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I Really Didn’t Want to Write About Bitcoin Again

By:

Chief Strategist at Interactive Brokers

This will be the third piece about bitcoin that I write this week.  After a weekend crash and subsequent declines, I can’t ignore it.  On Monday, I wrote: “For the first time in months, we have seen a longer-term trend line being broken.  That may prove to be significant, and bring the $50,000 level or 100 day moving average of about $49,000 into play.”  As I write this piece, that is where bitcoin is trading.  I just didn’t expect it to happen so quickly.

I really thought this week would be all about earnings, but quite frankly they have been far less exciting.  So far we have seen consistent beats followed by mixed results.  The table below shows the results for yesterday afternoon and this morning’s releases.  The surprises were mostly positive – some startlingly so:

Earnings Releases, Focused on April 22 After Close and April 23

Earnings Releases, Focused on April 22 After Close and April 23

Source: Bloomberg

The biggest winners, Snap Inc (SNAP) and Boston Beer (SAM) are both up about 1.5-2% after beating results substantially.  Intel (INTC) and American Express (AXP) had large percentage beats, but are down 6% and 2% respectively on poor guidance.  Equity investors are expecting not only a solid beat of analyst estimates (though one must wonder why they are systemically so low) but solid guidance behind them.  The results have been great, the guidance and reactions less so.  But what we saw this week is largely an opening act.  We have yet to hear from the top 8 companies in the NASDAQ 100 Index (NDX), which represent about 50% of the index’s weight.  Six of them top the S&P 500 Index (SPX), where we are still waiting for most of the companies that make up the top 25% of index weight.  The main event begins next week.

Instead, we woke up to see another decline in bitcoin and a host of other cryptocurrencies.  The following table gives a snapshot:

Cryptocurrency Snapshot

Cryptocurrency Snapshot

Source: Bloomberg

Today was another day for distribution in cryptos.  Not included on the chart above is Dogecoin, which I consider ridiculous and is down about 40% this week.  (Sorry folks, if it’s designed as a joke, I’m going to treat it that way).  It really does appear that at least in the short-term, the Coinbase (COIN) listing was the peak of the market.  As I said at the time, it was a milestone for the acceptance of bitcoin and other cryptocurrencies, but it should not have been considered a catalyst to the price of those currencies. 

So what comes next?  For that, we’ll return to the trusty moving averages that have provided us guidance over the past few days.  We can see from the chart below that shortly after switching from using the 10 and 30 day moving averages as support to the 50 day average that worked over the past six months, today we began trading around the 100 day moving average.  We haven’t sniffed that 100 day moving average in months:

Bitcoin with 10, 30, 50, 100 and 200 day Moving Averages

Source: Bloomberg

We now need to see if we can bounce off the 100 day average, or whether that will prove to be resistance rather than support over the next few sessions.  Remember, those include the weekends.  Think about how we traded this week.  Last weekend’s decline pierced the 50 day average, but after several tests of that previous support level, bitcoin failed to rise above it.  If that moving average fails to provide support, it could get uglier.

This is the problem with any financial product that experienced a parabolic move.  In those cases, the rise is so steep that it leaves longer term trend lines in the dust.  It can be wonderful if the product persists with its rally, but almost all rallies come to an eventual end.  What we see here is that what might normally be considered some healthy consolidation has become a significant decline of over 20%.  And 20% off of a $64,000 top is nearly $13,000.  At today’s lows we were down over $17,000 from last week’s top.  That’s staggering, and that’s why I keep feeling drawn to write about bitcoin.  Let’s see if I need to do it again on Monday.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Bitcoin Futures

Trading in Bitcoin futures is especially risky and is only for clients with a high risk tolerance and the financial ability to sustain losses. More information about the risk of trading bitcoin products can be found on the IBKR website.If you’re new to bitcoin, or futures in general please visit CME Bitcoin Futures.

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