Yikes. Crypto is at a crossroads and appears to be taking the wrong road.
Previously I’ve written about why, from a large cycles perspective, we still had more upside to Bitcoin and therefore the crypto market. The last one, at the beginning of November last year, was particularly hopeful. After that, we did see a new all-time high. But I also gave some caveats including that if the stock market goes down it will take crypto with it, and that Bitcoin needed to make sure to not drop through a support zone at around $44,000.
Unfortunately, both those things have come true. The stock market seems to be unhappy with the Federal Reserve’s plan to take away (some of) the sugar-rush of free money. Risk assets are being sold, and all of crypto is still seen as a risk asset. And Bitcoin took out the 44k support zone pretty convincingly. I can hold up my hands and say my thesis that we were close to the final mania phase of the bull market has thus been invalidated.
At this point, it looks bad. How bad? Bitcoin broke market structure on a weekly scale, by every market structure measure I’ve seen. Yesterday, Sunday 24th Jan, the weekly candle closed with the 44k support zone crushed. Further drop today removes any hope that this was a “pro-fake” that could spring straight back up. The red background in this chart shows a bearish (downward) weekly bias appearing for the first time since the Covid Crash of 2020:
Who cares about the weekly chart? Players with big money do. They’re now more likely to sell every rally, until price arrives at an area where they want to buy in bulk for the long term. Where might that area be? No-one knows. The two most logical places to hold support are confluences of horizontal and dynamic support in the chart above: around 30k and 22k. The latter level is dangerously close to the absolute last-ditch defence line of 19k (thin green zone), which is the previous macro cycle top. Below there is only GoblinTown.
Is this the end for bull dreams of a mania ending in a blow-off top? Not at all. One day Bitcoin will eat the financial system. But it’s not going to happen anytime very soon. At this point the directional thesis is DOWN, and for that to be convincingly invalidated we would want to see bullish market structure return on the WEEKLY chart (the highest timeframe that is currently bearish) – a higher high and higher low. It’s that simple.
If that happens it would look something like this:
What does this mean for alts? Altcoins are high-beta risk assets. When the market goes up they go up a lot. When it goes down they go down a lot. Some people like to buy cheap and hold for the long term. Some like to only hold things that are going up. Position accordingly.