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Google Trends picking up

It’s only natural that the massive run-up in bitcoin’s price should be accompanied by an explosion of online interest for the currency. Millions of people who had never heard of it before suddenly saw it soaring in value, and wanted to find out more. That’s why Google Trends has traditionally correlated well with the price of bitcoin.

 

After all, what do you do as a newcomer if you read about bitcoin and decide to buy some? You don’t have a clue where to start, so your first move is most likely to Google it. Armed with that information, you register with Coinbase or another major exchange, go through KYC, and a few days later (or perhaps weeks, if you take your time to think more carefully about it) you are the proud owner of your first bitcoins. So all things being equal, Google searches should pre-figure price movements.

 

That’s more or less what we found last year and this year. Google searches spiked in December and dropped off a cliff when the bubble burst, just like price. Google shows interest as a percentage of its maximum, rather than as absolute search numbers, but the picture is clear: https://trends.google.com/trends/explore?q=bitcoin

 

The week before 17 December 2017 was the high for bitcoin searches, the same day that bitcoin hit its all-time high. Unfortunately, the page doesn’t give data more granular than a week, so we can’t tell precisely which day was the peak. But the date given is the last day of that week’s results, so we can say that the week leading up to the all-time high was the most active for searches – confirming the theory of interest leading price. Searches bottomed out in June and July, twice touching just 9 percent of their December high.

 

And what now? It’s a little early to say, but keep an eye on the Bitcoin Trends page, because it looks like interest might be just starting to pick up again.

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Bitcoin dominance is a metric of crypto failure, not success

Bitcoin dominance – the proportion of total crypto market cap occupied by bitcoin – has hit 50% again.

It’s the first time bitcoin dominance has been above 50% in 2018. The last time it was above 50% was December 2017. However, back at the beginning of 2017, BTC dominance was around 85%. It had rarely dipped below 80% in the whole history of crypto.

Bitcoin maximalists love to talk about BTC dominance. The thinking goes that bitcoin is best, and every use case for alts can and should move to bitcoin in one way or another. Thus ‘dominance’ is the best metric for the success of bitcoin: for bitcoin to succeed, everything else must fail.

 

This is a ridiculous viewpoint, for more than one reason.

  1. It’s classic zero-sum thinking. Crypto isn’t competing against crypto, it’s competing against fiat.
  2. Bitcoin can still be incredibly useful and important – and 100 times its current market cap – and still have less than 50% overall market share, or even 10%.
  3. As the number of altcoins increases, and the number of crypto tokens used by businesses for many and various purposes, the market cap of non-bitcoin crypto will inevitably increase. A million tiny but genuinely useful projects with $1 million valuation is a trillion dollars. None of these threaten bitcoin. Collectively, they don’t indicate bitcoin is less valuable either.
  4. These ‘alts’ include tokens like Tether, TrueUSD and other fiat-backed cryptos that add to market cap but don’t compete with bitcoin. As the ecosystem grows, so will the proportion of market cap occupied by stablecoins. That actually reflects demand for bitcoin, while reducing dominance.
  5. Blockchain applications and tokens do a lot of different things. A LOT. They’re not all money, or a store of value – digital gold – like bitcoin. They don’t compete for bitcoin’s #1 use case.

A higher rate of bitcoin dominance isn’t a sign of health in the overall crypto world, or a sign of the success of crypto. Higher dominance indicates less confidence in crypto as a whole, with traders exiting initiatives that might drive forward blockchain adoption. It’s akin to the market deciding that mobile communication doesn’t have much of a future, that innovation isn’t necessary or desirable, and piling into Apple shares because they have one major product that does happen to generate revenues.

 

In the future, the best case scenario would be for bitcoin to be the largest crypto – by some significant multiple, whether that’s 10x or 100x – but to occupy far less than 50% of overall market cap.

 

TL;DR Dominance is a terrible metric of success. Ratio of #1:#2 crypto is a better one.

 

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Bitcoin needs speculators

One of the big criticisms of bitcoin by mainstream media and much of the public is its volatility.

 

How can anything that claims to be a currency expect users to put up with 5-10% daily swings in value, or a 70% loss over the space of a few weeks, as happened at the beginning of 2018 

 

And they have a point. While bitcoin has proven a good long-term store of value (ask anyone who bought it more than a year ago), it fluctuates a little too much for the likes of ordinary folks. If bitcoin grows by another 10x or 100x, and especially if institutional money and derivatives come in, that volatility will be attenuated. Right now bitcoin is just a tiny, $100 billion commodity, which is nothing in the grand scheme of global finance. At $7 trillion – roughly the value of all gold – those swings would be far less, thanks to the deeper orderbooks and higher liquidity. (Though remember: gold itself isn’t exactly stable, despite its reputation as a store of value.)

