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Tuesday Inferno market update

TL;DR the Bear gathers momentum – but it’s surely time for a bounce.

This has been one of the roughest weeks for bulls in a very long time.

Sunday’s crash saw bitcoin bottom at $3,475 (Bitstamp). This was followed by a brief bounce, but this was little more than a reaction rally and short-squeeze – something almost inevitable when the market falls so far so fast. The support level that had formed at $4,200 shortly before has become resistance, and bitcoin failed to punch through this: the bounce was weak and BTC soon drifted back below $4,000.

As Sunday closed, RSI dropped to 31.45 on the weekly, indicating we are approaching oversold conditions. It takes a lot of bearish action to push RSI under 30 on such a long timeframe. In fact, the last time that happened was the capitulation crash of January 2015, when the RSI read 27.53. But don’t get your hopes up just yet, because it hit 30.34 at the end of September 2014, with a low of $275. Anyone who bought that dip would have congratulated themselves as the price quickly rose back above $450 – but then plunged to its ultimate low of $152. There’s good reason to think we’re not at the end of this bear market yet.

Nevertheless, these things don’t happen in a single clean swoop – as the 2015 example above illustrates. The market can remain irrational longer than you can remain solvent, as the saying goes, but it keeps people guessing. When conditions are this oversold, a reaction rally is on the cards. When it will happen and where it will end we can’t say, though we’ve previously noted that there will be killer resistance at $5,700–$6,000, since this has been incredibly strong support in the past. It’s highly unlikely we’ll break through that on the first attempt and the rejection of those levels might see one last leg for the bear market.

On Monday BTC dropped back towards Sunday’s low but did not fall beneath it. At the time of writing – and things change fast – BTC has managed to remain above last week’s low. It does seem likely that BTC will drop lower at some point; the 200 weekly moving average stands at around $3,150, which also lines up with historic support. However, there’s no telling whether that will happen this week, or further down the line after a bounce.

We’ve been hearing all kinds of wild predictions about how low BTC might go. BitMEX CEO Arthur Hayes, who earlier this year predicted $5,000 would happen, has gone on record saying $3,000 is quite possible. Others have stated $2,000 is likely, or even that the old all-time high of $1,200 will be revisited. Fear is as strong as hope; back in 2014, people were predicting double and even single digits. If you’re trading, manage your risk carefully; you can find where to learn how here.

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YouTube picks: Alessio Rastani and Crypto Kirby

Crypto trading is not for the faint hearted. Here are two experts who help you make smart decisions.

The crypto world can be incredibly simplistic. Bitcoin is dead; bitcoin is going to $1 million. The truth, of course, generally lies between the extremes but there are few who take the trouble to uncover it.

If you’re trading this market, you have to be one of those few or you won’t last long. Crypto can be brutal at the best of times; right now it’s an absolute animal and that animal is an angry bear. If you get your information from Crypto Twitter (CT) or the forums, you probably have the survival chances of a snowball in a supernova. Reliable sources of information and education are rare, but they do exist. Two of our favourites are Crypto Kirby and Alessio Rastani.

Kirby is a full-time swing trader who posts daily updates about the markets and his moves. He has a subscriber-only channel where he gives real-time information about his trades, but you can get a lot of good data from the regular channel. His updates are punctuated with desk-slapping and jibes at unsophisticated traders, ‘Moonboy Montgomery’, ‘Average Joe’, ‘James at the Watercooler’, ‘Poopcoin Patrick’. Initially these were annoying but they kind of grow on you, especially when you realise there’s some great, unemotional and very rational technical analysis here. If you’re trading BTC or ETH, you could do a lot worse than to take in a few of these videos.

Rastani is a UK-based self-taught trader who became a controversial figure after an appearance on the BBC back in the financial crisis, in which he stated he dreamed of another recession and that, as a trader, it was his job to make money whatever the market direction. The same is true of financial institutions. ‘Governments don’t rule the world; Goldman Sachs rule the world.’ He received heavy criticism and ridicule for this, though – looking at the matter objectively – he is right. It was simply honesty and a position far more prevalent than most people grasp. Goldman Sachs is not your friend. Misunderstood or not, Rastani posts regular updates about bitcoin and is a conservative, realistic trader who gives plenty of good information.

