Bitcoin - Yesterday's dip

bitbrain (63)in #bitcoin • 3 years ago

Yet another Tweet which turned into a blog post. Here goes:

The BTC dip we saw yesterday appears to be one of the most bullish retracements I've ever seen.

I'm trying hard to avoid being caught up in market hype and baseless euphoria, but a bounce like that caught me off guard.

While not entirely out of the woods yet, if Bitcoin can continue to stabilise at or near this level, it may be able to avoid the sort of retracement that common sense leads us to expect - and by that I mean a correction of about $10-15k. (See chart below)

There can be do doubt that Bitcoin was chronically undervalued in 2020. My charts have it tracking below fair value from the beginning of March until the end of October 2020, a record amount of time for any year.

It seems that, while not entirely bullish yet, bearish sentiment has vanished, allowing bitcoin to not only compensate for being undervalued last year, but also to introduce limited bullish sentiment into the market.

It is still too early to call this a proper bull run. Personally I don't believe we are there yet, though it's not impossible.

What it does mean is that we have an extra element of uncertainty, but perhaps that element will act as semi-permanent support to Bitcoin's price, buoying it by a few thousand dollars over and above what it would otherwise be.

This raises the question: are we busy with a "1", a "2" or a "3"?

I initially suspected a "1" (though not as high) - a fake run which retraces significantly before consolidating and running again.

As time went on, I suspected that this run may be more like a "2" - not quite as steep as a "1", but subject to a smaller and shorter retracement. By biggest argument against a "2" is that I don't believe we're ready for the next big bull run yet.

As market sentiment seems to remain positive, and even more importantly, stable and resilient (as witnessed in the first chart), I am starting to think that we may be in a "3" - a run which levels out at the top without crashing. The hype we see now does not seem to be as toxic and transitory as hype we've seen in the past. It's a more mature form of hype - if such a thing exists.

To be honest, I hope it's NOT a "3"! "3"s are boring! If we are in a "3" now, then we will have a flat 2021 and probably only see another decent price rise in 2022.

Conclusion:

Of course one should always remember that markets RHYME, they don't repeat, so don't make the mistake of using previous price action as an exact template. I think that the reality is that we are in some sort of hybrid of the three possibilities, possibly a hybrid which includes other as-yet-unseen market movements.

The market is more bullish than I expect. In itself, that is a good thing.
The market seems to be extraordinarily resilient for such an early stage of a bull run - fake or not.
This may mean that current hype is of a healthier sort than we've seen before: less fleeting and more stable - possibly due to more experienced investors entering the market.
It is absolutely possible from a fundamental perspective that this run could continue upwards in an unprecedented fashion. But the historical odds are against it and it would be irresponsible to count on that happening.