900 and scaling into 1x leveraged positions ensuring you will receive a good reward if you are correct, but large risks if you are wrong. This method means that in the future, it is possible for 1) liquidation and you to lose *everything* 2) the need to inject additional fiat if the liquidation price around $1,600 is hit.
Depending on your position size, this might be a large investment. So you need to decide for yourself “Does buying back every Bitcoin lost at $1,600 with cash sound like a good investment to you?” I can’t answer that question for you. I know that a lot of you, including myself have bought Bitcoin at that price before, but would you do it again? For someone holding 10BTC that would be a $16,000 investment if liquidation is hit to re-buy losses.
The Lower Risk/ Lower Reward Investment
Load up between and $3,000 however don’t use a stop loss like in the first option. Simply commit to re-add to your position in fiat for a long term/ permanent investment if the price get’s between 1k and 2k. You don’t have the same reward, you will simply be recovering losses as the price goes back up, rather than making additional profits. However you also do not have the same risk as option two, which can be quite devastating if your liquidation price is hit.
The reason I am sharing this with you in this format is because I know that everyone is different. I know that, because I have talked to so many of you 1 on 1 for such a long time now. I know that not every format is right for everyone.
Shorting the 4.2k resistance adding to that position if 3k breaks down with whatever targets you desire to buy your “long term investment” Bitcoin bags. Maybe that is 2.4k, 2k, 1.6k or 1.1k.
But what I do want you do to do…
Is take this post as a warning to stop, and to think. I believe this is a key time where so many peoples will power is desperately low.. I wrote this so that you stop to recognise this, chances are you are feeling the depression and anger that a lot of the market is feeling.
“Bottoming is a process, not a launchpad”.
I wanted to add, that a man with no plan during this process. Loses the game. You don’t need to keep thinking “this is the bottom, no, this is the bottom” but you NEED TO KNOW what you are doing over the next 3 months, no matter which direction the market moves.