Bitcoin sold off aggressively on Tuesday, crashing below the $50K level, and even reaching down to the $45K level before finding a bit of support, finishing the trading session around the $48K level. This is a firmly bearish candle as Bitcoin sliced through newly discovered and tentative support regions, reverting back to the mean and is now testing major support levels.
(February 23, 2021 7:30PM EST)
Outlook:
Bitcoin sold off again on Tuesday, falling decisively in a 13% loss in what many are speculating was started by a series of heavy-handed margin calls that snowballed and created a margin call/stop-run on other leveraged longs. Crypto is known for being speculative and a trader's volatility-haven asset, so it's not surprising to see a lot of leverage used and be stopped out. Bitcoin and most of crypto has been pretty impregnable lately with substantial rallies over consecutive days without much downside, which is not healthy nor sustainable for a longer-term bullish trend. Days like yesterday and today are normal and should be expected, so to take a glass-half-full approach, the fact that Bitcoin has intermittent red days and takes some time to digest its phenomenal gains is indicative of a maturing market. As more investors continue to enter the space, we will see decreased volatility, which is what we have already been seeing over time.
Primary View:
As I forecasted, Bitcoin found a local top near $60K and is completing a Wave 2 correction, which could have some more downside before it terminates, putting in our local bottom and higher low. Wave 2s are typically at least 61.8% retracements of W1, so we could see our bottom right at $40K which would be a very close support level to what was once Bitcoin's resistance. $40K is also supported by the rising 50 Day EMA which is just below around $38K, making this a stronger support level and an ideal target.
Finally, it's worth noting that a correction from ~$58K to $40K is a ~31% retracement; a typical correction percentage during bull markets. In fact, if you compare the January 2021 Bitcoin pullback from $42K to $29K (see below), also a 30% correction, the two seem very similar -- in fact the January correction made a 50% correction, so if that was the case here then Bitcoin would bottom around $43.5K. For context, the January correction also took less than 3 weeks to completely play out, so we may see this correction run its course through mid-March before starting to consolidate toward a larger W3 higher (W3 of W3?).
Strategy:
Buy the dips. Earn free BTC. HODL. Stake for passive interest.
Traditional Markets
Gold was flat to slightly bearish while the USD was up a bit and the 10 Yr Yield retreated slightly. We do appear to be approaching a local top in equities and thus 10 Yr Yield, so a falling yield should be good for gold and by proxy Bitcoin.
Support:
Look for support at the $45K level, then $40K, then the 50 Day EMA around ~$37K.
Resistance:
Immediate-term resistance is roughly the $60K level, from which Bitcoin was recently rejected.
