Bitcoin path of maximum frustration

I think it was Parabolic Trav that was referencing the market's tendency to follow the "path of maximum frustration" during the run-up in November and December. He may well have been passing that information on from somewhere else, but either way I really like the mantra.

Bitcoin has seen quite a relief rally today, closing around 250 points higher than open. This is the first convincing green daily candle we've seen in almost two weeks. The price is currently hovering in the 6520 area and hasn't moved much from the closing of yesterday's daily candle (2 hours ago) during a time when Asia tends to be waking up and North America going to sleep.

With respect to the "path of maximum frustration," I think it's an important idea to keep in mind. Even if this is the turning point and bulls have turned this train around - always be wary. Create multiple charts with multiple scenarios varying from "most bullish" to "most bearish" to keep an even keel.

In this scenario, the most bullish possible outcome for the next week would be a convincing break of 6800 (neckline of the inverse head & shoulders pattern from June/July) with a subsequent throw-back to confirm it as a level of support. In the following weeks, price would need to move through several areas of resistance and ultimately close a candle above 8506 to put in a higher high, besting the upper wick from July 24. If this occurs, we may just escape the dregs of a truly disastrous-seeming sell-off to mark the bottom; the end of the bear run. But this would be too easy - not very frustrating at all. And that's not the way markets work, certainly not bitcoin.

I've discussed my most bearish scenario in prior articles, but the chart is here again for reference. Because my analysis of the '13 cycle has been successful when applied to this one, I'm sticking to my guns here. August 8th's green candle is a flash in the pan and price will soon return to the 6180 level to re-test support. Upon re-test, price will break through and coast down to ~5500 where it will find support from the falling wedge and the 786 fib retracement level from the bull run. Many traders and investors will sense that this is a bargain, (and long term it certainly is) jumping in as the price moves up to the previous level of support at 6180.

Now. Here's where I think it could get ugly for a few weeks. First, that 6180 level was a fairly strong level of support, and now consequently will be a strong level of resistance. If the price begins to teeter, I think that's going to spook most of the folks who jumped in at 5500 who will see an opportunity to grab a quick $500 and bail. Another thing to consider is the number of people who bought into bitcoin at the price of 6180 and lower. It's ALOT. Bitcoin has spent less than 9 total months of its lifetime above 6180, and only about 1.5 of those months were in a bull market drawing people in. What new-to-crypto buyers are coming in after the December bust? What new buyers COULD come in? The exchanges had essentially melted down.

Additionally, we need to consider the number of people who have been "dollar cost averaging" into bitcoin. When did they start hearing about bitcoin? About a year and a half ago during alt spring when crypto was going ballistic? OK, so let's take a look at the 550 day (about a year and a half) moving average to get an idea of where there investment is at... 6091.70 at time of writing. So there are a bunch of folks out there who have been convinced by the financial aspect (and I agree with them long term), but maybe not drawn in enough to understand the fundamental strengths of bitcoin and cryptocurrency, or market cycles. Now their lump investment coming from each paycheck for the last year and a half is underwater. What would you do? Sell and cover your ass so your wife doesn't beat you with the keyboard.

If you go back two years to August of 2016 and set the moving average at 730, the current price is 4770.6 at time of writing. 2016 was a big year for bitcoin and certainly attracted people. Another item to note from 2016 is that it was notably devoid of big "busts" with the exception of a relatively small crash, spookily enough, around this time of year. Folks who started passive investing in 2016 didn't really get accustomed to the true volatility that happened in the surrounding years. They're going to see the price crossing the psychological level of 5000, approaching their average and have a meltdown. If 5k is breached, 3500 will be very shortly after.

It's been awhile since we've really seen those gut-wrenching stories (think bitconnect) crop up on reddit and twitter about money lost investing in bitcoin. It can, and will, happen again. This time it will be for what the market perceived as 'strong hands' since they have been passively investing and never, or rarely, selling any stake. This will be capitulation and will be the final drop from 6180 into the 3500 zone. Maximum frustration indeed.

There's a possibility in my mind that the knife is caught closer to 5000, but as with all capitulation bottoms the price action will be brief but intense. If it looks like this scenario has a shot to play out, I'll be setting bids down there as well as a few in the 5000 region. I'll also be setting an outrageous 100x bid on bitmex at 2k, just in case. Think btc-e flash crash in '14.

In the end, every day is new with new information printed out in the candles. And thank god for that. I'll be aiming to bring a mostly-daily update and if the markets get wild maybe two per day. Stay tuned and please feel free to reach out if there's anything you would like me to comment on or write about.

Thanks guys and stay safu.

---

If you want to trade with leverage and no hassles, use my link below for a discount on fees.
https://www.bitmex.com/register/UhBYnD

If you're interested in BTC themed merchandise - check out Liberty Mugs, awesome folks running it with great products:
https://www.libertymugs.com/product-category/bitcoin/?ref=Car

Great podcast with excellent breakdown of complex bitcoin stuff.
https://cryptoconomy.podbean.com/

BTC: 34DsCV6m9cHez73nYDzVUk6D82yiqhKrWg