Bitcoin fell on Friday, initially retesting the $40K level before turning around and dropping over 10% to under the $35K level before eventually settling around $36K. This is a bearish development as a bearish engulfing candle validates our primary dead-cat bounce view. Bitcoin closed the daily candle down about 10% from the daily highs, going into the weekend with a bearish tone.
(January 15, 2020 7:30PM EST)
Bitcoin sold off on Friday, failing to breach the $40K level on low volume and dumped hard, dropping about 10% by the close. This comes following a nearly $2 trillion stimulus announcement from US President-Elect Biden which sparked equities and gold to sell off today while the US Dollar rallied. As we have mentioned before, Bitcoin's positive and negative correlations to gold and the US Dollar provided a confluence of bearish pressure on Bitcoin today and looks to continue this into next week. This is a bearish way to head into the weekend, though if you study the market's reaction to the first stimulus package announcement in 2020 you'll notice similar reactions across equities, precious metals, and the US Dollar. This gives us some context as to what to expect going forward.
During bull markets, Bitcoin tends to make ~30% dips, which Bitcoin would have had for a moment but recovered to only print half of that. Yes, they are faster in crypto, especially in bull markets, but that doesn't mean we can't grind lower or sideways for another month. After seeing this week's misleading recovery, Bitcoin made an exasperated retest of resistance at $40K, resulting in a double-top leading and a subsequent selloff. Going forward, I think Bitcoin could continue lower alongside equities and gold to retest support at $30K and possibly drift lower to complete this correction.
Going forward my mantra is to buy on dips, dollar-cost average on a regular basis, and even earn Bitcoin if you can. The path of least resistance is up; don't try to fight it unless you're a degenerate gambler willing to get burned.
Support: Look for support around $30K (38.2% fib) and then $25K (50% fib). Anything lower than that is a screaming buy, though I'm not even sure we'll see $25K again. For more precise price targets, set staggered buy orders at Fibonacci retracements levels and monitor price action to see what gets filled and if Bitcoin starts to form a convincing-looking reversal, adjust accordingly (up or down).
Resistance: Look for resistance at $40K. If Bitcoin breaks above $40K, look for $45K, and then $50K. After that, we'll probably move in $10K increments.
Somewhere around ~$52K that Bitcoin's market cap will equal $1 trillion, so at that point, I think we could also see a selloff. However, any rally thereafter should be further supported as a $1T market cap would give the green light for many more conservative institutional investors to initiate Bitcoin positions as Bitcoin will finally be "big enough" for them to even add an allocation.
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