In both cases, these traders won’t tell you what you want to hear. They are dispassionate; when circumstances call for being short, they will short. When long, they will long. Risk management is key. They’re both worth your time if you want to trade BTC.

You can find Kirby here: https://www.youtube.com/channel/UCOaew10hdmtfa0MinTjOBqg

And Rastani here: https://www.youtube.com/user/alessiorastani

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These might be the most important crypto articles you read this year

It’s been a brutal year for crypto. If you’re a hodler, not a trader, then you’ve seen the value of your portfolio decrease by anything from 75% to 90% or even more. You’ll be wondering where the bottom is, or whether there even will be an end to the downward slide.

It may not feel like it, but these are also times of opportunity. At some point the market will bottom out. Then there will be an accumulation phase, and the new cycle will start. Last time around, those who managed to buy during the capitulation ($155) saw over 100-fold returns. That happened fast and the opportunity was soon over, but the market then saw a long period of stability at $220-240.

The trick, of course, is knowing when it’s time to buy. If you sold higher up, particularly above $10k or $15k, it’s not so critical – these prices are bargains by comparison even if they go lower. Naturally, the smarter you can be, the more ROI you’ll squeeze out of your investment.

The following two articles are excellent overviews of how market cycles work – particularly in bitcoin – and the least risky time to get back in.

The first article describes the pattern followed by almost every speculative bubble in history, and how with each bubble bitcoin makes a ‘higher low’. That is, prices at the end of each bubble are exponentially higher than after the end of the last, so that it only makes sense to view the overall progression on a log chart. It then unpacks the cycle into four stages. For our purposes, only the last two, capitulation and accumulation, are important at the moment. In fact, we’ll assume you’re not a pro-trader who manages to call the market and pick up BTC at rock-bottom prices – levels that might last for hours or minutes only. You’ll need to accumulate carefully, over a period of time, and at a time when mainstream media is silent on bitcoin or still deriding it. The guys who bought following the Bitstamp hack at the beginning of 2015 – that’s who you need to be.

The second article looks at the same thing from a more technical perspective, looking at not just where the market bottoms but how you know it really has bottomed, and that it’s safe to get back in again. You won’t pick up BTC so cheaply, but it will be lower risk (never zero risk). In this instance, we’re looking for a retest of old support after price has dropped below it, made a higher low, then a higher high. If established support holds, that’s promising. For 2015 that point was around $300. We need to watch and see how this market plays out, but it could be $6,000 this time around – we won’t know where to set our expectations until the bear market has gone on longer and new support and resistance are established.

 

Read these two articles carefully. They may change the way you view the bear market and the opportunities it holds.

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Friday Inferno market report

TL;DR Embrace the bear.

Crypto’s slide into the abyss continues, as Tuesday’s trading marked a low of $4,049 (Bitstamp). Since then we saw a relief rally back beyond $4,600 – all but inevitable after such a heavy plunge – and now, at the time of writing, BTC sits at $4,320. Last night it plumbed similar depths, touching $4,061.

Inferno will never give you financial advice, but we can point to plenty of evidence that we’re going lower. Just as bitcoin never finishes a bull market quietly, instead preferring an epic blow-out parabolic top, it doesn’t tend to bottom quietly either. At some point, we’re looking for capitulation: a sudden, deep spike down and back up again on huge volume. That hasn’t happened yet. It may not happen for weeks or months, but happen we believe it must.

Between now and that event – which will set up smart traders and investors for the next market cycle and possibly for life – there will be many ups and downs. In the short term, we expect a drop below $4,000 with targets in the $3,500–$3,600 range. Should that occur, it’s quite likely that we’ll see a considerable rally back up towards resistance at $5,000–$6,000, before a final leg down and end to the bear market. We’ll explore why we think that in later posts because there’s lots to it.

For now, we’re looking at support around the mid-$3,000 level. That lines up with a pause in activity from the bullrun over a year ago now and so is all we’ve got for now. As we’ve noted before, this market is wide open because the parabolic nature of the 2017 rally means that little was established in the way of support and resistance. But suffice to say it’s Black Friday, and we’re looking for a big discount on crypto today or over the weekend.

