REVIEW - In our last update in March entitled Rougher Waters Ahead, we warned the record pace the cryptocurrency was appreciating at could not be sustained and called for a major correction. In that piece, Bitcoin was trading in the 1200s and we said we were looking for a drop into the 500-700 area, which we believed made more sense given the overextension at the time. In the days that followed, Bitcoin did indeed collapse, though the reversal wasn't able to extend lower than the 790 area. Still, a $400, 30% move wasn't exactly far off from what we had been anticipating and it was nice to see the technicals deliver on the warning.
ANOTHER SHOT - At the same time, the market has since raced back, rocketing to a fresh record high through 2000! This is something I did not anticipate, with my fundamental concerns having yet to materialize, which I believe should open another major drop that leaves the market hanging out much lower, once it pulls back this time. But the good news is the technicals are once again screaming SELL and should bring another fantastic opportunity to ride this parabolic market down again. The daily, weekly and monthly charts are all highly extended and when you get readings like this across the major time frames, it's usually as reliable of a signal as you can get. And so, this time round, look to sell this rocket towards 2500 in anticipation of a very quick drop back to 1000. We would only reconsider the bearish play on a weekly close above 2300.
BIG PICTURE - Just to remind on the fundamentals side, our biggest concern is the ability for Bitcoin to hold up if the global financial markets go through a period of downturn. We all see how elevated the global equities market is right now and if that market comes under a period of intense pressure, investors will be running for safety. While there are arguments to be made for Bitcoin as a safe haven alternative, we don't believe the market is ready to start diversifying into Bitcoin in a risk off environment just yet. We still view Bitcoin as more of a risk on play, despite its potential to ultimately become a risk off play further down the road. The technology is too young and the market simply won't be ready to start running into Bitcoin if things get dicey out there. Let's see how this one plays out.