I wrote the first half of this issue before the sell-off last night. The short version here is that the Bitcoin technical fundamentals have been shifting to a potential bear market for the last month or so, and last night’s news item from the People’s Bank of China only furthered that trend. In other words, the panic selling resulting from that news item is consistent the general trend Bitcoin has been on. Nothing has been announced yet, but a major regulatory move from China would shift the markets in a fundamental way.

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Bitcoin Update

When I started writing this last night, BTC was still hovering around $13,500. It now sits at $11,500, it’s lowest point since the brief period of panic selling back on 12/22/17. Here’s what I wrote last night before prices across the board began tanking:

After a rally that peaked at $17,000, BTC tumbled back down to the $13,000 support level. This support has been pretty solid over the past month or so. The only day BTC closed below $13,000 was on 12/30, after which it had it’s run up to $17,000, and now it’s testing that support level again. I’m keeping an eye out for a sustained break out below the $13k support to signal what could be a significant correction in BTC, and possibly the start of a bear market.

For the past couple of weeks, however, BTC has presented some nice swing opportunities, buying when it nears the $13k support. I’m also watching for a breakout above the $14,500 level for another run up towards $17,000 to take a quick profit.

Still though, I’m cautious of BTC right now. There are some clear support and resistance levels, and BTC is in a sideways market at the moment, the daily 50-day EMA having recently gone flat.

Post sell-off thoughts

As I write, BTC is down ~16% from where it was a day ago. From a technical standpoint, the main thing I’ll be watching throughout the day is if it rallies back up to it’s previous support level of $13k. If it can’t, I think we’re looking at the start of a sustained bear market for BTC.

In that case, the next question going forward is what a BTC bear market means for ETH and alts denominated in BTC.

A brief note on explanations of price movement

Whenever there is major price action one way or another, scores of articles and analyses are quickly published, attempting to make sense of it all, often by finding an arbitrary event to hang it on. In general, I find almost all explanations of cryptocurrency price movements to be complete bullshit. The only exception to this are news items that shift the overall market dynamics, such as regulatory news concerning major governments.

Indeed, last night at 9:52 PST, Reuters published a story that a Chinese central bank official is considering banning cryptocurrency trading within China. At this point, the story doesn’t say much about the substance of what PBOC is considering, but they clearly want to do something.

Needless to say, something as extreme as a Chinese ban on crypto trading would have far-reaching negative effects across the entire cryptocurrency space.

Ethereum

In contrast to Bitcoin, Ethereum's bull run continues to roar. After a holiday lull, ETH had 10 -- yes, TEN -- straight up days, and was up nearly 70% since the beginning of the year, before last night's sell-off. The question now, of course, is how much longer can it run? I'm looking at this from a couple of different angles.

In the short term ETH is overbought and has had a pullback from it's $1,400 high, especially after last night's sell-off (see RSI on chart below). Over the last two months, ETH has had two major run ups broken up by two-week periods of lulls, which presented nice times to buy, in retrospect.

In the medium-to-long term, I'm looking at the running room of this bull run is in terms of relative market cap to BTC. For ETH to eclipse BTC's current market cap of $196 billion (down $30b from last night), ETH would need to effectively double in price. For Bitcoin to be unseated as the #1 cryptocurrency from a market cap standpoint would be a MAJOR event, but it's not clear what sort of implications it would have for the broader market. In the short-term, any price level that would have ETH overtake BTC as the #1 cryptocurrency by market cap should be considered a major resistance level.

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Links

• PBOC official says China's centralized virtual currency trade needs to end