Things change on a daily basis with bitcoin, so as new information comes in we’ll be re-evaluating our position. But if we had to nail our colours to the mast, we’d say it might play out like this:

Sub–$4k (perhaps around $3,500) –> $5,000–$5,500 –> Final capitulation.

That lowest level could be $3k, it could be lower. We just won’t know until we get there.

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Bitcointalk: what is it good for?

TL;DR if you’re into crypto, steel yourself and get in there – just don’t spend too long or it’s going to take more than a shower to wash off the grime.

Bitcointalk. It’s the forum that Satoshi Nakamoto himself set up in the early days of Bitcoin to discuss his new idea for electronic cash. He conversed with geeks, libertarians, goldbugs and those with a penchant for Austrian economics.

And then he took a step back and gave control of the forums to others, and bitcoin became popular. And that’s where things changed. Because bitcointalk turned from a forum for aficionados and curious computer nerds into one of the biggest cesspools on the internet. Its libertarian roots meant it has maintained a freedom-of-speech mentality which means that trolls go uncensored, and so it can get about as offensive as is possible. But it’s still useful at times. So, what is bitcointalk good for?

  1. Tech support. Bitcointalk is a huge, sprawling forum with many sections and thousands of threads. If you need some help with crypto, there’s a very good chance you’ll find it here. You might need to hunt a bit, but there’s a thread for almost every crypto product and project that exists. And there are helpful people here, even if they’re badly outnumbered.
  2. Information. Just about any new crypto initiative starts with a presence on bitcointalk. New ICOs, businesses, hardware projects. Many have official threads that are actively maintained by representatives. Others have unofficial support threads. It’s also a good place to find out about scams: if there’s any doubt about a project you’ll find it voiced here, often with some good analysis. And plenty of paranoia and false accusations, so you’ll have to be discerning!
  3. Trolls. They thrive here. In the more popular threads, you’ll find some of the world’s most disgusting and pathetic humans. Uncensored, they take pleasure in spreading their misery and lies. A little use of the Ignore button goes a long way, and in some threads can reduce new post count to near zero. Watching them turn on each other is also entertaining.
  4. Spam. Depending on your thread, for every useful post and every troll, there are many, many useless ones. Get used to skim reading as you search for the diamond in the coal face.
  5. Losing your life. Not physically, although you might wish that on some of bitcointalk’s members. The forum is a warning of the dangers of the internet. There are people here who spend their life trolling and discussing nonsense. Some have been at it for years: typing furiously yet contributing nothing to anyone present, let alone the wider world. Pity them, and be careful never to become one – even for a short while.

TL;DR keep the focus on crypto and bitcointalk can be a mine of useful information. Lose it and you risk losing much more.

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Tuesday Inferno market update

Well, it’s happening: the last week has seen some brutal market action for bitcoin.

Bitcoin broke its long-term support at the $5,700-6,000 zone on Wednesday, plunging abruptly to $5,200. After a brief bounce and period of consolidation around $5,500 over the weekend, it again dropped on Monday to challenge the psychological support at $5k. After some hesitation, this proved no great barrier and the price headed into the $4,500 range (at the time of writing).

The parabolic nature of the run-up last year means there’s little in the way of technical resistance, so it’s impossible to call where the bottom might be. As yet, we have certainly not seen the momentum and volumes that indicate capitulation. Aside from $5,000, we see potential resistance at the $4,500 and $3,500 levels. Will BTC go lower? It’s impossible to tell, of course, but nothing should be discounted. Still, the $3,500 zone should provide some pause if it’s hit.

If BTC has suffered, the alts have fared worse – especially ETH, which has been flippened into second place by XRP. Ethereum has been impacted by the SEC’s recent ruling against two 2017 ICO issuers, entailing fines and the requirement they return funds to investors. This enforcement likely played into the crash across the crypto markets, with traders seeking to frontrun further action against ICO issuers. Meanwhile the BCash hashwars rage on; Wright’s SV chain and Wu/Ver’s ABC are vying for first place, alternating which is ahead. Resources are being expended on this, and it will be a case of who can afford to keep it up the longest. Right now SV looks to be losing, but it’s not over until it’s over.

Whenever the recovery starts, BTC will have tough headwinds to contend with at $6k. This has been tested many times as support, with huge amounts of money. Support traditionally turns into resistance on the way back up, and breaking it will be no small matter: it is likely the most powerful resistance level ever established in the bitcoin market.

