Bitcoin Is Becoming Rational, So It’s Time for a Level-Headed Approach


After writing about Bitcoin (CCC:BTC-USD) 8,000 times already — or at least that’s what it seems like in my mind — I want to try something a little bit different and provide forward-looking value for all investors. To clarify, I’m not here to provide price targets, but rather personal insights gained through years of experience.

image of bitcoin to represent cryptocurrency stocks

Source: Shutterstock

Now, what makes me qualified to discuss Bitcoin with authority? As I’ve admitted in prior InvestorPlace articles, and as my colleague Will Ashworth reiterated — and I’m so glad he did — I was crazy lucky to have benefitted handsomely from cryptocurrency trading. The hallmark blessing was that I paid out my home mortgage in full.

When your living expense is zero dollars (of course, not including taxes, maintenance and utilities), it’s a phenomenal feeling.

But while I lucked out in with Bitcoin and other cryptos in the first place, I can take some credit for understanding when to buy, and just as importantly — if not more so — when to fold.

Why I Sold Bitcoin When I Did

Following the intense days of December 2020 when Bitcoin flirted with, then breached the $20,000 level — the milestone of the 2017 rally prior to its collapse — I had my eyes glued on the price chart. I regretted not selling a few years earlier, and I wasn’t about to miss my chance this time around.

In early January of this year, when prices appeared to hit a peak around the $40,000 level, I pulled the trigger and sold some of my BTC. In the second half of the month, when it appeared to find a technical bottom around the $32,000 level, I made an uncharacteristic move and bought back in, figuring that mainstream interest would spike up prices.

I got very lucky again, because that’s exactly what happened. In early February, I repeated the exercise, selling at what appeared to be the top. In hindsight, it was the wrong move since Bitcoin would eventually go on to break above $60,000. Nevertheless, I don’t have a mortgage, so I can’t say that I’m too regretful.

Then, as BTC reached its astounding, record-breaking highs, I noticed a warning sign. Between late February and the April 12 peak, Bitcoin appeared to chart what John J. Murphy, author of the book, Technical Analysis of the Financial Markets, calls a rising wedge pattern. While most wedges are continuation patterns, Murphy also mentioned that in rare cases, they signal trend reversals.

Following a subsequent sharp drop and then a dead-cat bounce on May 7, I had seen enough. During the printing of the wedge, accumulation volume had been declining, which is also a bearish signal.

Naturally, I don’t regret my move.

Bitcoin Moving Forward

Now, it’s time to talk about what I currently see in the Bitcoin market. Though this isn’t meant to be a comprehensive analysis, I hope you can see where I’m coming from and perhaps adjust your own assumptions about the Bitcoin market.

Following the steep selloff that accelerated in the second half of May, Bitcoin found a technical support line around the $35,000 level. However, sentiment at the time weakened considerably for BTC and most other cryptos, invariably driving prices lower.

It’s my personal belief that on July 20, when BTC dropped below the psychologically significant $30,000 level, a normal market environment would have pummeled the digital asset down to the $15,000 mark. Instead, retail investors came to the rescue, perhaps guided by coordinated action on social media.

Though the price action itself between July 26 and Sept. 6 was impressive, the jagged nature of the upswing recalled the aesthetics of the aforementioned rising wedge pattern. Moreover, we had the same volume contradiction: as prices increased, accumulation volume decreased. Normally, you want volume to confirm price action, not contradict it.

Therefore, I’m nervous about the immediate future of Bitcoin. It seems that rationality is entering the crypto market, where patterns like rising wedges accurately forecast future trajectory. If that’s the case, it’s probably time to be cautious on cryptos, not bullish.

It’s Time to Be Level-Headed in a Market of Extremes

I’d be lying to you if I said I wasn’t speculating on some crypto trades during the late-July to early-September rally. At the time, I felt we were entering a phase when the market simply traded on human irrationality.

Nevertheless, if cryptos were to implode altogether tomorrow — to be clear, I don’t think that will be the case — I’d leave the sector with a smile on my face.

Sure, you could say that I could have had the house and the Ferrari (NYSE:RACE). But I’m also cognizant of the fact that people lose their car, their house and a lot more from speculation gone unchecked. So my last piece of wisdom is: don’t get carried away. Bitcoin is a casino, not a blue-chip mutual fund.

On the date of publication, Josh Enomoto held a LONG position in BTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.



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