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Crypto charts look terrifying

June 12, 2022

One kind of chart pattern is known as a fan where the lines are drawn in make a fan pattern. You can see how this is happening with bitcoin where two uptrend lines have been decisively broken in recent months. What this leaves us with is bitcoin trading below a substantial top area. The price is hanging on by a thread and is in serious danger of a dramatic collapse. Miracles can happen. Bitcoin could rally from here and start a new upward leg. It has done this before but I don’t think it is going to happen this time.

All my indicators are pointing lower. There is even a theory that Coppock gives a sell signal when it crosses the zero line and becomes negative which is just about to happen to bitcoin. Rising interest rates are toxic for bitcoin and I think there is a risk of a huge collapse. A price over $28,000 looks massive when you think these coins (what coins); these whatever-the-hell-they-ares, were trading at $100 just a decade ago.

This could be a case of the emperor’s clothes. Yes, bitcoin is the ultimate speculative investment but equally it is hard not to think that is all it is. This means the only way to analyse it is by using charts and the charts are saying run for the hills.

The message is exactly the same for ether. The chart is a classic, textbook head and shoulders top with a broken neckline. This is like the cartoon rabbit that has run off the edge of the cliff and somehow is suspended in the air with legs furiously pumping but not for long. The rabbit plummets and so I fear will the price of these cryptos.

On each chart there is a last line of support holding the price but this is like the rabbit hanging over the edge of the cliff clinging to a piece of fraying string. My best guess is that the crypto bubble is about to implode and a massive process of value destruction is about to take place.

Strategy

I guess my crypto collapse theory begs the question – do charts work? No reason why they should I suppose but in 60 years of investing I have consistently found technical analysis more useful than fundamental analysis in telling me what a share price or other prices is going to do. Maybe what the charts above are telling us is that the bulls, the bitcoin whales who supposedly control the price action, are losing control of prices unable to fight a global wave of higher inflation and rising interest rates.

Shares are different because there is value there. They may be able to move in huge price swings as we have seen with Chinese shares and it is obvious with 20:20 hindsight that Nio rose too far in February 2021 but Nio is a fast-growing manufacturer of electric vehicles, which is just beginning to spread its wings globally. It is easy to see that they have an exciting future, albeit at a price. You can’t say anything like that for cryptos.

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