THE COMING COLLAPSE OF THE CRYPTO- WORLD . . . AND RISE OF THE BITCOIN STANDARD
BACK TO THE BASIS . . . OR HODL, KEEP YOUR POWDER DRY, AND FIRE ONLY WHEN YOU SEE THE WHITES OF THEIR EYES
The great mystery that lies ahead is just how Bitcoin Dominance will re-emerge. The question is not if or even when as there are strong indicators the process has started and is about to accelerate.
The answer I believe lies in the basis and relative strength. As a successful trader and Bitcoin Standard Bearer I make no pretensions that I can forecast the future dollar price of bitcoin. The best thing that can be done is find low risk trading opportunities based on fundamental and technical indicators in the short term and dollar cost average over the long run until 5%-15% of your net worth is in sound money, ie. bitcoin. And you should not be trading at all until at least 5% of your net worth is in bitcoin. If less than 5% of your wealth is in bitcoin, stop right here until you correct you personal situation.
OK, if you have 5% of your net worth in Bitcoin you may proceed.
But before we look at the basis and relative strength, let’s briefly review other key market fundamentals.
The setup is the euphoria created by the plethora of side chains known as THE CRYPTO WORLD. . . for the THE CRYPTO WORLD to gain legitimacy (at least in the eyes of the unwary investor) these phony and often fraudulent side chains succeeded by riding on the coat tails of the longest chain, with a limited supply, unconfiscatable, borderless, and secured by proof of work. . . BITCOIN, which is the Hayek Standard.
The bottom line is THE CRYPTO WORLD has been deceptively promoted as “Better than Bitcoin.”
As THE BITCOIN STANDARD emerges and is understood to be sound money, THE CRYPTO WORLD will decay into ruins and soon be looked upon as a relic of fundamental market misdirection driven by ignorance, good intentions, greed, bad intentions, hype, fraud, ICO’s , pre-mining, and FOMO under the banner “better than bitcoin”.
The misdirection comes primarily from those within the school of Austrian economics (some with good intentions, others with evil intentions) who have confused competing standards (and all of its money creation and Keynesian undertones) with genuine competition on one accepted standard which is the longest chain, with limited supply, unconfiscatable, borderless, and secured by proof of work . . . or BITCOIN.
Measured by the Coin Market Cap, Bitcoin Dominance declined from 86.26% on February 25th , 2017 to a low of 32.46% on January 13, 2018 and is now technically poised with a classic ascending triangle to explode on the upside. Now I don’t have a detailed chart (most of them I call them cartoons) with trend-lines, support, resistance, and all that garbage. I am not an ANAL LYST. But I do respect a few TA’s that know what they are doing. And just as Tone Vays identified a clearly defined descending triangle in the USD price of bitcoin at 6,200, there is a clearly identifiable 4 month ascending triangle in BITCOIN DOMINANCE.
Once this triangle is broken bitcoin can quickly recover to its rightful place of 90%-98% dominance with the emergence of THE BITCOIN STANDARD. Again, I don’t draw cartoons, but there is a pattern here worth examining for someone with that talent.
In free markets corrections are swift and the strong sectors recover quickly. What this means is that if bitcoin is sound money, it will likely recover swiftly and unexpectedly leaving the garbage of THE CRYPTO WORLD behind as merely an interesting footnote of history.
Now it is possible this will be a slow, dragged out recovery, that will take months or years to recover. But, my friends, this is Bitcoin. Bitcoin is the new kid on the block and I am very doubtful it will work that way!
A key fundamental that must be understood is that, unlike the conventional government fiat money system, there is no bail out in the private fiat money system. What this means is while the cycles of misdirection can be devastating in the short term, there is no artificial bail out like what was attempted unsuccessfully in stock market crash of 1929 and successfully in real estate collapse of 2009.
For the first time in history we have a market that can sharply react and correct market dislocations! There is no central authority that can directly interfere with cleansing the market confusion within THE BITCOIN STANDARD that has been wrongly identified as part of THE CRYPTO WORLD by bad actors, some with innocent misdirected good intentions and many with purposely directed bad intentions.
As I have previously outlined, the starting gate or catalyst for this phase of the grand EXTHIT (pronounced with a lisp and a weak wrist) was the BCrash hardfork which finally exposed one of the more legitimate competing alt standards for the fraud that it is.
The backwardation of basis in 2018 indicated to me that every dip testing $6,000 since February could be purchased safely. . . the basis also warned me in October that another dip testing $6,000 should not be bought. It did not make me bearish. . . but it warned me not to buy the next dip. . . the basis on the BCrash fork which made no sense, once understood, got me bearish! And it was the TA short term timing indicators that got me short!
Again, the mystery remains not if or when Bitcoin Dominance will re-emerge, but how. Will Bitcoin continue to break down with THE CRYPTO WORLD? Or will it soon break free and assert itself as the premier standard that it is. . . THE HAYEK STANDARD . . . THE BITCOIN STANDARD . . . . the recognized standard to build a prosperous society without borders and without the fear confiscation of wealth creation by tyrants in government or theft by wannabe tyrants in the private sector.
This is a difficult time. It is a time never before seen in the trading annals of history. It will likely not play out like traditional markets. And it is a mistake to view BITCOIN and the emergence of THE BITCOIN STANDARD in a traditional sense.
This does not mean the principles of sound money management do not apply. In the volatile world of BITCOIN they apply more than ever. Dollar Cost Averaging, a HODL, and the accumulation of 5%-15% of your net worth is a sound strategy of success to weather the storms coming. Everything else is window dressing.
RELATIVE STRENGTH AND BASIS
I consider both of these indicators fundamental, not technical. Both are worthless as far as timing. But both are useful as looking for the next direction.
ETH and BCH continue to lose against BTC with no sign of letting up.
Further, the loss in relation to BTC is accelerating compared to loss in USD.
Bitcoin basis has remained in backwardation throughout the decline, suggesting this will not be a sustained bear market for bitcoin but will more likely reverse sharply leaving the break below $6,000 as a short term anomaly . . . a phenomena akin the 19th Century panics under the emerging gold standard.
First and foremost, being short bitcoin from these levels is an extremely risky scenario. Both relative strength and basis are fundamental indicators screaming “Do not short bitcoin!” Again, both are lousy timing indicators but both separately and especially together are saying only approach the market from the long side.
Timing indicators gave a clear signal to buy on the 4 hour which clearly worked as I write this article.
Here is my current position and pending orders, all subject to change without notice. The equity has risen nicely primarily on my short ETH long BTC position, but also on light swing trading and entering new long BTC positions on the TD 4.
Hope this helps.
UOG
PS: I listened to this while driving to TJ on Monday. It is hilarious and expresses in humor the fundamentals outlined in this post. Enjoy!
