There’s good news and bad news for bitcoin bulls…
The good news is that the “King of Cryptocurrencies” is nearing a bottom.
The bad news is… it isn’t here yet.
Bitcoin has had a difficult 2022. It came into the year priced at about $47,500 per coin. It closed Friday near $29,600…
So, bitcoin is down more than 33% this year – far outpacing the losses in all the major stock market averages.
And, after a big drop in early May, bitcoin spent the next three weeks chopping around in a relatively tight trading range between $29,000 and $31,000 – building energy for its next big move.
The bulls hoped that move would be higher. And, for a moment last week, it looked like the bulls were going to get what they were hoping for.
Take a look at this chart of bitcoin…
Last Tuesday, bitcoin surged 10% higher… breaking out to the upside of its trading range.
It was a monster move. And it had a lot of the financial talking heads declaring that bitcoin was now in “rally mode.”
I wasn’t so sure. As I told my Delta Direct subscribers:
I don’t trust the move. Many of the bitcoin stocks didn’t do much of anything. And, since the stocks tend to lead the action in bitcoin, I’m not convinced crypto is ready for a new rally phase just yet.
By the end of the week, bitcoin gave back all of Tuesday’s gains. The King of Crypto’s is back inside its month-long trading range.
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Traders need to remember that just as oil stocks tend to lead the price of oil, and gold stocks lead the price of gold, bitcoin stocks are likely to lead the price of bitcoin.
We’ll know when bitcoin is ready to rally because we’ll see it in the bitcoin stocks first.
For example, look at the following charts of two bitcoin mining companies – Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT)…
While the price of bitcoin appeared to be breaking out last Tuesday, MARA and RIOT remained inside their declining channel patterns.
If the bitcoin breakout was real, these two stocks would’ve been breaking out to the upside as well. Their failure to do so was a strong clue the bitcoin breakout was a bluff.
So, if you want to know when bitcoin is ready for a genuine, intermediate-term rally, then pay attention to the bitcoin stocks. We should see bullish action in the bitcoin miners before we see it in bitcoin itself.
Until that happens, any so-called “breakout” in the King of Cryptocurrencies will more likely prove to be just another “fake-out.”
Best regards and good trading,
Jeff Clark
Reader Mailbag
Have you been buying bitcoin lately? If so, do you think it will rally soon?
Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.