Bitcoin Faces Showdown With Strong 40k Support

Bear or bull? We might soon know the answer.

Covered:

Bitcoin under pressure since Dec 4th
40k is a major level of support, risks being tested
Macro trends add fuel to downward fire
Is there hope?

Bitcoin Under Pressure

Bitcoin and the broader crypto market are taking a hit, as it failed to break above $50,000 over the past week. Breaking above 52,000 is what it would take to have resumed a bullish trend, but now the market is watching $40k as the next major level of support. A break below that would indicate big trouble in the intermediate-term.

In the December 4th dump, Bitcoin hit a low of $41,960 on Bitstamp, which was the lowest since Sept 30th. The founder of Decentrader FildFilb then surmised that “size of dump & distribution likely to mean consolidation into Q1 next year. Moon mission is not dead, but some will think cycle over.”

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Bitcoin avoided getting attacked at the 40k key support level in that dump, which TechDev noted would be a reason to “flip bearish.” Now we risk testing that 40k support. Volatility has resumed after this current dump, leading one analyst to call that combination “pure carnage.”

Again, the 40k level has been stressed across the board as immensely critical. As one popular analyst pointed out, practically all of 2021 has been above 40k and losing it would essentially imply a long-term bear.

Practically all of 2021 above 40k, except for a few months of accumulation. I think it has been a good year.

40k is THE level, we can't lose it.#Bitcoin pic.twitter.com/ZwScb77ch7

— Inmortal (@inmortalcrypto) December 13, 2021

Macro Pressures Not Helping

More than $3 billion in long positions have been liquidated since Dec.1, according to Coinglass. Why is this good?

The macro pressures in the economy are not helping Bitcoin. As we pointed out in an article last week, the correlation between Bitcoin and the S&P 500 has been increasing drastically. With investors going into “risk-off” mode to end the year, the equity market is primed for a downturn and bonds are portending slow growth next year.

The Federal Reserve will likely announce on the 15th they are winding down their billion-dollar purchases of Treasuries and agency mortgage-backed securities purchases to $30 billion per month versus the current rate of $15 billion, meaning higher interest rates will follow that move. With the Fed priming the pump all year, risky assets have boomed, as investors felt the Fed had more or less subsumed the risk.

Of course, it is just can kicking and bubble expansion, and reality will always set in eventually. However, the upside is that investors actually see Bitcoin and large alts as a hedge against economic uncertainty, but we may still be at the mercy of broader macro forces.

The upside? Falling open interest in Bitcoin futures. Down 4.1% in the last 24 hours, worth $17.2 billion in contract value. More than $3 billion in long positions have been liquidated since Dec.1, according to Coinglass. Why is this good? Traders are withdrawing, which means they are expecting a bounce higher. But more likely, we will need to consolidate for some time before this “flush” actually reflects in price. Moving sideways into 2022 seems likely, but alts against BTC could be wiped out.

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Bull Market Since 2009?

Something else to point out. Zoom out. As seen below, Bitcoin has been in a bull market arguably since 2009. When you hold, you do not realize losses, and on the broader time horizon, dips look like blips. As Warren Buffett says: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” If he’s right about one thing, it’s that.

Oh, and if you’re looking for another bottom indicator, Peter Schiff just tweeted FUD again. Remember, long-term thinking always wins in markets. Time in markets beats timing markets. Forget what everyone says about cycles, tops, seasons, and even support and resistance.

Hold crypto assets that you see being well-positioned in 5-10 years. The rest will take care of itself. Is that subjective? Sure. But that’s investing. The other option? Capitulate in the red, and hold inflation-wracked cash hoping for more downward pressure. Now that’s what I call risk. Short-term investors and short-term projects never last long, especially in crypto.

Strong crypto-assets, being an idiosyncratic asset class, may not look like a hedge against legacy markets (and the uncertainty therein) in the short term, but when you zoom out, you’ll see it.