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Bitcoin: Choosing Your Positions in the Carnage (BTC-USD)

Avi Rozen / iStock Editorial via Getty Images

I’ll start this by addressing the elephant in the room. This is not funny. Simple and pure. And I’ve been wrong on every bullish Bitcoin (BTC-USD) article this year. Not only us We’re seeing wild volatility back to the downside in the cryptocurrency market, but we’re seeing how much reliance on lower rates and the easing of the broader financial system are. everything It seems that Same trade at this point. You are either long dollars or short dollars. And if you’re into speculative assets like cryptocurrencies, so-called “stable” currencies, or tech stocks, you’re short of dollars.

wrecking ball

The standard 60/40 wallet has been destroyed this year. Stocks are going down. Bonds are going down. If you believed that Bitcoin is digital gold, you were also very disappointed.

performance to date

YTD Performance (Alpha Search)

From the year to date, gold is one of the only things that shielded wallets from disaster. Although purchasing power has been over 8% in the past two months, cash has been a safe haven for investment portfolios as well. Criticism is not rubbish as it turns out. The dollar also outperformed other paper currencies.

dollar index

dollar index

Brent Johnson’s dollar milkshake theory seems to hold up well for now. The question is how long can this continue? The dollar index is already overbought on the daily, weekly and monthly charts.

DXY RSI-14
4 hours 72
Daily 72
weekly 82
monthly 74

Source: Investing.com

Obviously, overbought does not mean that the price cannot continue to rise. Also, these types of technical trading indicators may not be important given the overall background. DXY also has a negative RSI divergence on the daily chart. This would be an indication at least of a short-term pullback. But there is a great deal of strength in this dollar rally. Choosing the top is very difficult if not impossible.

Stablecoin explosion

Terra (LUNA-USD) has certainly had a huge impact on the broader crypto market. LUNA, which was in the top 10 coins just a few days ago, is now rated near 300 after dropping more than 99% from its market cap of $30 billion to less than $75 million. The Terra ecosystem has also used a stablecoin called TerraUSD (UST-USD) to redeem LUNA and install high-yield assets.

Peg UST . Gold

UST Link Gold (CoinMarketCap)

While it is normal for price volatility to drop to fractional pennies, the stablecoins are supposed to maintain their peg to the US dollar on a 1-for-1 basis. UST did not and lost its peg earlier this week. As of this writing, TerraUSD is trading at just over 58 cents. Stable coins have been a huge part of the cryptocurrency market. There are still 3 stablecoins in the top 10 cryptocurrency market caps.

Cap rank Market value Code
3 $82.2 billion Rope (USDT-USD)
4 $49.2 billion US dollar coin (US dollar – US dollar)
7 16.8 billion dollars Binance USD (BUSD-USD)

Source: CoinMarketCap

These “stable” coin assets have become a huge part of the cryptocurrency ecosystem and the fact that they are now struggling to maintain their peg is definitely an issue. Terra had to liquidate Bitcoin to help defend its stablecoin peg. I’m not saying that tether is the next stablecoin to drop, but there was some interesting action overnight.

tie the rope

Hook the rope (CoinMarketCap)

Although Tether has since recovered and is trading at 99.6 cents currently, the correlation began to unravel last night as the coin fell to 95 cents. It is something to watch.

Bitcoin

Technical setup in Bitcoin has become a lot of fun. I have my eyes on a major that will be tested in all possibilities in the coming hours and days. In the chart below, you can see with the weekly RSI of 31.6, that Bitcoin is almost as oversold as it was during the Bitcoin 2018 bottom and more oversold than it was during the COVID crash in March 2020. This does not mean a local bottom in yet.

Bitcoin weekly chart

Bitcoin weekly chart

The spot price level that I see as a potential support line is $26.2K. Bitcoin was very close to kissing that line in overnight trading but buyers stepped in just before then. Below this level, I see $23.8K as the next target bulls might try to defend. If this level fails to hold, I think a complete capitulation event below $20k is coming and probably fairly quickly. At this point, if you are a long-term believer in bitcoin, this is probably the right level to make larger purchases.

Bitcoin dominance is back

Although nothing can compare to the complete collapse of Terra (LUNA-USD), it was not uncommon to see coins in the top 50 by market cap dropping 40 or 50% during the course of Wednesday. While the declines in Bitcoin over the past few days have certainly made the headlines, Bitcoin has actually outperformed the broader cryptocurrency market in general. I believe that whenever we see issues with TerraUSD (UST-USD) and perhaps now Tether (USDT-USD), the long-term holders of crypto assets will move some of their speculative capital into Bitcoin. Most of the coin tracking sites recognize Bitcoin’s dominance at around 44% currently.

Bitcoin dominance

Bitcoin Dominance (CoinMarketCap.com)

However, another way to showcase Bitcoin’s dominance is by adjusting the entire market comparison with other payments-focused protocols.

The real Bitcoin dominance

Real Bitcoin Dominance (buybitcoinworldwide.com)

The above chart reflects the “real Bitcoin dominance.” This takes capital out of stablecoins, ICOs, and any crypto assets that are proof of stake or not focused on payments. For example, Litecoin (LTC-USD) is included in this account but Solana (SOL-USD) is not. This number tracks Bitcoin’s current dominance at 67%.

Regardless of which version of Bitcoin Dominance you want to use, it is important to note that when Bitcoin Dominance rises, it is because of the broad market downturn in general. We see that happening now. I don’t think this broad market downturn is over. If anything, Bitcoin’s dominance looks set to continue much higher.

summary

To be clear, this winter will likely be crypto. I will wear it. I was wrong. I thought we’d see a six-figure price on Bitcoin this year. I no longer think this is the case. Although I suspect Bitcoin will get a huge relief rally in the coming weeks, I think it will take some time before the coin prints a new all-time high.

If you own Bitcoin in the long term, it is similar to what happened in 2017. Bitcoin has made a massive rise from a few hundred dollars to almost 20 thousand dollars. During this round, there were thousands of other coins that entered the market through ICOs, and not many made them. This course will be similar. Bad ideas will be eliminated so that good ideas can be pursued with more capital.

less than two weeks

Find an alpha market service BlockChain interaction It launches on May 24 and we will have very special introductory prices for early subscribers. The service features top token selections, trade alerts, live wallet, chat room, and exclusive podcasts with industry leaders and experts. Be sure to follow me so you don’t miss out on the launch show!

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