Why did Bitcoin suddenly crash?
Is this the end?
Bitcoin's rally from $3,000, Mar, Apr, 2021 to $65,000 in the crypto market seems to have been whimsical lately. Everyone I spoke to seemed to be making money out of it already, or looking for an opportunity to get in. In hindsight, this seems like a perfect "top" indicator of the local environment. Even if people forget the absurdity of Dogecoin, people still make money from silly meme knockoff coins that also carry logos or obscene pornographic names for dogs. This absurdity still exists in the market. Memecoins like Shiba Inu and Safemoon (now, to my surprise, even a category) are among the top 100 projects by market capitalization when I write this on May 21, 2021. I don't know what it is. But instead of complaining about what happened, I wanted to expose why the party ended or paused for a moment. I have three hypotheses for this:
Hypothesis 1: This is just a "normal" correction
Bitcoin is amazing. It is permission-free, non-obfuscable, deflationary, non-discriminatory, digital, global, fungible, easy to use and decentralized. You know, I know. But I think the downside of Bitcoin being an asset is that it's new. The advantage of this is that investing now will ensure that you are one of the early adopters of the tool and will make a lot of money. But because Bitcoin is so new, that means we don't have a lot of historical data to compare it with.
However, in the past 4-year cycle, there have been two past bull markets to watch. Here are two tweets from legendary investor Raoul Pal. In the first report, he compares price movements in this market to the bull market of 2013 and the bull market of 2017 in the next report:
The charts match very closely. That may well be the case. Although I don't totally believe it, of all possible scenarios, this is the one I'm most hopeful about. Why is that? Because this assumption very clearly assumes that the bull market is still intact and that we have at least 3-6 more months of profits to come! But don't confuse our expectations with what's most likely to happen.
Hypothesis 2: This is the end!
This is the end! Sell everything! Get out! See you in 4 years!
Oh, man, this is the worst one. As much as I hate to admit it, the signs that we have reached the top of the cycle are all around us. There are actually many, let me list them for you:
1. The shit game I discussed in the introduction section of this article. Memecoins, with its strange name and logo, does a good job.
2. Everyone seems to be making money. This may sound mean, but I know people who haven't really developed the right temperament for trading/investing, yet still make fat profits after making questionable decisions.
3. NUPL; The net unrealized profit/loss chart tells us which market cycle we are in. Let's take a look at the NUPL chart for the history of Bitcoin:
📷
The blue areas in the chart indicate that more than 75% of Bitcoin users are making money. Profits account for 50-75% of green space. Yellow gains 25-50%. 0-25% of the orange profit. The red area shows the percentage loss. Looking at the NUPL chart, we see that we are in red and orange in a bear market. From a bear to a bull, and vice versa, we're in yellow. For most of the previous bull market, we were in the green market, and at the top of the cycle, we briefly reached the blue area. Even if we didn't get to the blue zone this year, we're pretty close to it, and have now started falling below the green zone and starting to break up the yellow zone. As mentioned earlier, the yellow areas indicate the transition from a bull to a bear.
4. We are below our 200-day moving average. If you consider the past 200 days, the 200-day moving average is the average price of bitcoin. Obviously, this number changes over time, so it is called a moving average. Below is a chart of bitcoin prices for green and red candles. The yellow line in the chart represents the 200-day moving average. Let's start with a look at the bull market of 2013:
📷
The bull market of 2013 May not be the best example, but we do see here that after the bull market caused bitcoin to move from $100 to $1,200, once it crossed below the yellow line (the 200-day moving average), it basically stayed below it. It took a long two-year bear market before the 2016-2017 rally finally started.
Now let's look at the 2017 bull market:
📷
We're seeing the same thing with bull markets in 2017. In both 2016 and 2017, Bitcoin stayed above its 200-day moving average and kept rising until it finally broke below it, then struggled to break above it. Until late 2019, it broke the pattern and started rising again. Today is here:
📷
Having recovered from the COvid crash of March 2020, we can see that once Bitcoin reaches above its 200-day moving average, it will stay above that level and the price will continue to climb until recently. We have recently risked a break below this line and if we follow a similar trend to the previous two cycles then this means we are in for a two-year bear market cycle.
Hypothesis 3: Smells a fishy smell
This is the assumption I most agree with. I'm going to risk wearing a tinfoil hat here, because what I'm about to share with you is a conspiracy theory. But I ask you not to fire me.
I call this "market manipulation". Before you say that is impossible, allow me to draw your attention to JPMorgan's manipulation of the silver market last year. Silver's market size/market capitalization is about $1.5 trillion. Bitcoin peaked at $1.2 trillion in market capitalization and is currently at $0.7 trillion. If JP Morgan can manipulate a larger market, do you think another such large entity or group of entities will not be able to manipulate it? Once you're open to that possibility, let me share some information with you.