It’s not all bad news, thankfully. The Swiss HODL ETP (exchange-traded product) has been approved, meaning that investors will gain access to a basket of five crypto assets on the Swiss stock exchange. And Bakkt is on course for launch early in December, offering an on-ramp for institutional money. The timing of this will be interesting. 12 December is just over three weeks away and that is plenty of time for the market to nosedive to ‘despair’ levels and beyond, offering corporate clients some bargain Christmas prices.

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Consensus: proof of what?

Bitcoin’s genius was in establishing consensus across a peer-to-peer network, with no single, central party to call the shots. In order to do that, miners need to expend a scarce resource (energy), so there is a cost to them attempting to defraud the network. Ultimately, the funds they put on the line can be better spent working honestly, and collecting block rewards and transaction fees.

But proof-of-work (PoW) isn’t the only way to establish consensus or bootstrap a coin. Here’s a brief rundown of the different approaches.

Proof-of-work (PoW): Miners use electricity and computational power to ‘back’ the coin, with the winner of the hashrate competition (the computer that finds the answer to a complex computational puzzle) getting to add the next block of transactions to the blockchain. Since this is highly energy intensive, but it’s very easy for the rest of the network to check for fraud, it’s not in miners’ interests to submit invalid transactions unless they have more hashrate than the rest of the network put together and can railroad every other miner into accepting their version of reality. Bitcoin, Litecoin and many of their forks use one or other variation on PoW.

Proof-of-stake (PoS): In this instance, the scarce resource is coins: miners stake (lock) their balances and block rewards are distributed broadly on a pro rata basis. It’s a lot like entering a lottery, where the number of coins you stake is like the number of tickets you buy. The network is kept honest because in order to confirm fraudulent transactions reliably, you would need to own over 50% of the currency. Buying that much would push the price through the roof, and then you would kill the value of your own investment. Many platforms from Nxt to Waves use this, or a variation on it.

Proof-of-Burn (PoB): In this case, coins are burned (‘destroyed’ by sending them to a provably unspendable address). This is a lot like PoW, but the funds you’re burning are crypto, not fiat (to buy electricity and mining equipment).

Proof-of-Capacity/Storage/Resources: Here, your scarce resource is something that network users want to rent, like hard disk space, bandwidth, computational power and so on. Many different initiatives, such as Siacoin, Storj, iExec and many more have gone this way.

Proof-of-Importance (PoI): In this instance, a miner creates the next block on a combination of factors, which might include their coin balance (like PoS) but also their overall importance in the network, how many transactions they make, the value they transfer, and other factors. NEM uses this approach.

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Inferno Friday market report

Turbulent times in the market, but a temporary reversal looks underway.

Wednesday saw bitcoin finally and conclusively breach its long-term support at $6k and, ultimately, $5,700 – the last line of defence. The resulting plunge was sudden and severe as traders raced each other to sell first. There’s little in the way of support for a long way down, so no one wanted to wait around to find the bottom. Eventually BTC bounced at $5,200 (Bitstamp).

The move above $6,500 was a fakeout (something that often happens with bitcoin), after which we returned to the established range and then broke down. It all happened very fast and many of those intending to short at $5,700 will have missed their chance.

The catalyst for all this seems to be the fork in Bitcoin Cash, as traders move large sums of money into and out of the currency via bitcoin and take their positions. BCH suffered a brutal selloff and the fork – which has now taken place – was surrounded by more FUD than is usual even for crypto. Craig Wright has been posting all kinds of crazy stuff to Twitter, essentially saying he will actively work towards the demise of BCH and BTC, if necessary: https://twitter.com/ProfFaustus. Read the memes and insults, and ask yourself: is this really the person who wrote the Bitcoin white paper and launched the whole crypto industry?

Wright has promised a hash war intended to destroy BCHABC – the rival BCash fork to his BCHSV – and stated that miners who support ABC with hashrate will be contributing to the crash of BTC, since he will be forced to sell BTC to pay for additional hash. Despite his claims and a short-lived rally in BCHSV futures, BCHSV is today trading down 40-50%, and a third of the price of BCHABC. So far, his posturing has come to nothing. Having boasted that SV was ahead, Wright now finds ABC 45 blocks ahead and moving away fast.

