{"id":19278,"date":"2022-01-04T07:30:49","date_gmt":"2022-01-04T12:30:49","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19278"},"modified":"2022-01-04T07:30:49","modified_gmt":"2022-01-04T12:30:49","slug":"its-make-or-break-time-for-bitcoin","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/its-make-or-break-time-for-bitcoin\/","title":{"rendered":"It\u2019s Make or Break Time for Bitcoin"},"content":{"rendered":"

The final two weeks of 2021 treated stock market investors to a 5% “Santa Claus” rally.<\/p>\n

Stocks and commodities rallied… yet bitcoin meandered its way to the finish line.<\/p>\n

After recovering most of its losses from another of its infamous weekend flash crashes on December 3, all it’s been able to do since then is consolidate.<\/p>\n

As frustrating as this may be for crypto investors used to parabolic gains, this is creating a clear line in the sand for bitcoin’s next move… and that line currently rests at $46K.<\/p>\n

Bitcoin Hasn’t Been Moving Much<\/h2>\n

Each day, the $46K level is gaining more and more significance.<\/p>\n

Since that flash crash on December 3, bitcoin has now tested it seven<\/em> times.<\/p>\n

It’s a level we called out the last time we talked about bitcoin<\/a> on December 7:<\/p>\n

\n

…It looks like bitcoin may try and consolidate here and make its way back up to retest $55K. Right now, the 200-day MA is at around $46K, so I expect bitcoin to retest this level a couple of times (at least)<\/strong> before moving higher.<\/p>\n<\/blockquote>\n

So far, $46K has held up.<\/p>\n

And we knew it would since our cross-exchange price indicator we used showed strong signs of institutional buying at that level.<\/p>\n

This was proven true when MicroStrategy recently announced that it bought 1,914 coins for about $90.5 million at an average price of $49,229 between December 9-29.<\/p>\n

Although the last flash crash attracted institutional buying, the technical setup is starting to look bleak.<\/p>\n

Take a look at the chart below…<\/p>\n

\"Chart\"<\/div>\n

Since August, bitcoin hasn’t done much other than make and reject a new all-time high, causing it to form a head and shoulders pattern.<\/p>\n

Normally, when this pattern forms it’s a good bet that once prices break lower they move down significantly.<\/p>\n

The size of this pattern is about $25,000, which means a break below the December 3 low of $42,250 puts a new low at $20,000 in play.<\/p>\n

That would be a stunning development for bitcoin.<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

But bitcoin has defied chart patterns before…<\/p>\n

In fact, the last time it put in one of those bearish<\/a> head and shoulders patterns back in June<\/a> it not only recovered but made all-time highs. So, there’s hope in that regard.<\/p>\n

But this chart also shows its 50-day moving average, a short-term technical indicator that plays a big role for bitcoin.<\/p>\n

Let’s take another look…<\/p>\n

\"Chart\"<\/div>\n

You can see how strong bitcoin is when it trades above the 50-day moving average<\/a> (MA – dashed line), and relatively weak when trading below it.<\/p>\n

That’s because short-term momentum is a key factor for crypto.<\/p>\n

In February 2021, we explained the significance of tracking short-term momentum<\/a>.<\/p>\n

In fact, that strategy we presented played out perfectly last year…<\/p>\n

For instance, buying and holding bitcoin only when it crossed the 50-day MA and selling it when it crossed below would’ve returned 108% last year.<\/p>\n

However, had you simply bought at the start of the year and held until the end, bitcoin’s total return would’ve been only 60% for the whole year.<\/p>\n

But an equally important kicker is all the grey hair this strategy would’ve saved. Investors would’ve simply skipped all those 10% intraday drops.<\/p>\n

Right now, the 50-day MA sits at $52K.<\/p>\n

Bitcoin made a run at it in the final two weeks of 2021… but right now, that level is proving to be resistance<\/a> – which isn’t a great sign.<\/p>\n

