Sell The Rip – Crypto Piece
Bitcoin Heading To Low $30k Region
Bitcoin has finally seen a relief bounce after reaching as low as $38.6k. This bounce was overdue as Bitcoin traveled only sideways and down ever since the ETF approval announcement. The interesting aspect preceding this bounce was the fact that even though Bitcoin made a lower low on 23rd Jan, Bitcoin-related equities like Coinbase ($COIN) and Marathon Digital ($MARA) went sideways. This divergence proved to be a good indication for an incoming bounce, similar (but opposite) to the divergence seen at the ETF announcement top.
However, we believe that this is just a dead cat bounce and further downside for Bitcoin is yet to come. You can view our reasoning and downside targets in the article titled “Bitcoin Is Forming its Mid-Cycle Top” that can be found here. We’ve drawn 2 possible scenarios of how Bitcoin might play out in the coming days/weeks before seeing further downside. Option 1 is a typical dead cat bounce making a lower high followed by a lower low.
The option 2 scenario from above is where Bitcoin first makes another lower low and then a lower high followed by more downside. This option was inspired by the price action that was seen during the 2019 mid-cycle top as shown in the image below. The similarities while not perfect, cannot be ignored either.
Bitcoin Weekly RSI Magic
One of the reasons we are optimistic that the mid-cycle top is in is because of the historical pattern shown by Bitcoin’s weekly RSI. In all the past cycles, whenever the weekly RSI reached the red zone for the first time after a macro low, Bitcoin formed its mid-cycle top. The reason we’re confident of further downside for Bitcoin is because after rejecting from the red zone, the weekly RSI systematically visited the green zone, which is still pending for this cycle.
USD At Mid-Range
Of particular note is USD ($DXY), which is consolidating below its mid-range level of 103.5. While still unable to confirm above it, in the event that it does, it would be a major headwind for Bitcoin and other risk-on assets.
Ethereum Bet For $2975 Is Off For Now
In the previous Crypto Piece titled “It’s Now Or Never For Ethereum” that can be found here, we had highlighted the scenario that would provide the fuel for a last run-up in ETH to $2975. However, as Bitcoin closed below $40k and Ethereum below $2375, our invalidation levels have been triggered and we do not believe in another leg up (above $2700) for ETH until a deeper correction first occurs. While there would be bounces along the way, the areas of downside interest are the $2000 region and $1735 if Bitcoin sees a deep retracement. The mid-point of these 2 levels (around $1850) is also an area of interest.
ETH/BTC Ratio
The ETH/BTC ratio rejected at the first resistance level itself, unable to even make it to the resistance zone. It is now below the downtrend line (potential false breakout) awaiting a weekly close tomorrow. This indicates that it’s still not time for ETH to outperform BTC yet.
The ETH/BTC ratio’s bottoming structure looks somewhat similar to Bitcoin’s bottoming structure from Summer 2021. Back then, this kind of an Eiffel tower type move ended up as a slow grind down before Bitcoin eventually reversed to the upside. In context to the ETH/BTC ratio, this would mean Bitcoin would slightly outperform Ethereum for some more weeks before eventually the ratio shoots higher.
The next section for paid members covers a very important chart for the crypto total market excluding Bitcoin. It also gives an updated technical setup and levels of interest for 3 critical crypto-related stocks: Coinbase ($COIN), Marathon Digial ($MARA), and CleanSpark ($CLSK).