So how do you get from $100 billion to $7 trillion?

The only realistic way for this to happen is through speculation. Price discovery, turbocharged. Bitcoin needs greater awareness, it needs to consolidate and increase its network effect, and it needs to pick up a whole lot more use cases – not least those ETFs and futures we’ve been hearing so much about. It needs to be used as a global means of transfer, as an asset used in retirement funds and by investment managers.

Speculation is a reflection of its potential: a feature, not a bug. It goes with the territory at this point. Sometimes we overdo it. Sometimes we go too far the other way. Price almost never coincides with value. It’s all part of the process of figuring out – as fast as we possibly can – what we collectively think bitcoin is worth.

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The Fear and Greed Index

Look at a bitcoin price chart. What do you see?

Red candles, green candles, volume bars?

Perhaps you’ve trained yourself in TA and you can see the patterns behind the bars. Support, resistance. Trends, ranges.

Or just maybe you see between the lines, the music behind the words. Greed. Elation. Caution. Panic.

Ultimately, a market is the reflection of all of its traders’ decisions, and many of those decisions are driven by emotion – particularly in a market like bitcoin, where institutional players are still just starting to come in.

That’s why Sentiment Analysis is an important tool, alongside Fundamental Analysis and Technical Analysis. What’s the market’s approach to this right now? Are they confident, fearful, interested, averse?

Take a look at The Fear and Greed Index: an analysis of emotion and sentiment taken from different sources and consolidated into a single figure. Zero means Extreme Fear. 100 represents Extreme Greed. You’ll see from the Crypto Fear and Greed Index that fear tends to correlate with buying opportunities, and greed with selling opportunities. It uses volume and volatility, social media and survey data, as well as bitcoin dominance and data from Google Trends.

It’s not a perfect measure, but it’s another useful tool for the smart bitcoiner’s toolkit.

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Inferno analysis: Friday

Taking our regular bi-weekly look at the charts and markets, bitcoin has provided some surprises over the last few days. Tuesday saw bearish sentiment out in force, with a sharp dip below $6k. BTC dropped as low as $5,880 (Bitstamp) and it seemed that far lower was on the cards. But the rule held: when it’s looking most bearish, it’s bullish. All of those calling for lower prices had already done their selling, and there was little supply left. Since then bitcoin has recovered $600 to trade at $6,480 (at the time of writing).

Right now we’re trading sideways within a range or, if you are feeling charitable, in a very gentle upward channel. Looking at some of the classic indicators, that sideways picture is borne out. On the 4h, RSI is nudging upwards, currently around 60 — not overbought but with a slight bias towards higher prices right now. Zooming out to the daily, RSI is around 40 — not low enough to indicate it’s too oversold — and heading upwards. Daily RSI has provided good sell signals at 70 in recent weeks, and reasonable buy signals at 30. We would like to see momentum carried above 50.

At $6,480 bitcoin is still well under the 50 and 200 MAs, which now sit at $6,900 and $8,000 respectively. After the bearish Death Cross that occurred at the end of March, they are narrowing. However, the fact that bitcoin now stands at a similar price to its point at the last cross should caution against reading too much into it: bitcoin moves fast and a lagging indicator is no good on that timeframe. Nonetheless, conventional traders will doubtless make much of a Golden Cross, as and when it must occur.

Otherwise, we have seen confirmation again of demand around the $6,000 level, despite the brief intra-day dip below. Bitcoin has tested this level no fewer than four times now. Clearly accumulation is happening around $6,000, and the smart money will be looking to get in there if it hasn’t already. It’s a little early to say but volumes seem to be picking up slightly too — even though it’s the holidays. Overall, it’s time for cautious optimism again in what we think is a nascent and fragile recovery, but the beginnings of a new trend all the same.

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Friday Inferno market analysis

With the SEC’s decision to delay leading to bitcoin being beaten down to the $6,100 level — the lowest since mid-July — it looked as though we were heading for further falls. With the rally past $8,000 stalling just two weeks ago, many analysts were (and some remain) concerned about revisiting the $5,000s and even lower.

Realistically, the big surprise would have been if the SEC had approved the ETF already. In practice, the SEC tends to take the maximum time allowed under the law, which is a total of 240 days from submission: 45 days for the first and second extensions, 90 days for the third and a further 60 for the final one. Thus a decision should not be expected until the end of Q1 2019.

Despite the fact that the SEC’s delay was predicable and predicted, traders reaction strongly. Bitcoin has broken multiple support levels, and $6,100 could be considered a Last Chance Saloon: beneath that, there’s very little to offer support for further falls.