There’s Another Reason $46K Is Significant…<\/h2>\n

The current tax laws for bitcoin make it advantageous to sell at a loss and then use that loss to offset capital gains elsewhere in the market.<\/p>\n

And since the Internal Revenue Service (IRS) considers bitcoin as property and not a security like stocks, it’s not subject to the wash sale rule… Meaning, bitcoin investors that are sitting on a loss can easily sell it to “book the loss” and then buy it back later.<\/p>\n

I believe many investors got whipsawed with bitcoin last year by chasing the highs and selling the lows. As a result, they were incentivized to sell during the final week of the year.<\/p>\n

Under this scenario – where the recent weakness in bitcoin was due to tax selling pressure – the weakness in price isn’t fundamental in nature and isn’t a reflection of bitcoin’s viability, investor appetite, or its long-term trend.<\/p>\n

It also means that a significant bounce is coming…<\/p>\n

We’ve seen investors selling bitcoin, but we have yet to see them buying it back.<\/em><\/p>\n

And the longer it hovers around $46K, the more worried bitcoin holders should be…<\/p>\n

Because if the tax selling narrative is true, then the recovery needs to come quickly.<\/p>\n

Right now, I’m waiting for a clear sign that recent weakness is just a result of tax selling. And that sign would be bitcoin closing above its current 50-day MA at $52K.<\/p>\n

Until then, the significant downside that the technical indicators are implying is keeping me away from betting on the “tax selling” narrative.<\/p>\n

Regards,<\/p>\n

Eric Shamilov
Analyst, Market Minute<\/em><\/p>\n

<\/p>\n

Reader Mailbag<\/h2>\n

In today’s mailbag, a few subscribers share their thoughts on Jeff’s survival Christmas tree tradition<\/a>…<\/p>\n

\n

I loved hearing of your survivalist tree! I read it to my husband and we both laughed out loud. Thank you for sharing! Merry Christmas to you and your family.<\/p>\n

– Karen W.<\/strong><\/p>\n<\/blockquote>\n

\n

What would I decorate my survival tree with? Simple and immediate answer… Bitcoin. Lots of little bitcoin “coins.”<\/p>\n

It’d have to be a live tree. Then I’d find little guns, ammo boxes, deeds to rural land, and second passports. Lights would be powered by a little generator, fueled with home grown bio diesel fuel. Below it, I’d make a little community with crops, animals, and such. There would be a library chock full of survival information.<\/p>\n

– Scott S.<\/strong><\/p>\n<\/blockquote>\n

Here, Market Minute<\/em> subscriber Dale shares his thoughts on market makers<\/a>…<\/p>\n

\n

Dear Jeff, thanks for shedding a lot of common-sense light on this subject. I used to hold market makers in a less-than-favorable opinion (about at the level of pigeons). That was until I learned what you pointed out; they have to buy shares to cover their side of selling a call option.<\/p>\n

Just like when I learned pigeons scavenge a lot of organic matter that would pile up pretty deeply if not for their not-very-finicky eating habits.<\/p>\n

– Dale R.<\/strong><\/p>\n<\/blockquote>\n

And, Jeff Clark Trader<\/em> members wrote in about Jeff’s biblical trading lesson<\/a>…<\/p>\n

\n

I like your ideals of thinking, I found myself doing just that. I’ll let it go and what comes, comes.<\/p>\n

– John H.<\/strong><\/p>\n<\/blockquote>\n

\n

Jeff, good reference and good words. However, you didn’t tell the audience what happens next. Lot’s two daughters got him drunk to perpetuate the family name! Happy trading.<\/p>\n

– Keith T.<\/strong><\/p>\n<\/blockquote>\n

\n

Jeff, thanks for reminding us that the bible deals with wealth and human nature. We would be wiser for studying the principles and applying truth to ourselves.<\/p>\n

– Paul H.<\/strong><\/p>\n<\/blockquote>\n

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at feedback@jeffclarktrader.com<\/a>.<\/p>\n

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