Bitcoin dead cat bounce

Last week when Bitcoin briefly eclipsed $9,000, I put out a note saying it would quickly fall below $7000, which it promptly did (going as low as $5900).

Bitcoin to $50,000 this year?

Unlikely. $10,000 again would be a surprise.

Bitcoin will likely retest $6,000 again.

The momentum is still strongly negative, and Bitcoin failed to reclaim $9,000. If you look at the price for the past 2 weeks there is a very strong undercurrent of selling. These temporary bounces are like trying to stop the path of steamroller with a mattress in terms of effectiveness.

I’m not sure who is responsible for this undercurrent. A very large position or (positions) is being unwound right now. It could be funds selling or a group of whales…who knows.

The weird thing about markets is, you only need a tiny imbalance in favor of buy/sells to make the market go significantly up/down. What I mean is, most people think when there is a major decline that the sells completely overwhelm the buys, but the ratio is more like 55% sells and 45% buys, so it’s very close to 50-50 yet that 10% difference is what causes the price to fall so much, especially when it’s sustained by for many days and weeks.

Second, you need very large buy orders (what I call ‘big block buyers’) to overcome the steady selling. Between early 2017 to December, there was a steady stream of large 100+ coin buys at regular and consistent intervals that kept the price rising and were big enough to clear out a good chunk of the ‘ask’ side of the order book (I remember a few times 700+ coin walls being instantly cleared at $17,000). Those type of orders, however, are mostly gone and now it’s mostly 5-10 coin buys, but without the big buys at regular intervals, the smaller 5-10 coin sells and the occasional 50+ coin sells will win the the price will go lower until the the ‘big block buyers’ reenter the market.

This does, however, not mean one should sell Bitcoin. if your’re HODL-ing, disregard this post. But one strategy could be to adjust one’s trading based on epistemic certainty. For example, if you think there is a 50-50 chance Bitcoin goes higher, then only deploy 50% your your capital to buy. If you’re underwater (for example, if you bought at $12,000 or so), then holding may still be the best choice if you don’t need the capital, because the trend has always been for Bitcoin to eventually make new highs, although recovery may take as long as three to four years; second, the tax treatment is better. Despite the negativity of this post, I still own some Bitcoin because there exists the possibility I will be wrong.