We’ve focused today’s analysis on the recent market dip.
Specifically the altcoins that showed strength.
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Elon Musk announced on Wednesday that Tesla will be suspending vehicle purchases using Bitcoin on account of the “rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel”.
Despite the biggest exchange inflow since the March 2020 crash, Bitcoin price has held up quite well so far. The dip could have been considerably worse if we use this fundamental indicator as a reference point.
💎 FACT CHECK. Inflows to exchanges reflect the desire to sell BTC at short notice. Some may not divest themselves of their holdings for cash but rather take a stablecoin position and then buy back in once prices stabilize. For more on how to interpret exchange inflows and outflows, check out our On-Chain Analytics Guide.
Now, let’s look at the technicals. We are aware that this will be important to many people 👇
Since we failed to break out of $60k, we have shared our opinion that Bitcoin will range around $50k to $60k while altcoins have their turn to run. We have seen that materialise, with DeFi pumping.
At the moment, support is being held at $50k (with $48.3k being a more conservative estimate).
That being said, we’ve taken a heavy fall and the overall structure looks less bullish: with lower highs and lower lows. We see two scenarios here:
Scenario 1: recover bullish structure. To change the current structure, we’d need to see a rally that takes us about the most recent high at $60k.
Scenario 2: more bearish structure. If we were to rally to around $56k, reject and come back down and break the $45.2k level, we will have a bearish market structure with a break of key structural levels and support.
For what negative things he had to say about BTC, Musk was very positive about DOGE. According to a Twitter comment by Musk on Thursday evening, Tesla and its CEO are “working with Doge” developers to “improve the system transaction efficiency”.
A rather paradoxical comment, as pointed out by @AriDavidPaul: given DOGE is Proof-of-Work. Meaning, it faces the same basic dynamics as Bitcoin. It uses less electricity now because it’s less secure.
💎 FACT CHECK. If you’re not sure of the difference between Proof-of-Work and Proof-of-Stake, we break it down in our Intro to Staking Guide.
To build on the positive fundamental boost from Musk’s comments, we’ve also had news that U.S. cryptocurrency exchange Coinbase will be adding DOGE to its suit of crypto offerings in 6 to 8 weeks (likely due to client demand which has been the case with other major exchanges).
Let’s turn our attention now to the technicals 👇
Putting aside the meme nature of the coin. Doge has undoubtedly been one of the best coins in terms of trend and liquidity to trade in 2021. Even the largest crypto trading firms in the world have been taking advantage of this.
$0.66 Breakout Level. Looking for breakout plays above here.
$0.57 Key Structural Level. Claiming this level presents an opportunity to scalp for ~15%
$0.5 Key Structural / Psychological Level. Market structure weakens significantly below this level. Furthermore $0.5 is an important psychological level to hold.
$0.37 Bias Invalidation. Our bullish bias is invalidated below this level.
Ethereum is faring much better than Bitcoin. That is, we’ve already somewhat shifted the market structure. Starting with the one day chart, we see that Ethereum is clearly in an uptrend with all the moving averages confirming it.
💎 FACT CHECK. If you’re not sure how to read moving averages, check out our Moving Averages Guide.
Narrowing our focus to the 4 Hour chart, we see the same shift 👇
There is just one crossover in moving averages and we have already gone over the price level at which it occurred. We see two opportunities here:
Scale out. If you panicked during this recent dip, you can consider this a decent time to scale out of your position. It’s not the top and it’s nowhere near the bottom; we are comfortably in between.
Breakout play. If we break $4.2k off of this bounce, that will create a bullish market structure and opportunity for a breakout play. So, If you are happy with your current level of exposure and looking for the next play, the best opportunity is a breakout play around $4.2k to ride the rest of the ethereum trend to the $5k level as an upside target.
If you’d like to join 23,000+ others learning about crypto, DeFi, blockchain and NFTs, consider joining the Market Meditations Community 👇
Hindsight Bias: Don’t be Trapped By the Past
Let’s look inside the mind of Geoff, a crypto trader who has been following markets casually over the last year. He has watched as the price of Ethereum has risen, becoming increasingly certain that he predicted the rise. At $2,000 he thinks, “I said this would happen”, at $3,000, “this was always going to happen” and at $4,000, “I knew this was going to happen”.
So what does Geoff do? He buys 5 ETH, convinced he can accurately predict the price. His problem? Geoff has fallen victim to hindsight bias. This is where an individual convinces themselves that they were able to accurately predict an event that has happened, when in reality this was not the case. Geoff, although a novice trader, has convinced himself he has an edge in the market and can accurately predict price movements.
Doing this in any area of life, especially cryptocurrency trading and investing can have devastating impacts. In reality, Geoff has no idea whether the price will continue to increase. He has made a trading decision based on overconfidence and frustration that he didn’t act, when in his mind, he had accurately predicted the move.
So what can we do to avoid falling into this trap? The most important step is to build a psychological framework ensuring your decisions are based on facts rather than emotion. This can act as a checklist you systematically complete before making any trade. For example:
Have you double checked your analysis to ensure the trade fits into your system?
Do you have clear stop loss and profit targets in place?
What would happen if your trade had a negative outcome?
Are you feeling any negative emotions such as anger, frustrating, FOMO or fear?
Are you basing your decision on data or something that you are feeling?
Hindsight bias can have a highly destructive effect on our financial decisions. Build a psychological framework and avoid making the same mistakes as Geoff.
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