For now, BTC is monstrously oversold, down at 18 on the daily RSI. We’re due a short-term bounce at the very least, and yesterday’s huge doji candle signals reversal – whether that’s temporary or not can only be known in hindsight. We expect to test $5,700 and $6k again quickly, with that former support level now acting as resistance. Assuming we’re not in for lower lows – which is by no means certain – it would likely take a couple of goes to punch through $6k again. With the BCash fork out of the way, the uncertainty and external factors are at least receding.

Downwards, there’s not much in the way of historic support, since the run-up last year was so sudden. There’s the psychological $5k level, and good support at $3,500. Hopefully we won’t test that low, but there are no guarantees.

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Tuesday Inferno market report

TL;DR volatility returns, with gradually increasing volume?

After last week’s promising breakout, bitcoin took a dive and is now back within its range. With the failure to make higher highs, we’re back to the previous rules: resistance at $6,400 and $6,200, with $6,000 being the established demand zone. Should the price drop to ~$5,700, we’d say it’s time to short – as ever, though, do your own research.

At the time of writing, BTC stands at $6,275. Volume is up a little; while it’s still pretty lacklustre, the direction of travel is right at least. Coinmarketcap is showing aggregate volumes into the $4 billion range (check the Historical Data tab for Bitcoin). While we’d like to see figures much higher, a large proportion of the last three months have seen lower volumes than that.

Meanwhile, BCash is retracing hard after its pre-fork pump, which looks like nothing more than your traditional crypto P&D. It seems that this event may have brought some interest to the overall crypto space, as traders purchased BTC to buy BCH – which are now being sold again. Craig Wright has stated his aim to kill BCH entirely. He claims he has over 50% of network hashrate at his disposal, meaning he could destroy BCHABC (Ver and Wu’s chain) and ensure his own BCHSV survives. Needless to say, the futures market has been volatile, and given that Wu has a lot of Bitmain hashrate to draw on, it could all get very ugly. Wright has threatened legal action of Wu moves Antpool hashrate to counter-attack.

Just another day in crypto. Most likely we’ll need to wait until after the fork happens and all of that mess plays out before the situation for BTC itself becomes clearer. You can read our rundown of the BCH fork debacle here.

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Friday Inferno market report

TL;DR Positive for now, but it’s all about $6,800

 

After a long period of uncharacteristic stability, bitcoin is finally picking up. There are several reasons for encouragement, but a trend-change – a renewed bull market – is not certain yet.

 

On Wednesday bitcoin closed above the 50 daily MA for the first time in weeks. That area ($6,450) broadly lines up with a key support/resistance level, so remaining and consolidating above that will be important. For now we’ve dipped below that to $6,400, coming off the 50 and 200 MAs (which have just crossed bullish) on the 4h chart.

 

We have broken through the descending resistance line that has been in play since February. Bitcoin has tested this multiple times, as it has tested the $6,000 zone.

 

Volume is coming back in. It’s nothing like it was at the height of the rally or earlier this year, of course – but it’s picking up.

 

Bitcoin dominance is down. This is something that die-hard maximalists will view as a bad sign. For us, it’s a signal of strength for the overall crypto market. In a bear market, traders seek safe haven in BTC, assuming they don’t exit to USD altogether. This is why alts have typically fallen ~90% while bitcoin is down ~65%. When confidence returns, traders buy alts – pushing those thinner markets higher and reducing dominance, but indicating in the process that crypto is overall attractive.

 

For all that, bitcoin is still in a range and we know that $6,800 represents critical resistance. BTC has traded around that area enough in the past that it will necessarily be a key level in deciding trend. It may take a couple of goes to break that, if indeed the market decides that’s where it wants to go.

 

Additionally, bitcoin shorts have dropped to a three-month low against longs. This is not conclusive evidence of anything, but we take it into consideration. Longs have not picked up appreciably in cash terms. Remember that the herd is generally wrong. When shorts are high we often see a move to the upside, clearing them out. We’ll be watching this to nuance any technical analysis. Finally – and this will feel like Groundhog Day to anyone who’s been around since 2014 – China has just unbanned bitcoin. Again.

 

To summarise, passing $6,800 will be interpreted as a sign of strength, and many traders will be waiting for this point or $7,000 before buying.

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