Supply and demand is what defines the price of Bitcoin. That is, this is a market of buyers and sellers. If the buyers win, the price goes up. If the sellers win, the price goes down. Buyers are essentially bullish. And sellers are essentially pessimistic. Will the price of Bitcoin go down? Will the price of Bitcoin go up? Buy the one that sees a bullish picture. Sell the one who sees a bearish outlook. Of course, it is not just a matter of opinions and feelings. You have to believe, but you also have to have. Namely, to invest, faith is needed, but strength (money) is also required. Liquidity is as important as sentiment.
If you’re a casual reader looking for a quick, simple, and convenient answer, this article may not be for you, because I won’t give you a number. Predicting the bottom of the market in its down cycle is practically impossible. In other words, it is not a matter of giving a number and that’s it. That would be misleading people. The intention here is to expose the typical mechanisms that take place in the formation of a bottom. Using real data, of course.
Now then, let’s begin. Of course we start from the principle that we are all here to make money. This rule does not apply to the idiosyncratic investor who buys with motivations other than profit. In the crypto ecosystem, there are many characters in this wave. It’s not my case.
Highs tend to serve as resistance. And the lows tend to serve as supports. Something similar can also be said of the averages. If the average is above the current price, that average serves as resistance. If the average is below the current price, that average serves as support. The strength of those lines is normally measured with distance (horizontal and vertical). For example, $3K is quite a strong support for Bitcoin, because it was established in 2018 and because it is relatively far from the current price ($19-20K). $18K is a much weaker support because of its proximity and because it was recently broken.
Averages are only as strong as the number of your days. In other words, the 200-week average (MA200W) is much stronger than the 200-day average (MA200D). And the 90-day average (MA90D) is stronger than the 30-day average (MA30D). Right now, Bitcoin is below all of these averages. Which implies that its resistances are very strong and its support is quite weak. In other words, it is more likely to reach $15K than $30K right now. Here I am talking about “probability”. Which implies that it is not a certainty. It is simply a probability. Reminder: The bullish trend is formed by overcoming resistance. And the downtrend is formed by breaking supports. Most likely, the price will move with the trend. Therefore, reversals are more unlikely events.
Now let’s talk about the sentiment indicator. This indicator is made up of several elements. We are talking about polls, social networks, google searches, volatility and dominance of Bitcoin within the crypto market. Greed is bullish. And fear is bearish. However, as we get closer to the extremes, we get closer to a possible reversal. I mean, extreme fear, ironically, gives off a bullish signal. And extreme greed, ironically, gives a bearish signal.
How is it possible? Well, greed breeds purchases. However, sooner or later, the money runs out. In a situation of extreme greed, stimulated by the general euphoria, everyone who was going to buy already closed their position. Then, general sentiment is bullish, but prices are moving in the opposite direction due to illiquidity. This contradiction between what is believed and what happens generates a shock. And the shock in a short time can turn into panic. Now, in the case of extreme fear, the process is usually the reverse. People usually exaggerate their fears and sell more than necessary. That stimulates the return of buyers. Therefore, now, a rebound is possible, thus encouraging optimism.
All this reveals to us that feeling is important, but it is not omnipotent. I mean, buyers need desire. But they also need money in their pocket, because the desire alone does not do much. Anyone can say Mass on Twitter. But not everyone puts their money where their mouth is. The real conviction can be estimated by studying the volume. Volume is the number of transactions. And the volume normally moves with the trend to create a momentum. Bullish moves during a bearish streak with low volume and many sellers lack conviction. Therefore, they are misleading. Sooner or later, they will be annihilated by the bears. A truly bullish move, with the power to reverse the trend, requires a lot of volume and a clear dominance of buyers..
Where does the money come from? The money comes out of central banks and governments. So we always have to review monetary policy and fiscal policy. Is it lax? She is strict? Of course, once the money is on the street, the speed of the money becomes important. In other words, how much or little that money changes hands is very relevant. In a conservative environment, we lower our risk tolerance. Which usually means the dollar goes up. Additionally, the purchase of T-bonds increases. On the other hand, the Dow Jones, S&P 500, and Nasdaq fell. In more risk-tolerant environments, the opposite happens.
Bitcoin, to find its bottom, requires a macroeconomic catalyst. It is quite likely that the US Federal Reserve will continue to raise rates in July, August and September to try to bring inflation down to more acceptable levels. However, sooner or later, they are going to have to take a break so as not to cause too painful a recession. They can get out of hand. So, it is not unreasonable to assume that they will moderate their position over time. Of course Everything will depend on the data as it arrives.
The fund could be established once that shift in monetary policy is predictable. When the market thinks that the Fed is going to ease, we will surely have our masterful rebound. And we could start talking about a recovery. The best thing that could happen to the price of Bitcoin is an early return to macroeconomic normalcy. If inflation, on the other hand, resists going down for much longer, things could turn ant-colored. Well, let’s hope that the Reserve’s measures work sooner rather than later.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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