This week I will be looking at the potentiality for more downside in the cryptocurrency market due to what appears to be a classic case of buy the rumor and sell the fact in the case of the recently apprived Bitcoin ETF's.
Many people wonder what is the root cause of "buy the rumor sell the fact". This phenomenon was best explained to be once that when good news is then confirmed, and the market sells off as a result of profit taking with many people left wondering why the market reacted contrary to the news.
Source: IG.COM
Herd behavior assumes that because everyone else is doing it, it must be the right thing to do. A classic case is the number of questionable social media influencers jumping on the Bitcoin can only ever go up narrative.
FOMO is also somewhat of a disease to the crypto trader. Although not chronic, it can be rather contagious if you get uniformed traders and investors together.
Source: Twitter.com
Think of the end of the last bull run, and how many people lost all their gains, and are left with a fraction of it to invest in the upcoming one.
FOMO seems to lead to impulsivity and a lack of perspective, often to the detriment of the individual and his good judgment.
Also, FOMO traders who entered the market right at the peak may be inclined to cut their losses after the sudden and sharp decline, sending the market even lower. Think the explosion around $48,000 to $49,000 this week.
Source: TradingView.com
Leveraged traders won't be able to last very long if Bitcoin continues to drop in Q1 as I strongly suspect it will as certain events unravel.
Traders with no leverage will hang on longer, but invariably as the market drops $10,000 to $20,000 they will cut their losses and spend half their Bitcoin somewhere else.
If you want to be the smart money, the idea is to buy an asset in the early stages of a supposed trend and sell once that trend has been confirmed by news reports or company announcements.
What transpired this week with the Bitcoin ETF is a story as old as speculation itself. With that said, let's look at the charts and the best opportunities right now.
Source: TradingView.com
I think the Crypto Total Market Cap is a great place to start. A quick look on the chart shows no weekly red candle yet, plus the sell side volume was weak this week.
A closer look reveals the largest spot sell side volume of 2023 happened around $1.5 to $1.6 trillion. Watch that area this week.
Source: TradingView.com
Looking at the Ichimoku indicator the CTMC tagged the top of the Ichimoku cloud and sold off heavily.
I'd suggest keeping an eye on the baseline, around $1.72 trillion as the spot to watch for resistance and reversal. This implies some early week strength before a potential sell-off.
Another crypto to watch this week is Ethereum. ETH has not sold-off much in comparison to BTC, and if you want some downside bang for your buck a reversal from $2,700 to $2,800 could be the play.
Source: Santiment.net
ETH has masses of technical and on-chain divergence. Unless I am very wrong ETH is going to implode soon.
Often you want to sell cryptos with the weakest fundamentals and from overbought conditions. Litecoin has weak fundamentals but it's not overbought, making this coin a tricky play, but still one to watch.
In keeping with that line of thinking we should probably consider Bitcoin Cash. Bad fundamentals, relatively overbought, and weak technicals.
Source: TradingView.com
The attached chart shows BCH making no new high since July, and posting a nasty reversal candle this week.
I think BCH has tremendous scope to fail if BTC does this week and quarter. I think a major double-top could be forming.
Overall, I think we could be setting up for next week for a nasty reversal after an initial rise, building on this week's apparent ETF FOMO.t|