Richard Wyckoff, born in 1873, was a pioneer of technical graphic analysis in the 20th century. About 100 years ago, he noticed that there was enough money in the stock market to "move" large participants in the market who were buying and selling in a way that allowed them to buy and sell as many shares as possible. Possible. He was so annoyed by this that he made sure to write it down. This is what he came up with:
📷
Large participants must make sure to buy A large number of shares before starting phase A. Then, they start Phase A with the following stages:
PSY (Temporary Supply) : This is the point at which large players start to sell their quantities but not enough to cause an economic downturn.
BC (buying surge) : This is a time when assets do well and there may be some good news at the same time. Large players took the opportunity to dump large stakes.
AR (Automatic Response) : The huge selloff causes a panic slide until we find a support point marked AR on the chart.
ST (Second Test) : Once prices start to rally, make sure they sell before the previous high creates a lower high.
Signs of weakness: The selloff created a lower low indicating that the previous low had been cleared. Sentiment is now bearish as ST is also a lower high. At this point, people can buy shares cheaply because they see a weak market and are likely to sell their shares.
UT (Uppush) : A sudden purchase of a stock by a large participant causes an upward push. Here they can dump another big chunk of the stock they bought earlier. However, the mood in the market is positive now that we have made higher highs.
UTAD (Upshot After Distribution), LPSY (Point of Last Supply) : Since they have created a false sign of strength in the market, therefore smaller players will soon buy any low price and push the price up. This gives the big players an opportunity to offload the last few shares. Since they know they will be selling a large number of shares, at this point large participants can choose to "short" the shares before selling them as well, thus further increasing profits.
Now let me ask you what parallels you see here with the recent price of bitcoin. Here's a daily chart of bitcoin from February 2021 to May 2021:
📷
If you can't see it, please let me draw it for you:
📷
Now, if we zoom out and circle a region in the chart, I believe large players will have a long time to accumulate large amounts of bitcoin:
I know the Wyckoff distribution doesn't exactly match up on the Bitcoin chart, but I personally think it describes the recent price changes pretty closely. Of course, no pattern ever repeats itself. But for something the Wyckoff playboy created 100 years ago, the similarities look uncanny! I can't take credit for finding the similarity. I got it from the following YouTube video:
https://youtu.be/paP3W-otK0sNow let me take off my tin foil hat. I want to back up this conspiracy theory with more data. I believe the easiest way to do this is to examine what the large players in the cryptocurrency market have been doing during this period. Fortunately, in the cryptocurrency world, everything is transparent and verifiable in the blockchain. These large players are commonly known as cryptocurrency "whales." Let's take a look at what they're doing in the meantime:
Bought a whale!
📷
The tweets above show that large amounts of cryptocurrency continue to move from exchanges to private wallets. This means they most likely bought cryptocurrencies on the exchange and then transferred them to their private wallets for long-term holding. Here's another tweet that adds more evidence to our claim:
📷
But are these whales different from the whales that sell top whales? Apparently not:
📷
To me, this is ample evidence that these recent moves are being caused by whales/large players who are able to sell large amounts of cryptocurrency assets at high prices, only to be able to buy again when things collapse.
What's next?
No one can tell the future, but big companies seem to be pulling the plug. Longtime believers are willing, too. So am I. I think in the Bitcoin world, if you play long games, you can make money. Even if you bought back the peak of $20,000 during the 2017 bull market, if you were able to hold your position throughout the bear market without selling, you would still be making a profit now. That's why in cryptocurrencies we have the saying: If in doubt, zoom out.
Like everyone else, I don't have a crystal ball. However, since you clicked on this article and I provided you with three hypotheses, I have a certain responsibility to share with you what I believe, so you won't be any more confused than you were before you clicked here. It seems to me personally that all the weak players in the crypto investing world who have joined in the last 3-4 months hoping to make a quick profit are being eliminated. From the following tweet:
📷
Right now, I think we will have a long pause in the bull market, probably one to four months, after which the bull market will continue. I believe this pause will provide us with a huge opportunity to accumulate more Bitcoins and set ourselves up for the next rally. Of course, I'm not a financial adviser, I'm just sharing with you what I'll be doing. You do what you
What does this "collapse" tell us?
On a personal level, it has taught me to always keep some cash on hand for this dip. I really want to buy bitcoin when it briefly hits $29K, but I can't because I've already invested all my cash and have to put some into my bank account to buy luxuries like food, rent, etc.
It also taught me to think long term, because Bitcoin is amazing. You do not need permission from the government or the bank to make a transfer/transaction. This is completely unauthorised. You don't need to be a specific race, nationality, gender, economy class or have a certain credit score to participate. This is non-discriminatory. The government cannot exaggerate by printing more notes. It is deflationary (people die from it or lose it). Governments cannot confiscate gold, as the U.S. did in 1934. This is out of control. You can send small or large amounts of mail anywhere you have Internet. It is global, digital and fungible. You can't stop it. If you kill all the miners in Timbuktu, Bitcoin people will survive in Zanzibar. This is unstoppable. Bitcoin may crash and fall to 3-4 year lows like it did in 2013 or 2017, but it will always go up eventually, so the best thing to do is not to panic and not to calm down before making any buying or selling moves.
The post is basically the same as above, except with added images.