That picture was changed by a mystery $400 spike, briefly pushing the price back above $6,500 and through resistance. BTC currently sits near support ($6,400), with the next target and support/resistance at $6,800. The rise may have been Tethers being strategically deployed; a more natural explanation would be that when everyone’s bearish — as they seemed to be — it’s time to think like a bull, since all the bears have done their selling and supply dries up.

This recovery has proven fragile and it’s keeping traders guessing. Misinformation appears to have played a big part in that: traders simply held the mistaken assumption that the ETF would be approved in August, and that the delay was bad news. Neither are true. It’s just good old-fashioned US bureaucracy.

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The Wyckoff method

Ever noticed how big money makes more money, and the smaller investors always seem to get fleeced? You’re not the only one. So did Richard Demille Wyckoff, a stock broker and one of the early figures behind the discipline of technical analysis. Something of a prodigy on Wall Street, in the course of his work he noticed the chart patterns that signalled how large players were positioning, almost always at the expense of retail traders. By learning how to align their trades with big money, though, ‘ordinary Joe’ traders could emulate their success.

His method has proven successful in any large and liquid market in which institutional and large investors are active, stripping money from retail traders as they make profits. What’s true of the regular markets is especially true of bitcoin, where emotion and a lack of regulation have led to a lot of inexperienced investors losing badly.

Wyckoff had a number of important insights, and this overview is well worth reading. One of the most relevant for our purposes is the Wyckoff Accumulation, which occurs at the end of a bear market, before the next price rise. With bitcoin down 65% from its high and currently trading in a range, studying his method could prove profitable. It is especially interesting since we know that big money is piling in and positioning to come in right now.

Looking at the chart for bitcoin this year, you should immediately recognise the pattern. The Selling Climax occurred on 6 February, with the brief but high-volume spike below $6,000. We then saw the Automatic Rally back above $10,000. The Secondary Test, and further tests, took place in April and after. And at the present time, it looks like we’re forming a Spring, a shakeout below the Trading Range we’ve established between about $6,000 and $10,000. Of course, judging where that is going to end is a different matter; bitcoin’s signature volatility makes it hard to know whether $6,000 or $4,500 will be the bottom.

All of that paves the way for the next bull market, which has its own jumps in price and pullbacks, and culminates in a Distribution phase at the top, just as a bear market ends with an Accumulation phase.

Wyckoff’s insights are keenly relevant right now, and used well will help you make a good entry point as the bear market plays out its final stages. Add it to your toolbox – and good luck!

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Inferno Tuesday market update

TL;DR: Meh… BOOM!

The past week has seen bitcoin teetering on the edge of a tumble into a deep bear market, with the picture looking shakier and shakier. In our Friday report we noted that a key long-term support line was under threat, the price bumping along the bottom without showing any signs of rebounding with the necessary vigour to establish a reversal (https://telegra.ph/Friday-market-roundup-05-25). Bitcoin ended Sunday below the 50-week moving average for the first time since October 2015.

The weekend passed without anything of note taking place, as did most of Monday. Volumes have been low and this drift downwards signifies apathy and uncertainty rather than any cataclysmic loss of confidence. It would have been better for a high-volume sell-off to occur and bring a degree of clarity to the market, rather than such non-committal malaise. The overall impression was of reluctant, tired bearishness.

Monday evening and Tuesday morning saw a continuation and slight acceleration of selling, but $7,000 held. The next key zones to watch after that are the area around $6,500-$6,600 – which is where bitcoin came off the rising support line back in early April – and of course that $6k bottom where the market capitulated two months before that. Breaking $6,000 would be highly noteworthy, because absolutely unprecedented volumes of BTC changed hands at that level in February, marking a strong bottom.

Faced with such a picture, one has to wonder what became of the 250 million USDT minted by Bitfinex/Tether ten days ago. Have they been deployed into the market already, and the fall is despite this new buying pressure? Are the creators holding back for their moment, which is yet to occur and may take place at a return to $6,000? Are they, in fact, working to contrive such a final move down, creating the optimal possible conditions for a large buy of bitcoin?

We may have got an answer with that big green candle, which seemingly came out of nowhere this morning. The price of BTC soared $400 in short order. As yet it’s too early to know whether that was an organic upward move, the Tether dollars hitting the system or just a blip in the broader downtrend. Sentiment can change in an instant, though – so be prepared.

Whatever happens, remember that with bitcoin, surprises should no longer be surprising. Expect the unexpected.

Somewhere between the extremes, buried between the snorting of the bulls and the wailing of the bears in the no-man’s land where few think to trade. That’s the most likely thing to happen.

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