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All of a sudden, just about everyone is talking bullish about bitcoin.
That means if you bought the King of Cryptocurrencies based on our multiple recommendations over the past two months (August 11, July 22, July 7, June 26)…
…Then it’s time to take profits.
You see, bitcoin is a highly emotional asset. Traders tend to get extremely bearish on bitcoin at the lows, and extremely bullish on it at the highs.
For most of the past two months, while bitcoin was stuck consolidating in a tight price range, most traders were bearish. The financial television talking heads wouldn’t even discuss cryptocurrencies. And, the traditional bitcoin cheerleaders moved on to more “exciting” assets – like AI and datacenter stocks.
From a contrarian perspective, we saw that as a buying opportunity.
Now though, that opportunity is over. Bitcoin exploded higher last week. And, as often happens, that price action has changed investor sentiment.
Here’s the updated chart…
Of course, bitcoin could continue higher from here. Maybe the May high at $83,000 will come into play.
But, from a risk/reward perspective, there’s far more risk to buying bitcoin here near $79,000, and there’s not as much reward.
Indeed, if there is such a thing as “easy money,” it’s safe to say the easy money for this rally has been made. It gets more difficult from here.
The momentum indicators at the bottom of the chart are now more overbought than at any other time over the past year. That’s not necessarily a “sell” signal, but it is certainly a caution sign.
More notable, however, is the action in the bitcoin mining stocks is not confirming the rally in bitcoin.
Just as gold stocks tend to lead the action in gold, and oil stocks tend to lead the price action in oil, bitcoin miners tend to lead the action in the cryptocurrencies. And, the miners are noticeably lagging this move.
Take a look at this chart of the CoinShares Bitcoin Mining ETF (WGMI)…
Despite the explosive rally in bitcoin, WGMI hasn’t been able to catch a bid. This lagging action in the miners is a strong sign bitcoin itself will struggle to move higher.
This, combined with the sudden surge in bullish sentiment is reason enough to take profits on bitcoin.
Best regards and good trading,
Jeff Clark
Editor, Market Minute