Bitcoin Today: Bulltrap Or Buying Opportunity?

Now that the Chinese government has ceased its criticism, now that Musk has stopped incessantly tweeting about Tesla and Bitcoin, now that the ESG (Environmental, Social, and Corporate Governance) movement has halted their attack on crypto, now that all has fallen silent, it looks at first glance that we may have found support and a (temporary) bottom has been set.

Bitcoin has steadily climbed since the low of $30k and is seeking confirmation above the 200 day moving average again to close a daily candle (or two) above $40.5 before it can move upwards again. With calm having regained the upper hand, it is probably a good time to wonder whether this is a classic bulltrap or a buying opportunity.

Dead cat bounce

Upon my short break, I listened to and read a lot as I always do. I tend to agree with bearish investor Mr Whale that it is better to continuously educate yourself and not only look in one direction.

One of the funnier podcasts I heard was featured on BBC World’s playlist and talked about the movement of Dogecoin. The memecoin’s fans have apparently started referring to Bitcoin as Boomercoin as they fell investing in the world’s biggest crypto is only for the older generation. Given that Satoshi Nakamoto only started the movement in 2008, that sounds like an exaggeration, but I get their point.

As Bitcoin reacts more and more like a stock during certain times, it is probably best to refer to the good old Wall street cheat sheet. Looking at the 2020-2021 bull run so far and the violent crash we witnessed in the past month, we could assume that we have passed the peak and are slowly building up again. However, beware that the setup might simply be a dead cat bounce (one last time through the barricades before a new floor is to be found) or a bull trap (where the last of the positive investors are lured into a trap before the bears take over again).

Geopolitical

On the other hand, the fact that a well-known and weather investor like Ray Dalio now admitted to have bought the dip is an incredible sign of trust in Bitcoin. Dalio bases his investment decision on his principles and thus looks for the long term. Even he, who had forecasted the demise of the dollar and thus understand the political implications that may await the crypto market as it expands, prefers Bitcoin to the bond market at the moment, as he admitted to Fortune.

Even the possible cancellation of the Tokyo summer Olympics could now have serious implications for Bitcoin as the cold war between the US and China gets underway. What started as a trade war under Trump could grow into an all-out tit-for-tat on every level under Biden who wishes to keep the US in the leader spot during his tenure. With China eager to launch their E-Yuan during next year’s Beijing winter Olympics and the US eager to keep the status of the dollar as the world’s reserve currency, crypto becomes a geopolitical discussion topic.

In all, I believe we should go with the Lawrence Summers quote that I found in the rather excellent book Doom, the politics of catastrophe by Niall Ferguson (read during my break). The former US treasury secretary, referred by Ferguson as the nearest thing to Keynes that the other Cambridge has ever produced, stated:

You cannot replace something with nothing. What other currency was preferable to the dollar as a reserve and trade currency when Europe’s a museum, Japan’s a nursing home, China’s a jail, and Bitcoin’s an experiment?

If Bitcoin, or Boomercoin as the Doge fans want to call it, is indeed an experiment, then the decision on bulltrap or investment opportunity is too soon to tell and we will indeed have to wait for technical confirmation. A close above $40k a few days in a row for Bitcoin looks like the indicator we need.

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