Head and Shoulders or Flying W? . . . Exthit remains the driving force
This shorty will address where we are, how I see the possibilities, and how to address the risk. We have a bearish head and shoulders and bullish Flying W pattern.
THE BEAR PATTERN
The first is a a descending triangle combined with a head and shoulders . . . a penetration means the long awaited break below 5,000 . . . in favor of this development is the long term moving averages, we are below the two week low, we rallied above the previous week’s high on the Bitmain maintenance squeeze which was made to sell . . . and we should now resume the downtrend taking out the 6000 support once and for all. . . with a very hard selloff. The problem is we rallied back above the previous weeks high allowing new short sellers in . . . plus there remains a large well advertised contingency of shorts. . . . suggesting there is more short squeeze to come.
THE BULL PATTERN
The second is a developing double bottom Flying W pattern which will become evident if we take out the two week high, hold, and then accelerate. Essentially, the strong support at 6000, if not broken, becomes the right side of a potentially very bullish Flying W pattern. And another short squeeze takes bitcoin above the two week high, which by my definition is a reversal from a bear market to a bull market.
By very bullish Flying W pattern I am not saying the irresponsible predictions of 50,000 or 100,000 by the end of 2018 currently promoted as attention grabbers. If we reverse it will not be a repeat of 2017. We have too much resistance all the way up. But a significant rally to between 12,000 and 21,000 is certainly possible.
THE FUNDAMENTAL SITUATION
A prolonged backwardation in Dec futures has been present since the August 10th break below 6,000 and every other time we approached 6,000 since April. I consider this a fundamental bullish situation rather than a technical one. While backwardation is a lousy timing indicator it is an indicator of imminent long term trend change because strong hands (including this writer) have been and are accumulating Dec futures on these dips.
By strong hands, I am talking about commercial interests. By commercial interests I mean companies with an immediate or future need for bitcoin who, as much as possible, are buying Dec futures and delaying purchasing in the spot market. . . locking in the difference. These are very strong hands. They are not looking at the price of bitcoin, they are only trading the spread based on their business needs for bitcoin.
It is the continued backwardation that exaggerates every time we test 6000 that has led me to be a buyer every time we test that area. . . a further break is doubtful so long as the backwardation persists when we test 6,000.
It is possible, but highly doubtful, we will break 6000 substantially in such a environment. If we do, it should be fast and furious with backwardation going to 400–500 which creates an even greater spread opportunity and will likely lead to a major spike bottom . . . which I also believe to be the healthiest scenario for bitcoin if it happens. . . so always keep your powder dry because no one knows what will happen. . . the purpose of this article is to prepare you regardless of what happens.
Once again, this is not a prediction. This is simply outlining scenarios . . . so you are ready to react depending on what the market does. . . rather than acting on what you think the market will do. Remember, no one knows . . . so trade accordingly.
The overwhelming fundamental driving force in the current bitcoin market is the accelerating Exthit (pronounced with a lisp and a weak wrist). There is every indication that we are entering in an exhaustion phase in a collapsing alt/ICO market.
Especially of note this week is bCash utter inability to rally with bitcoin or even with any of the small blips in the alts, suggesting disaster for bCash is imminent. Remember, many large traders become small traders. Roger Ver and Jihaun Wu may soon become interesting footnotes in bitcoin history (much like the Hunt brothers in the silver market) as they continue to dump bitcoin to support bCash not realizing that use diminishes bCash as a pricing mechanism and puts pressure on bcash both in terms of the Bitcoin Standard and USD standard.
Roger Ver is a student of flawed economist Murray Rothbard who advocated a 100% fiat gold standard. The gold standard was just that: a standard. It was always a fractional reserve standard with non-inflationary self-retiring money creation by banks which represented gold as well as all other goods being offered in the market.
The Lost Art of Commercial Banking
By E.C. Harwood Economic Education Bulletin Vol. XIV, no. 6 | June, 1974 Edward C. Harwood (October 28, 1900 - December…
A cup of coffee was never purchased with actual gold, except for maybe a few years in California alone during the gold rush days, where coffee was relative dear and gold plentiful. However, a cup of coffee was purchased through out the rest of the world with specie built upon a gold standard. Specie that not just represented gold, but all new goods offered by entrepreneurs in the marketplace through the development of commercial banking.
How fast will the Exthit materialize? This is a subject worth exploring by some one with better statistical skills than an Ugly Old Goat, however, this ugly goat would point out that from February 26, 2017 to June 18, 2017 the Coin Market Cap fells from 86% to 38% and this was before there was a bCash.
Global Charts | CoinMarketCap
Cryptocurrency combined market cap charts, bitcoin dominance charts, and more
The fall of bitcoin in relation to the alts was the result massive crypto money creation without any backing but the promise of developing a new idea, benefiting the money creators and providing these money creators the ability to promote their “better than bitcoin” money to the unwary. This bubble took time to develop. Historically such bubbles tend to pop much faster than they arise.
SO WHAT NOW?
Again, the driving force of the current Bitcoin market is the EXTHIT (pronounced with a lisp and a weak wrist.) There is no reason to believe this trend is near an end.
While I remain long Dec futures, I have sold 70% in the Perp market. Further, the backwardation evaporated on the last run up. So I have profited handsomely on the long btc Dec futures and the long Dec futures/short Perp spread. But this is actually pale in comparison to gains made being short Eth and bCash in terms of bitcoin and short Eth in terms of dollars, even with a substantially smaller position. For the first time this year I am finally ahead of the game. Thank you Roger and Vitalik.
The million Bitcoin question is will the Exthit cause Bitcoin to crash or rally? Or both. I have no clue and because there is little clarity and enormous risk right now I have trimmed by positions 70% in bitcoin and 30% in eth and bCash.
If we crash it should be immediate, hard, and fast. If we take out the two week high we should slowly grind higher and have likely turned Bitcoin without turning the alts. The other scenario is we hang in this range another week.
Hope this helps.